It was a week where oil prices experienced the biggest 1-day rise since March 2009 and natural gas futures gained on favorable weather forecast. On the news front, Schlumberger Ltd. SLB has agreed to acquire Cameron International Corp. CAM for $14.8 billion, while Transocean Ltd. RIG plans to eliminate its dividend.   

Overall, it was a bullish week for the sector. West Texas Intermediate (WTI) crude futures snapped a ten-week losing streak and jumped around 12% to close at $45.22 per barrel, while natural gas prices rose 1.5% to $2.72 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Crude Dips Below $40, Cobalt Sells Angola Blocks.)

Rebounding from 6½-year lows, oil prices finally halted their weekly losses and surged ahead. The trigger for the rally was a report that Venezuela may be pushing the OPEC cartel to hold an emergency meeting to discuss the possibility of production cuts and halt the oil price rout. The latest weekly U.S. government report showing a surprise decline in crude supplies and the recent turn of events in Yemen – raising concerns over stability in the Middle East – also provided support.

Natural gas also fared well as the effects of a bearish inventory build was more than offset by predictions of strong late summer cooling demand with forecasts of warm weather across majority of the country over the next few days.

Recap of the Week’s Most Important Stories

1.    World’s largest oil-field service company Schlumberger Ltd. announced that it has entered into an agreement to acquire Cameron International Corp. Per the deal, Schlumberger would acquire its smaller rival in a stock and cash transaction carrying total value of $14.8 billion. Upon the closure of the transaction, Cameron shareholders will own about 10% of Schlumberger's outstanding shares of common stock. The deal is expected to close in the first quarter of 2016. The agreement was unanimously approved by the boards of directors of both companies.

Schlumberger management expects the deal to be earnings accretive in the first year itself. The company expects to realize pretax synergies of $300 million in the first year and $600 million in the second. Initially, the synergies are primarily related to reducing operating costs, streamlining supply chains, and improving manufacturing processes. Subsequent to that, management is hopeful of growing components of revenue synergies. (See More: Schlumberger to Acquire Smaller Rival Cameron for $14.8B.)

2.    Offshore drilling powerhouse Transocean Ltd. is the latest energy firm to announce dividend suspension. The company has proposed to cancel the third and fourth installation of dividends. Earlier this year, the company announced an 80% cut in dividend to tackle the pricing woes. However, that does not seem to have panned out well, thereby requiring harsher measures.

Moreover, Transocean stated that it plans to cancel all the shares that have been purchased under its share buyback program approved in 2009. Further, the company anticipates non-cash impairments of over 2 billion Swiss francs due to the deteriorating condition of the offshore drilling market. These proposals would be put to shareholders’ vote in an Extraordinary General Meeting of Shareholders to be held on Oct 29. (See More: Transocean Dividend Suspension: Smart Plan or Risky Bet?.)

3.    Encana Oil & Gas (USA) Inc., a wholly owned subsidiary of the upstream energy firm Encana Corp. ECA, has entered into an agreement to sell its Haynesville natural gas assets for a total cash consideration of $850 million. These assets, located in northern Louisiana, would be sold to GEP Haynesville, LLC (GeoSouthern) – a joint venture between GeoSouthern Haynesville, LP and GSO Capital Partners L.P. 

The deal – expected to close in the fourth quarter of this year – would result in reduced commitments worth $450 million for Encana by transferring its current and future obligations. Additionally, the company would transport and market the joint venture’s Haynesville production for the next five years on a fee-for-service basis. This gas marketing arrangement, therefore, brings additional revenue potential for Encana. (See More: Encana to Sell Haynesville Natural Gas Assets for $850M.)

4.    France-based Integrated oil and gas company TOTAL S.A. TOT announced that it will sell its interest in the FUKA and SIRGE gas pipelines and the St. Fergus Gas Terminal to North Sea Midstream Partners for $905 million (£585 million), subject to customary approvals.  TOTAL has a 100% operating interest in FUKA and the St. Fergus Gas Terminal and has a 67% operating interest in the SIRGE pipeline.

TOTAL continues to make strategic acquisitions in high potential areas and divest assets that do not go well with its long-term objectives. During the first half of 2015, TOTAL acquired assets worth $2.77 billion. The investments included a carry agreement in the Utica basin in the U.S. and renewal of licenses in Nigeria. TOTAL disposed of assets worth $3.47 billion in the first half. (See More: TOTAL's U.K. Midstream Asset Sale to Fetch $905M.)

5.    Chinese energy giant PetroChina Co. Ltd. PTR announced first-half 2015 earnings of RMB 25.4 billion or RMB 0.14 per diluted share, compared with RMB 68.1 billion or RMB 0.37 per diluted share a year earlier. Earnings per ADR came in at $2.30. Moreover, China’s dominant oil and gas producer’s total revenue for the six months fell 23.9% from the 2014 period to RMB 877.6 billion. The negative comparisons can be primarily attributable to the collapse in oil prices, which drastically reduced profit at its biggest unit – exploration and production.

On a positive note, PetroChina’s crude oil output – accounting for 65% of the total – rose 2.6% from the year-ago period to 477.5 million barrels (MMBbl), while marketable natural gas output was up 3.6% to 1,549.6 billion cubic feet (Bcf). As a result, PetroChina’s total production of oil and natural gas increased 2.9% year over year to 735.9 million barrels of oil equivalent. (See More: PetroChina's Firs-Half Profit Slumps on Crude Price Fall.) 

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.

Energy investors witnessed a bout of heavy buying in major companies amid a sharp rally in oil prices. Of the lot, the biggest gainer was offshore driller Transocean Ltd. that added 17.3% to its stock price.

But over the last 6 months, things have been pretty dismal with mounting evidence of oil’s supply demand mismatch. Houston-based independent exploration and production company ConocoPhillips COP has been the laggard in this case, as it witnessed a 23.7% 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 manufacturing, services, auto sales, construction spending, factory orders and unemployment.

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