Oil & Gas Stock Roundup: Schlumberger, Halliburton Withstands Crude Slump to Q1 Beat - Analyst Blog

Overall, it was a bullish week for the sector. While resurgent West Texas Intermediate (WTI) crude futures climbed 8% to close at $55.74 per barrel, natural gas prices rose around 5% to $2.63 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Shell Snaps Up BG for $70B.)

Oil prices gained for the fifth week in a row, encouraged by the U.S. Energy Department's weekly inventory release that showed crude stockpiles recorded their smallest build this year. This is seen as a precursor to a possible slowdown in oil production leading to a subsequent drop in the commodity’s bloated supply level. An upward revision of demand forecast from the International Energy Agency added to the optimism.

Natural gas also fared well amid speculation that it’s beaten-down price will convince the utilities to switch to the commodity from the more costly coal.

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 first quarter numbers, even as oil prices plummeted throughout the quarter. This can be primarily attributed to cost cutting initiatives and proceeds from contracts signed earlier, which more than offset the slowdown in drilling activity.

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 rig counts, is going to hamper their 2015 results.

2.    British energy major BP plc BP has paid more than $5 billion to the 2010 Gulf of Mexico oil spill claimants. As a reminder, on April 20, 2010, offshore driller Transocean Ltd.’s RIG ultra-deepwater Horizon drilling platform, contracted to BP, sank following an explosion while operating in the U.S. GoM off the coast of Louisiana. The incident killed 11 workers and spewed more than 200 million gallons of crude in what is touted as the country’s worst oil spill ever.

Following the accident, BP was placed with significant liability by the United States. Originally, the company estimated $7.8 billion to be paid as compensation to those who were harmed by the oil spill. But later on, by February this year, BP revised the amount and increased it to $9.9 billion. As per Patrick Juneau, the company administrator, BP has paid a total amount of $5.037 billion from the Gulf spill compensation fund to almost 62,162 affected claimants. (See More: BP Shells Out More than $5 Billion from Gulf Spill Fund)

3.    Transocean Ltd. has provided a monthly fleet status report for the period from Mar 18, 2015. The company announced that the fifth generation semi-submersible, Sedco Energy, has been released from contract. However, per the contract, Transocean is expected to receive a certain payment in case of an early termination. The rigs – Discoverer Enterprise, Sedco Energy, Transocean Amirante, and GSF Galaxy III – have currently been marked as idle by the company.

Also, the drillship GSF Explorer, which is currently classified as held for sale, will be scrapped. The company anticipates a non-cash charge of about $100–$120 million in the second quarter for the same. The company has announced plans to scrap a total of 19 floaters, till date. (See More: Transocean Fleet Report: Less New Contracts, More Idle Rigs)

4.    According to Reuters, oil major Exxon Mobil Corp. XOM seems to be the most likely candidate for farming into Anadarko Petroleum Corp.’s stake in Mozambique’s gas reserves. Another contender for it is Qatar Petroleum. Apparently, Netherlands-based Royal Dutch Shell plc left after announcing its $70 billion purchase of London-based BG Group plc.

Per the sources, it’s not clear whether Anadarko deems the completion of the deal to be an urgent one. Uncertainty also lies with respect to the company’s decision to sell the total or just a portion of its remaining 26.5% stake. In 2013, Anadarko received a sum of $2.64 billion in cash by selling a 10% stake in the Offshore Area 1 block in Mozambique’s deepwater Rovum Basin. Area 1 spans across 2.6 million acres. (See More: Exxon Mobil Likely to Farm into Anadarko's Mozambique Assets)

5.    Integrated oil and gas company TOTAL S.A. TOT announced its intention to invest €600 million ($637.8 million) to upgrade the Donges refinery in western France and transform the La Mède refinery in southern France. Both these refineries are incurring losses due to the ongoing softness in commodity prices.

The objective of the investment is simply to return these two French refineries to profitability. TOTAL has decided to invest €200 million ($212.6 million) to transform its La Mède refinery and to create France’s first biorefinery, which will be one of the biggest in Europe, to meet the growing demand for biofuel. (See More: TOTAL to Upgrade and Transform Loss Making French Refineries)

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

+1.55%

-4.94%

CVX

+2.39%

-1.08%

COP

+2.33%

-0.32%

OXY

+1.98%

-5.63%

SLB

+4.19%

-2.25%

RIG

+8.22%

-38.54%

VLO

-0.02%

+24.10%

TSO

+0.63%

+27.80%

Over the course of last week, most of the market heavyweights witnessed stock price upside with the major gainer being offshore contract driller Transocean Ltd., which rose 8.2% during the period.

But over the last 6 months, refiner Tesoro Corp. TSO has been the chief beneficiary on the bourses with its shares advancing 28%. Investors have rewarded the company for its continued focus on shareholder returns. On the other hand, Transocean was the laggard, as it witnessed a 38.5% price decline over the same time frame on the back of rig oversupply that has led the industry into a cyclical downturn.

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, durable orders and jobless claims.

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