Oil & Gas Stock Roundup: Gasoline Soars Amid MPC's Drop-Down Deal, NBR's Acquisition

It was a week where oil prices suffered another loss, while natural gas futures tallied a gain. However, in terms of price action, gasoline has been the market mover. With refinery activity along the Gulf Coast remaining affected from the impact of Hurricane Harvey, the fuel rallied to a two-year high.

On the news front, downstream operator Marathon Petroleum Corp. (NYSE:MPC) said it would transfer certain assets to an affiliate in a $1.05 billion stock and cash deal, while land-drilling contractor Nabors Industries Ltd. (NYSE:NBR) entered into an agreement to buy Norway’s Robotic Drilling Systems.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures pulled back 1.2% to close at $47.29 per barrel, natural gas prices soared about 5% to $3.07 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Harvey's Havoc, TOTAL's Acquisition, Chevron (NYSE:CVX)'s CEO Transition .)

Despite another hefty inventory draw, oil prices recorded their fifth successive weekly decline. The U.S. Energy Department's inventory release showed that crude stockpiles recorded a big drop on continued strong refinery runs . With oil supplies falling for the ninth week, investor sentiment has turned slightly positive on dissipating fears about a meltdown to sub-$40 levels. Analysts also believe that the trend, if sustained, could help tighten the market significantly.

However, these positive effects were more than offset by the steadily rising domestic oil output that continues to be the biggest headwind for the market. At 9.5 million barrels a day, production is at the highest level in more than two years, thereby cancelling out cuts from OPEC and its allies.

Meanwhile, natural gas traded up handsomely following a below-average increase in supplies. This caused the current storage level – at 3.155 trillion cubic feet (Tcf) – narrow its surplus to the five-year average to just 8 Bcf (0.3%), while stocks have now fallen 239 Bcf (7%) below the year-ago figure.

Gasoline Soars on Harvey Shutdowns

But for the second week running, the major mover was gasoline. The most widely used petroleum product ended more than 13% higher on the week to $1.748 a gallon in the aftermath of Tropical Storm Harvey knocking out refining operations in the Houston area. Harvey caused weeks of disruptions at facilities in its path - shutting units, sparking fires and creating supply shortage possibly extending for months.

Recap of the Week’s Most Important Stories

1. Refining and marketing giant Marathon Petroleum Corporation recently divested some of its pipelines and storage assets to MPLX L.P. (NYSE:MPLX) . The move helped Marathon Petroleum to garner proceeds of $1.05 billion – $630 million in stock and $420 million in cash – from its master limited partnership.

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Marathon Petroleum has offloaded its entire stake in four jointly owned properties including Explorer Pipeline Co., Lincoln Pipeline LLC, MPL Louisiana Holdings LLC and LOCAP LLC. In each of these properties the company carries 24.51%, 35%, 40.7% and 58.52% interests, respectively. These assets are expected to generate $138 million of adjusted EBITDA in 2018.

The divesture is in sync with Marathon Petroleum’s strategic objectives. To accelerate value accretion for shareholders and boost growth, Marathon Petroleum is actively engaged in drop-down transactions lately. In March, the company divested of some of its terminal, pipeline and storage assets to MPLX for $2.02 billion.

The company also plans to streamline portfolio and enhance core competencies. For the same, it is soon to a take a final call regarding the spinoff of its retail network unit — Speedway LLC. (Read more Energy Transfer Gets FERC Permit for Partial Rover Startup .)

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 +1.4% return last week. The best performer was offshore drilling rig operator Transocean Ltd. (NYSE:RIG) , whose stock rose by 11.2%.

Longer-term, over the last 6 months, the sector tracker lost 11.7%. Ironically, it was again Transocean, which was the major laggard during this period, experiencing a 36.7% price decline.

What’s Next in the Energy World?

While the energy companies will be busy assessing the storm’s impact on the industry, 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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Written By: Zacks Investment Research