Oil & Gas Stock Roundup: Ensco Snaps Up Atwood, Dakota Access Pipeline In Service
Zacks Investment Research | Jun 06, 2017 05:52AM ET
It was a week where oil prices dropped to the lowest close since May 10 amid the U.S. climate pact withdrawal, while a bearish build created selling pressure on natural gas futures and pushed the commodity below the psychological $3 per MMBtu mark.
On the news front, London-based offshore driller Ensco plc (NYSE:ESV) is set to buy U.S. rival Atwood Oceanics Inc. (NYSE:ATW) in an all-stock transaction worth some $839 million, while Energy Transfer Partners L.P. (NYSE:ETP) -sponsored $3.8 billion controversial Dakota Access Pipeline began commercial operations on Jun 1.
Overall, it was another dismal week for the sector. West Texas Intermediate (WTI) crude futures fell 4.3% to close at $47.66 per barrel, while natural gas prices lost 9.4% to $2.999 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Tesoro's Drilling JV, SeaDrill's Q1 Beat & More .)
Oil prices took a tumble to end Friday at a more than 3-week low. The Trump administration’s decision to opt out of the Paris climate change accord caused bulk of the profit-taking as this could encourage more oil drilling in the U.S., possibly intensifying the global supply glut. Investors also fretted over the continued rise in domestic production thanks to soaring shale output.
These narratives more than offset EIA’s bullish storage report, which showed that crude stockpiles declined for the eighth straight week, continuing to drag down the overall surplus. Moreover, gasoline inventories dropped sharply ahead of the start to the summer driving season and refiners processed a record amount of crude.
Meanwhile, natural gas fared worse and turned sharply lower following a larger-than-expected storage build. The commodity was also undone by the absence of any heat waves to spur cooling demand for the fuel.
Recap of the Week’s Most Important Stories
1. Oil and natural gas driller Ensco plc revealed its plan to acquire smaller rival Atwood Oceanics Inc. in an all-stock deal worth $839 million, whetting investors' appetite for consolidation in the struggling sector.
As per the deal, Atwood shareholders would receive 1.60 shares of Ensco common stock for each share they hold. At Atwood’s Friday’s closing stock price of $8.08, the deal values the company’s shares at 33% premium. The deal has been unanimously okayed by both companies’ boards but is subject to shareholder and regulatory approvals.
Ensco and Atwood expect to close the transaction sometime in the third quarter of 2017. The current stockholders of Ensco will own approximately 69% of the combined company, with Atwood shareholders owning the rest. Following the announcement, Atwood stock surged 24%, while shares of London-based Ensco fell about 5%.
The transaction will meaningfully diversify Ensco's offerings of products and services. The combined group will have a market capitalization of about $7 billion, supplying offshore drilling rigs across varying water depths spread over six continents to the world's largest energy groups. Ensco, one of the strongest players in the oil drilling sector, will get access to Atwood's six ultra-deepwater floaters, including four drillship and five high-specification jackups. (Read more: Tesoro Closes Western Refining Merger, To Be Named Andeavor .)
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Price Performance
The following table shows the price movement of some the major oil and gas players over the past week and during the last 6 months.
Company | Last Week | Last 6 Months |
XOM | -3.64% | -8.50% |
CVX | -3.43% | -8.49% |
COP | -5.08% | -11.78% |
OXY | -1.40% | -14.70% |
SLB | -4.29% | -17.50% |
RIG | -15.61% | -36.35% |
VLO | -3.13% | -3.58% |
TSO | +1.79% | -2.13% |
Over the course of last week, the Energy Select Sector SPDR – a popular way to track energy companies – fell by 4.26%. The worst performer was offshore drilling giant Transocean Ltd (NYSE:RIG). whose stock price plunged 15.61%.
Longer-term, over the last 6 months, the sector tracker is down 13.46%. Transocean was again the major laggard during this period, experiencing a 36.35% price decline.
What’s Next in the Energy World?
Market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas. Energy traders will also be focusing on the Baker Hughes data on rig count.
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