Oil & Gas Stock Roundup: Halliburton, BP Resolve Macondo Claims, Exxon Strikes Near Guyana - Analyst Blog

Overall, it was a mixed week for the sector. While resurgent West Texas Intermediate (WTI) crude futures inched up another 3 cents to close at $59.72 per barrel, natural gas prices slumped over 4% to $2.89 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Williams Absorbs Unit for $13.8B, BP Trims Oil Project Stake.)

Oil prices gained for the ninth time in past 10 weeks, encouraged by the U.S. Energy Department's latest inventory release that showed a bigger-than-expected decline in crude stockpiles, the third 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 24th in succession – indicating a break in shale drilling activities. However, a stronger dollar has made the greenback-priced crude dearer for investors holding foreign currency, thereby offsetting most of the gains.

Natural gas, on the other hand, fared badly amid predictions of weak cooling demand with forecasts of mild temperature across the country. A lower-than-expected supply increase mitigated some of the damage.

Recap of the Week’s Most Important Stories

1.    Oilfield service behemoth Halliburton Co. declared that it has joined British major BP plc to settle all the remaining 2010 Deepwater Horizon oil spill related issues between them.

Halliburton has not disclosed any terms of the deal in the announcement. But as per the news, the issues under consideration are indemnities and the closure of all the pending claims between Halliburton and BP. Hence, with the agreement, the oilfield services firm has strengthened its relationship with BP − which is its valuable customer. (See More: Halliburton, BP to Settle GoM Oil Spill Claims Mutually)

2.    Esso Exploration and Production Guyana Ltd. – an affiliate of U.S. energy giant Exxon Mobil Corp. – announced a significant oil discovery on the Stabroek Block, approximately 120 miles offshore Guyana. Oil was found at more than 295 feet (90 meters) of high-quality oil-bearing sandstone reservoirs. It was safely drilled to 17,825 feet (5,433 meters) in 5,719 feet (1,743 meters) of water. Stabroek Block spans 6.6 million acres (26,800 square kilometers).

Data from the well – spud on Mar 5, 2015 – will be analyzed in the coming months to determine the full resource potential. Esso Exploration and Production Guyana Ltd. holds 45% interest in the block. (See More: Exxon Mobil Affiliate Strikes Oil Offshore Guyana)

3.    Upstream energy firm Vanguard Natural Resources, LLC VNR added yet another company to its acquisition tally after it entered into a merger agreement with smaller oil and gas company Eagle Rock Energy Partners, L.P. This deal comes about a month after Vanguard inked a deal to acquire LRR Energy, L.P. for $539 million.

The $614 million deal includes $474 million for Vanguard common units and $140 million as assumption of Eagle Rock's net debt as of Mar 31, 2015. The merger would add Eagle Rock's long-life, low-decline, mature assets to Vanguard’s portfolio, thus supporting its upstream MLP model. Also, Eagle Rock’s low leverage and strong hedging positions will aid financials at Vanguard. (See More: Vanguard Natural Resources to Buy Eagle Rock for $614M)

4.    Europe’s largest oil company Royal Dutch Shell plc RDS.A announced that it has received an offer from Dublin-based investments group DCC Energy for the sale of its Butagaz Liquefied Petroleum Gas ("LPG") business in France. The bid is valued at $529 million.

Shell stated that the transaction – in accordance with the group’s strategy of streamlining its downstream operations – is expected to complete this year, subject to approvals from Butagaz and Shell France as well as other regulatory bodies. The company would, however, continue to operate its Aviation, Commercial Fleet, Lubricants, Retail and Specialties businesses in France. (See More: Shell Offered $529M by DCC Energy for its Butagaz LPG Unit)

5.    Brazilian state-run energy giant Petrobras PBR has entered into another funding agreement with China Development Bank Corporation (“CDB”). The company will get $1.5 billion in credit from the bank. This follows the $3.5 billion loan agreement signed between the parties in April, which now brings the total to $5 billion.

In addition to the $5 billion credit from CDB, the loan from China also includes two initial agreements with the Industrial and Commercial Bank of China and the nation’s Export-Import Bank for a total of another $5 billion. These deals are a part of Chinese premier Li Keqiang’s recent official visit to Latin America. (See More: Petrobras to Get Additional Funds as Ties with China Deepen)

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

-0.89%

-9.61%

CVX

-2.17%

-10.80%

COP

-0.64%

-11.21%

OXY

+0.86%

-9.08%

SLB

+0.16%

-6.53%

RIG

-2.80%

-21.29%

VLO

+2.52%

+20.04%

TSO

-1.21%

+15.74%

Over the course of last week, the best performer was refiner Valero Energy Corp. VLO that added 2.5% to its stock price, while the biggest loser was offshore driller Transocean Ltd. which fell 2.8% during the period.

Over the last 6 months too, Valero has been the chief beneficiary on the bourses with its shares advancing 20%. Similarly, Transocean was the laggard, as it witnessed a 21% 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 jobless claims, pending home sales and GDP revision.

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