Oil & Gas Stock Roundup: BP's Contract Renewal, SDRL's Bankruptcy, REN's Asset Sale

It was a week where oil prices briefly crossed the key mark of $50. Natural gas futures rallied too as warmer forecasts continue raising expectations for demand.

On the news front, European oil major BP plc (LON:BP) (NYSE:BP) and its international partners have agreed to pay Azerbaijan $3.6 billion to extend an oilfield contract for 25 more years, offshore drilling company SeaDrill Limited (NYSE:SDRL) filed for bankruptcy protection, while small oil and gas explorer Resolute Energy Corporation (NYSE:REN) sold properties in the Paradox Basin in southeastern Utah for up to $195 million.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures jumped 5.1% to close at $49.89 per barrel, while natural gas prices gained 4.6% to $3.024 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: BP Launches U.S. Pipeline IPO, Shell (LON:RDSa) Enters Mexican Fuel Market .)

The U.S. oil benchmark closed at its highest level since Jul 31 as traders held out hope for price stability amid an improving supply-demand narrative. Data showing the number of U.S. oil rigs dropping for a second straight week helped cement those gains.

Energy bodies OPEC and IEA both recently raised global oil demand forecasts for this year, helping to tighten the market significantly. Further, the Paris-based IEA said that the global oil supply had come down by 720,000 per day last month to 97.7 million barrels on outages and maintenance in non-OPEC countries.

Meanwhile, according to the OPEC’s latest monthly report , the oil cartel’s production fell by 79,000 barrels a day in August to 32.76 million as output dropped in Libya, Gabon, Venezuela and Iraq. This points to the success of the 14-member group’s output curb initiatives and rising compliance levels.

Adding to the positive momentum, OPEC and fellow exporters are said to be open to extending their production cut agreement beyond its March expiry.

The number of active rigs drilling for crude in the U.S. – an indicator of oil industry activity – fell by 7 to 749 as of Friday, as per data from oilfield services firm Baker Hughes Inc.

Meanwhile, bullish weather forecasts and lower-than-expected power loss from Hurricane Irma propelled natural gas futures despite an above-average build.

Recap of the Week’s Most Important Stories

1. Oil giant BP plc along with its co-venturers has inked a modified and restated Azeri-Chirag-Deepwater Gunashli (ACG) field production sharing agreement (PSA), which calls for a one-time payment of $3.6 billion to the State Oil Fund of the Republic of Azerbaijan. Per the new agreement, Azerbaijan's government has extended the production sharing deal for the country’s massive ACG oilfields until 2049. The current deal was slated to end in 2024.

Under the new accord, State Oil Company of the Republic of Azerbaijan (“SOCAR”) has increased its shareholding to 25% from 11.65%. BP’s shareholding has dropped to 30.37% from 35.8%, though it continues to be the operator of the field.

Located in the Azerbaijan Sector of the Caspian Sea, the first PSA for the ACG field was inked in 1994. The field has received investments of over $33 billion and has yielded about 440 million tons of oil. This has aided the country to rake in a direct net profit of $125 billion. Total production from ACG averaged 585,000 barrels per day during the first half of the year.

The extended contract is a major milestone for BP amid the ongoing price volatility. It will provide regular revenues to the company for almost the next three decades and also increases the company’s backlog. (Read more Valero, Magellan Midstream to Jointly Expand Pasadena Unit .)

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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.

The Energy Select Sector SPDR – a popular way to track energy companies – generated a +1.1% return last week. The best performer was offshore drilling rig operator Transocean Ltd. (NYSE:RIG) whose stock rose by 6.1%.

Longer-term, over the last 6 months, the sector tracker lost 5.3%. Ironically, it was again Transocean, which was the major laggard during this period, experiencing a 25.5% price decline.

What’s Next in the Energy World?

As usual, market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas - one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count.

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