It was a week where oil prices soared above $61-a-barrel and natural gas climbed to a 3-week high. On the news front, Royal Dutch Shell plc RDS.A has decided to pull out of its shale gas operations in Ukraine, while Hess Corp. HES has agreed to sell half of its Bakken midstream assets.
Overall, it was a bullish week for the sector. While resurgent West Texas Intermediate (WTI) crude futures climbed 1.4% to close at $59.96 per barrel, natural gas prices jumped 6.2% to $2.75 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Chevron's Big Foot in Trouble, ConocoPhillips Exits Poland.)
Oil prices gained for the eleventh time in past 13 weeks, encouraged by the U.S. Energy Department's latest inventory release that showed a bigger-than-expected decline in crude stockpiles, the sixth drop in as many weeks. This is seen as a precursor to a slowdown in oil production, leading to a subsequent drop in the commodity’s bloated supply level.
Things were further helped by the Baker Hughes report that showed another drop in oil-directed rigs – the 27th in succession – indicating a break in shale drilling activities.
Natural gas fared even better amid predictions of robust cooling demand with forecasts of warmer weather across the country over the next few days.
Recap of the Week’s Most Important Stories
1. Integrated oil major Royal Dutch Shell plc is willing to leave Ukraine by stepping out from its exploration activities at its last well in the country. As it is, the company’s project is on hold for almost a year because of a prolonged conflict between Ukrainian forces and pro-Russians.
Shell is in a production sharing agreement with a local partner in Ukraine. But Europe’s largest oil company is planning to leave the country as a force majeure is raising difficulties over the last one year. (See More: Shell to Leave Last Exploration Well in Ukraine)
2. Energy producer Hess Corp. has agreed to farm out a stake of 50% in its Bakken midstream assets to private equity firm Global Infrastructure Partners. The transaction is valued at $2.675 billion. The companies will join hands to form a premier midstream joint venture, which will be named Hess Infrastructure Partners. The transaction is scheduled to complete at the beginning of the third quarter of 2015.
The Hess midstream assets to be included in the newly formed joint venture are the natural gas processing plant in Tioga, ND; rail loading terminal in Tioga and associated rail cars; crude oil truck and pipeline terminal in Williams County, ND; propane storage cavern and rail and truck transloading facility in Mentor, MN; and crude oil and natural gas gathering systems in North Dakota. (See More: Hess, Global Infrastructure Partners to Form Joint Venture)
3. Houston, Texas-based Cheniere Energy Inc. LNG announced two new liquefied natural gas (“LNG”) project developments, the completion of which will add about 19 million tons per annum (mtpa) to its production capacity. This would bring the company’s aggregate nominal LNG production to about 60 mtpa by 2025.
Cheniere Energy is planning to develop two liquefaction trains next to its Corpus Christi liquefaction project site that would add about 9 mtpa of incremental LNG production capacity. The company will also invest in two mid-scale LNG projects – Oak LNG and Louisiana LNG – in Louisiana with Parallax Enterprises. These projects will have a capacity of 10 mtpa. (See More: Cheniere Energy to Boost LNG Capacity with 2 New Projects)
4. Energy engineering and construction services provider The Babcock & Wilcox Co. BWC announced that it has received approval from its board of directors for the spin-off of its Power Generation business. The spin-off was first announced last November.
The new entity, thus created, will be named Babcock & Wilcox Enterprises, Inc. and be headquartered in Charlotte, NC. The Power Generation business will operate as Babcock & Wilcox post spin-off and will trade on the NYSE under the ticker BW.
The remaining part of the company will be named as BWX Technologies, Inc. and trade on the NYSE under the ticker BWXT. This company will be headquartered in Lynchburg, VA and start trading simultaneously with the spin-off on Jul 1. (See More: Babcock & Wilcox to Spin-off Power Generation Business)
5. Leading oilfield services firm Weatherford International plc WFT has been selected to be added to the Russell 3000 Index as part of the annual reconstitution of the Russell indexes. The reconstitution would take place on Jun 26, 2015.
Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for both passive and active investment strategies. The Russell 3000 also serves as the U.S. component to the Russell Global Index, which Russell launched in 2007. We view the news as positive given the greater visibility that the company would gain as a result of its inclusion to the index.
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 | -1.44% | -3.11% |
CVX | -2.16% | -2.37% |
COP | -0.39% | +0.08% |
OXY | -0.42% | +4.09% |
SLB | -0.11% | +11.52% |
RIG | +9.54% | +4.95% |
VLO | +1.48% | +24.32% |
TSO | -0.45% | +12.03% |
Over the course of last week, the best performer was offshore driller Transocean Ltd. RIG that added 9.5% to its stock price, while the biggest loser was U.S. supermajor Chevron Corp. CVX, which fell 2.2% during the period.
Over the last 6 months, refiner Valero Energy Corp. VLO has been the chief beneficiary on the bourses with its shares advancing 24.3%. On the other hand, oil behemoth Exxon Mobil Corp. was the laggard, as it witnessed a 3.1% 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 industrial production, housing starts, CPI and leading indicators.
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Click to get this free report CHEVRON CORP (CVX): Free Stock Analysis Report HESS CORP (HES): Free Stock Analysis Report VALERO ENERGY (VLO): Free Stock Analysis Report WEATHERFORD INT (WFT): Free Stock Analysis Report ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report BABCOCK&WILCOX (BWC): Free Stock Analysis Report TRANSOCEAN LTD (RIG): Free Stock Analysis Report CHENIERE ENERGY (LNG): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research