It was a week where oil prices posted their lowest close in more than 3 months but natural gas futures jumped on predictions of widespread heat. On the news front, Schlumberger Ltd. SLB and Halliburton Co. HAL kicked off the earnings season with healthy beats.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures dived 3.5% to close at $50.89 per barrel, natural gas prices gained 3.6% to $2.87 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: More M&A in the Oil Patch as MPLX Buys MarkWest for $15.8B)

Oil prices fell for the sixth time in 7 weeks despite a large drop in weekly U.S. crude supplies and the Baker Hughes report that showed another drop in oil-directed rigs. The commodity was dogged by concerns over the impact of Iran’s nuclear deal, given the expectations of increased exports from the country amid the poor demand picture. Moreover, a stronger dollar has made the greenback-priced crude more valuable for investors holding foreign currency.

Meanwhile, natural gas fared much better amid predictions of robust summer cooling demand with forecasts of warmer-than-average weather across majority of the country over the next few days.

Recap of the Week’s Most Important Stories

1.    The past few days saw quarterly reporting from the oilfield services biggies like Schlumberger Ltd. and Halliburton Co. Both companies came up with better-than-expected second quarter numbers, even as oil prices remained low during the entire period. This can be primarily attributed to aggressive cost cutting initiatives, which more than offset the slowdown in drilling activity and price erosion.

However, in a note of caution to the investors, both Schlumberger and Halliburton expect oil prices to remain weak throughout 2015. This, together with the associated cutbacks in land activity, is going to hamper their 2015 results.

2.    Independent oil and gas operator WPX Energy Inc. WPX announced that it has entered into a firm agreement to acquire privately held RKI Exploration & Production, LLC for $2.35 billion plus the assumption of $400 million of debt. This will mark WPX Energy’s entry into the oil rich Permian Basin. The acquisition is expected to close by the end of the third quarter of 2015, subject to customary closing conditions.

The purchase of RKI Exploration & Production will give WPX Energy the control of nearly 22,000 barrels of oil equivalent per day of existing production (more than 50% oil), around 92,000 net acres in Permian’s Delaware Basin, in excess of 3,600 gross risked drilling locations across stacked pay intervals and approximately 375 miles of scalable gas gathering and water infrastructure. The asset addition would increase WPX Energy’s total proved liquids reserves by 33% to 268 million barrels. (See More: WPX Energy to Add Oil Assets with RKI Buyout in Permian)

3.    Kinder Morgan Inc. KMI – the largest midstream company in the U.S. –reached an agreement with European energy major Royal Dutch Shell plc (RDS.A) to acquire the 49% equity interest held by the latter in Elba Liquefaction Company, LLC ("ELC"). Notably, ELC is the owner of the Elba Liquefaction Project, which is currently in talks for being constructed and operated at the existing Elba Island LNG Terminal near Savannah, GA.

Subject to regulatory approvals, construction is anticipated to commence in the fourth quarter of 2015. Initial production is expected by late 2017. Post completion, the Elba Liquefaction Project is estimated to have a total capacity of about 2.5 million tons per year for LNG export.

With Kinder Morgan’s purchase of Royal Dutch Shell’s share, the incremental investment by the company will be about $630 million. This will take the total additional investment in all the liquefaction and terminal facilities at Elba Island to about $2.1 billion. (See More: Kinder Morgan to Buy 49% of Elba LNG Liquefaction Project)

4.    Natural gas transportation and storage firm Energy Transfer Partners L.P. ETP announced the sale of Susser Holdings Corp. to its master limited partnership Sunoco L.P. The drop-down deal is valued at around $1.94 billion and is expected to close on Aug 1.

The deal is expected to be immediately accretive to Energy Transfer Partners’ distributable cash flow from this year onward. The nearly $1 billion upfront cash would support the partnership’s capital program, without it burdening itself with equity or debt issuances. For Sunoco, the deal is expected to be breakeven with respect to this year’s distributable cash flow but be substantially accretive next year onward. (See More: Energy Transfer Partners to Sell its Unit to Sunoco for $1.94B)

5.    Oil and natural gas driller Ensco plc’s ESV shares tanked more than 6% after it received a notice of termination for ENSCO DS-9 drillship contract from energy explorer ConocoPhillips.

The drillship contract, which was for three years, has been revoked by ConocoPhillips. Per the terms of the contract, ConocoPhillips is bound to compensate Ensco with a monthly termination fee for the coming two years. The termination fee is equivalent to the operating dayrate of about $550,000. The fee may be partly financed provided Ensco re-contracts the rig within the next two years or eases certain costs during the period the rig is idle and without a contract. (See More: Ensco's Drillship ENSCO DS-9 Receives Termination Notice)  

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.

Over the course of last week, the best performer was U.S. refiner Tesoro Corp. TSO that added 0.2% to its stock price, while the biggest loser was offshore driller Transocean Ltd., which fell 9.2% during the period.

Over the last 6 months, another downstream operator – Valero Energy Corp. – was the chief beneficiary on the bourses with its shares advancing 38.2%. On the other hand, Transocean was the laggard again, as it witnessed a 17.1% price decline over the same time frame.

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 home sales and leading indicators. In corporate news, the 2015 Q2 earnings remain the primary focus this week, with some S&P 500 members coming out with quarterly results.

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