Oil & Gas Stock Roundup: Tesoro's Drilling JV, SeaDrill's Q1 Beat & More
Zacks Investment Research | May 30, 2017 02:39AM ET
It was a week where oil prices tumbled after the much-anticipated OPEC meeting underwhelmed investors, while a bearish build created selling pressure on natural gas futures.
On the news front, refining giant Tesoro Corp. (NYSE:TSO) established a drilling joint venture in Utah’s Uinta Basin with upstream operator EP Energy Corp. (NYSE:EPE) , while offshore drilling contractor SeaDrill Ltd. (NYSE:SDRL) reported better-than-expected first-quarter profit on significant cost reductions.
Overall, it was a rough week for the sector. West Texas Intermediate (WTI) crude futures fell 1.7% to close at $49.80 per barrel, while natural gas prices edged down 0.6% to $3.236 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Halliburton (NYSE:HAL)'s New CEO, National Oilwell's Saudi JV & More .)
Oil prices slumped below $50 a barrel after the extension of supply curbs by top producers led by OPEC disappointed markets. At a meeting in Vienna on Thursday, the cartel (plus non-members led by Russia) decided to roll over their output cuts of 1.8 million barrels per day (bpd) to reduce global oil inventories until Mar 2018. The move, though widely expected, spooked some oil market investors who hoped that the cuts would be deepened/lengthened further.
Natural gas turned lower too following a larger-than-expected storage build. The commodity was also undone by predictions of mild temperatures over the next two weeks that will limit cooling demand for the fuel.
Recap of the Week’s Most Important Stories
1. Independent oil refiner and marketer Tesoro Corp. has tied up with Texas-based upstream energy player EP Energy Corp. to fund oil and natural gas development in Uinta Basin in Utah. The companies recently inked a deal to form a drilling joint venture (JV) to operate 60 wells in order to support EP Energy’s Altamont program.
Per the agreement terms, Tesoro will provide capital in exchange for 50% of the working interest in the wells. EP Energy will contribute $64 million in net capital to the deal and will retain the operational control of the assets.
The companies have also signed a Crude Oil Supply Agreement under which Tesoro will purchase all the oil produced by the JV as well as the additional crude produced by other properties of EP Energy in the Uinta basin. This agreement will ensure continued supply of crude oil to Tesoro’s Salt Lake City Refinery.
For Tesoro, the agreement is likely to enhance the value of its Rockies assets as well as guarantee additional supply of crude oil. This is likely to boost the operation of the company’s Salt Lake City Refinery further. The oil supplied by this project will lead to higher rates and improve profitability of Tesoro’s refinery. (Read more: Sinopec Starts Developing the Largest Gas Facility in China .)
Get The News You Want
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 | -0.04% | -5.69% |
CVX | +0.33% | -5.23% |
COP | -2.18% | -0.33% |
OXY | +1.50% | -10.81% |
SLB | -0.74% | -13.53% |
RIG | -7.71% | -16.14% |
VLO | -2.32% | -2.10% |
TSO | +1.55% | -1.07% |
Over the course of last week, the Energy Select Sector SPDR – a popular way to track energy companies – fell by 0.64%. The worst performer was offshore drilling giant Transocean Ltd. (NYSE:RIG) whose stock price plunged 7.71%.
Longer-term, over the last 6 months, the sector tracker is down 7.11%. Transocean was again the major laggard during this period, experiencing a 16.14% price decline.
What’s Next in the Energy World?
In this holiday-shortened week, 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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