Oil & Gas Stock Roundup: C&J Energy-Keane Merger, Phillips 66 JVs & More
Zacks Investment Research | Jun 18, 2019 02:56AM ET
It was a week where oil prices hit its lowest in five months. Meanwhile, natural gas futures erased some of the steep losses that have taken the commodity to lows not seen since June 2016.
On the news front, oilfield service providers C&J Energy Services (NYSE:CJ) and Keane Group Inc. (NYSE:FRAC) have agreed to merge in an all-stock deal worth $746 million, while diversified energy company Phillips 66 (NYSE:PSX) unveiled plans to form two pipeline project joint ventures for crudfe oil transportation.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures fell 2.7% to close at $52.51 per barrel, natural gas prices moved up 2.1% for the week to finish at $2.387 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Comstock's Acquisition, Shell (LON:RDSa)'s Strategy Update & More )
The U.S. crude benchmark hit the lowest settlement level since January following the U.S. Energy Department's latest inventory release. The report showed that crude stockpiles recorded a much bigger-than-anticipated weekly build, ballooning to their highest since July 2017. On a further bearish note, the report revealed that gasoline inventory increased from its previous week level.
Analysts and industry watchers are also worried over signs of worsening oil demand growth as the U.S.-China trade spat continue to threaten a major slowdown in global economy.
On the other hand, natural gas prices recovered from previous week’s sharp retreat after a government report showed a smaller-than-expected increase in supplies. However, the commodity remained close to the lowest levels in three years because of growing fears that soaring production is outpacing demand growth
Recap of the Week’s Most Important Stories
1. In a bid to improve pricing power in the oilfield service space, C&J Energy Servicesand Keane Group Inc. have announced a merger agreement. Energy investors are overwhelmed with the announcement as reflected by the C&J Energy and Keane stock jump of roughly 20% and 7%, respectively, on Jun 17.
The combination will create a diversified and leading oilfield services company. The combined firm, where each of C&J Energy and Keane will have 50% ownership, will have a pro-forma enterprise value of $1.8 billion, added C&J Energy and Keane. The all-stock agreement is likely to consummate by the December quarter of 2019 and companies expect the deal to prove immediately accretive to cashflow.
Following cheaper rates and intense competition in the oilfield service space, companies are looking for mergers and consolidations to expand market share and improve pricing power. Synergies from mergers will enable oilfield service companies improve operational efficiency and lower capital spending requirements, per an analyst quote. (Read more Petrobras Ups 5-Year Investment & Divestment Targets )
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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 | -0.3% | +4.3% |
CVX | -0.6% | +10.6% |
COP | -0.2% | -4.7% |
OXY | +3.1% | -21.1% |
SLB | +0.9% | -3.1% |
RIG | -11% | -22% |
VLO | +2.7% | +8.3% |
MPC | +2.1% | -17.4% |
Reflecting the weak market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – edged down 0.4% last week. The worst performer was offshore driller Transocean Ltd (NYSE:RIG). whose stock slumped 11%.
But longer-term, over six months, the sector tracker is up 3.4%. Integrated energy major Chevron (NYSE:CVX) was the major gainer during this period, experiencing a 10.6% price increase.
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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