It was a week where oil futures dropped to their worst settlement levels since Feb 2004. On the other hand, natural gas hit its highest in almost 3 months.
On the news front, Suncor Energy Inc. SU extended the deadline for its hostile bid to acquire Canadian Oil Sands Ltd.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures slumped 10.5% to close at $33.16 per barrel, natural gas prices soared 6% to $2.472 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: ConocoPhillips, NuStar First to Export U.S. Oil in 40 Years.)
Crude prices dived after weak Chinese economic data stoked fears about slowdown in energy demand from the world’s second largest oil consumer. The commodity received a further jolt when the U.S. Energy Department's latest inventory release showed that refined product inventories – gasoline and distillate – both increased significantly from their previous week levels, defying analyst predictions.
Natural gas, however, fared much better after an inventory report showed a bigger-than-expected withdrawal. The heating fuel was also buoyed by predictions of strong demand due to cool winter weather forecasts over the next few days.
Recap of the Week’s Most Important Stories
1. Suncor Energy extended its buyout offer for Canadian Oil Sands Ltd. by nearly three weeks, to Jan. 27, suggesting that Canada’s largest energy firm fell short of the two thirds majority required to seal the deal. Shareholders of Canadian Oil Sands originally had time till Jan 8 to decide on whether to accept Suncor Energy’s C$4.3 billion offer.
Suncor Energy still believes its offer is quite acceptable especially when oil price has been weak for more than a year now with almost no chance of any near-term recovery.
However, Canadian Oil Sands considers Suncor Energy’s bid significantly undervalued and is mulling over remaining as an independent player. In fact, billionaire Seymour Schulich – having a 5.2% stake in Canadian Oil Sands – has considered the bid totally unacceptable.
2. U.S. energy giant Chevron Corp. CVX along with PetroChina Co. Ltd. PTR − the largest integrated oil company in China − started producing natural gas in the southwestern area of China at the end of last year, after a long delay.
Gas well-A in the Luojiazhai field of Southwest China commenced production of natural gas commercially on Dec 30. This is eight years after the companies entered into a 30-year production sharing deal in 2008.
Among the three phases of the Chuandongbei development, which will likely cover 309 square miles, the Luojiazhai project is the first. As per sources, the first phase is projected to produce 3 billion cubic meters of gas annually. Chevron and PetroChina will operate in the same area for the second and the third phases.
Chevron with a 49% interest in the sour gas project is the operator. PetroChina is the owner of the remaining stake. Investors should note that Chevron is a well known operator of sour gas, which is basically natural gas having high hydrogen sulphide content.
3. Italy’s Eni SpA E commenced oil production from the Mpungi field in the West Hub Development Project.
Located within Block 15/06 of the Angolan Deep Offshore, about 350 kilometers northwest of Luanda and 130 kilometers west of Soyo, the Mpungi field represents the third milestone in the West Hub Development Project.
The West Hub Development Project’s first oil came from the Sangos field in Nov 2014. Thereafter, the Cinguvu field yielded oil in early Apr 2015. With the commissioning of the Mpungi field, production is expected to reach about 100,000 barrels of oil per day in the first quarter of 2016.
4. Houston-based energy major ConocoPhillips COP, along with it partners, announced the shipment of the first cargo of liquefied natural gas (LNG) from the massive Australia Pacific LNG (“APLNG”) facility. The APLNG facility – in which ConocoPhillips has a 37.5% stake – is located on Curtis Island in Queensland, Australia.
Construction of the APLNG facility started in 2011. The facility comprises of two production units, each having a capacity of about 4.5 million tons per annum of LNG. The facility was constructed with the aim of capturing the margin between cheap U.S. natural gas and more expensive intentional gas, which often fluctuates with oil price volatility.
5. Royal Dutch Shell plc’s RDS.A proposed liquefied-natural gas (LNG) plant won a 40-year export license from Canada's National Energy Board. It is to be noted that the development is one of the 24 terminals that are proposed for the west coast of Canada. The facilities, yet to be built, will likely dispatch LNG to the markets of Asia.
Per the permit, the project will likely export 1.34 trillion cubic feet of natural gas every year. Investors should note that the facility is anticipated to commence exporting by 2022. Most importantly, it will likely take five long years for Shell to finish the construction of the plant. However, the company is yet to take any decision on the project amid fears related to massive costs as high as $28.39 billion.
In the consortium, Shell has a 50% ownership. PetroChina Co. Ltd., Mitsubishi Corp. and Korea Gas Corp. are the remaining stakeholders. (See More: Shell-Proposed Canadian LNG Plant Can Export for 40 Years.)
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 | -4.27% | -10.59% |
CVX | -8.25% | -14.62% |
COP | -11.35% | -30.22% |
OXY | -8.95% | -16.65% |
SLB | -4.85% | -23.09% |
RIG | -13.24% | -30.60% |
VLO | -1.55% | +3.29% |
TSO | -5.59% | +1.11% |
Over the course of last week, ‘The Energy Select Sector SPDR’ suffered a loss of 9.04% as crude hit its lowest settlement in more than a decade and investors witnessed a bout of heavy selling in major companies. The worst performer was offshore drilling giant Transocean Ltd. RIG whose stock shed 13.2%.
Longer-term, over the last 6 months, ‘The Energy Select Sector SPDR’ lost 25.36% of its value. Transocean was again the main laggard, as it witnessed a 30.6% price decline.
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 top-tier economic readings, including those on inflation, retail sales and industrial production.
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Click to get this free report SUNCOR ENERGY (SU): Free Stock Analysis Report CHEVRON CORP (CVX): Free Stock Analysis Report PETROCHINA ADR (PTR): Free Stock Analysis Report ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report ENI SPA-ADR (E): Free Stock Analysis Report TRANSOCEAN LTD (RIG): Free Stock Analysis Report CONOCOPHILLIPS (COP): Free Stock Analysis Report To read this article on Zacks.com click here.