Oil & Gas Stock Roundup: Chevron Targets $15B of Asset Sales Amid Low Crude Price - Analyst Blog

Overall, it was a bearish week for the sector. While West Texas Intermediate (WTI) crude futures slumped 9.6% to close at $44.84 per barrel, natural gas prices fell 4% to $2.73 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Is Whiting Petroleum Up for Sale?)

Oil prices fell for the fourth successive week, again spooked by the U.S. Energy Department's latest inventory release. The federal government’s EIA report revealed that crude stockpiles recorded another massive build, the ninth in a row. At 448.89 million barrels, current crude supplies are at the highest level during this time of the year in at least 80 years.

Secondly, oil was undone by bearish comments from International Energy Agency (IEA) that saw the supply glut and tightening storage capacity in the U.S. further pressuring prices. Lastly, a stronger dollar has made the greenback-priced crude dearer for investors holding foreign currency.

Natural gas also fared badly despite another a higher-than-expected supply drawdown. Things were dragged down by expectations of tepid heating demand amid the imminent arrival of soft spring temperature.

Recap of the Week’s Most Important Stories

1.    U.S. energy giant Chevron Corp. has decided to accelerate its asset divestment program and lower cost. The decision rests on the company’s goal of maintaining regular cash flows to its shareholders amid low crude prices. Moreover, John Watson, Chair of the integrated player, reaffirmed during an analyst meeting that Chevron will trim capital spending this year.

Chevron is planning to divest $15 billion worth assets through 2017, 50% higher than the prior target of $10 billion. The company is also willing to lower its 2015 capital expenditure by 13% to $35 billion from $40 billion invested during 2014. (See More: Chevron to Expedite Asset Sale as Crude Price Stays Soft.)

2.    Natural gas player EQT Corp. EQT and its unit EQT Midstream Partners L.P. EQM have entered into an agreement according to which the latter will take over the former’s Northern West Virginia Marcellus Gathering System as well as a preferred interest in an EQT subsidiary. The transaction is valued at about $1.05 billion.

EQT will receive cash proceeds of $997.5 million and $52.5 million in common and general partner units. Additionally, the partnership will fund system expansion projects worth around $370 million over the next several years. (See More: EQT Corp, EQT Midstream Ink Gathering System Deal for $1B.)

3.    Integrated energy major Exxon Mobil Corp. XOM has restarted drilling at Point Thomson on Alaska’s North Slope as construction efforts are being continued to bring the initial production system online. Scheduled to come online in 2016, the system is expected to yield about 10,000 barrels per day of natural gas condensate.

Located on state acreage along the Beaufort Sea, 60 miles east of Prudhoe Bay and 60 miles west of the village of Kaktovik, the Point Thomson reservoir holds approximately 8 trillion cubic feet of natural gas and associated condensate, a high quality hydrocarbon similar to kerosene or diesel. (See More: Exxon Mobil Starts Drilling at Point Thomson Again.)

4.    The prolonged period of oil price slump has forced Italian oil and gas company Eni SpA E to cut down its spending, lower dividends and sell assets worth €8 billion ($8.5 billion) over the next four years, 70% of which will be put up for sale before 2016. These efforts are directed to save funds to spur future production growth.

The four-year plan for 2015–18 anticipates a fall of 17% in capital expenditure to about €48 billion ($50 billion) as against a previous plan. Eni announced a cash dividend of €0.80 a share on this year’s earnings, down 29% from 2014. The company did not turn down the option of following rivals like Royal Dutch Shell plc and paying dividends in shares beyond this year.

5.    Brazil's state-run energy giant Petrobras PBR declared that it has brought online the Early Production System at the Búzios Field in the Santos Basin on Mar 10. Petrobras added that the production will be carried out using the Floating Production Storage and Offloading (FPSO) vessel Dynamic Producer, which is tied-back to the well 2-ANP-1-RJS.

However, the company expects maximum average production of 15 thousand barrels of oil per day from the system, restricted due to limited gas utilization. Petrobras stated that this will be the first large scale, long-term production at the Transfer of Rights area. Transfer of Rights is an agreement between Petrobras and the Brazilian government allowing exploration and production from certain Santos Basin pre-salt areas and fields. (See More: Petrobras Starts Early Production System in Santos Basin.)

Price Performance

The following table shows the price movement of the major oil and gas players over the past week and during the last 6 months.

Company

Last Week

Last 6 Months

XOM

-0.63%

-13.00%

CVX

-0.96%

-17.47%

COP

+1.98%

-22.72%

OXY

-1.42%

-22.71%

SLB

-0.40%

-22.58%

RIG

-3.85%

-60.76%

VLO

+3.27%

+22.51%

TSO

+3.28%

+40.18%

Refiners Tesoro Corp. TSO and Valero Energy Corp. were the week's best performers among the market heavyweights, both adding 3.3% to their stock price. The widening spread between the U.S. and the global crude benchmarks is good news for domestic downstream players like Tesoro and Valero as it will improve their margins.

On the other hand, the biggest loser was offshore driller Transocean Ltd. which fell 3.9%. With oil prices down 50% since June and energy companies cutting costs by scaling back drilling, the likes of Transocean is having to deal with less orders.

Over the last 6 months too, Tesoro has been the chief beneficiary on the bourses with its shares advancing 40.2%. Investors have rewarded the company for its continued focus on shareholder returns. Meanwhile, Transocean was again the laggard, as it witnessed a 60.8% price decline over the same time frame on the back of rig oversupply that has led the industry into a cyclical downturn.

What’s Next in the Energy World?

Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking a series of crucial economic reports, including those on industrial production, housing permits, leading indicators and jobless claims.

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