Oil & Gas Stock Roundup: RDS.A & SM's Divestment Deals, KMI's Project Suspension & More
Zacks Investment Research | Apr 10, 2018 02:15AM ET
It was a week where both oil and natural gas finished lower.
On the news front, supermajor Royal Dutch Shell (LON:RDSa) plc RDS.A and upstream player SM Energy Company (NYSE:SM) struck separate divestment deals, while energy infrastructure provider Kinder Morgan Inc. (NYSE:KMI) said that it is halting most activities and associated spending on the Trans Mountain pipeline expansion project.
Overall, it was a dismal week for the sector. West Texas Intermediate (WTI) crude futures lost around 4.4% to close at $62.06 per barrel, while natural gas prices fell 1.2% to $2.701 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Concho Strengthens Permian Hold, Tallgrass to Buy MLP )
The U.S. oil benchmark closed in the red last week on escalating trade tensions with China and uptick in the rig count.
Announcements of duties and counter duties by Washington and Beijing on a wide range of imports have led to apprehensions of a full-blown trade battle between the world’s two biggest economies. Market participants fear that the dispute could potentially hamper global growth and harm oil demand.
A rise in the oil drilling rig count – pointing to a increase in domestic output – also played spoilsport. An early gauge of future activity, rigs drilling for oil in America totaled 808 in the week to Apr 6, as per the latest weekly report by Baker Hughes, a GE Company. That's much higher than the year-ago tally of 672, indicating a drilling resurgence – a big concern for oil investors.
Natural gas prices also moved southward last week despite a larger-than-expected decrease in supplies. The fall was triggered by a mild weather outlook (translating into tepid demand for the fuel) amid strong production. As it is, investors are expecting near-term consumption to dip following the end of the winter heating season.
Recap of the Week’s Most Important Stories
1. Royal Dutch Shell recently divested its entire stake in Oman’s Mukhaizna oilfield to India’s largest oil company, Indian Oil Corporation. The European oil giant sold its entire 17% interest in the oil field to IOCL Singapore PTE Ltd — a wholly-owned subsidiary of Indian Oil — for a total consideration of $329 million.
Mukhaizna oilfield, being the largest oilfield in Oman, accounts for 13% of the total oil production of 120,000 barrels per day in the nation. The deal marks the first upstream acquisition of Indian Oil in Oman that is likely to enhance its global footprint and growth opportunities in the Middle East region, along with bolstering India’s energy security.
The move will help Shell proceed with its $30 billion divestment program. The deal provides the company with a major uplift in its drive to decrease debt, following the acquisition of BG Group for $47 billion. The divestment is expected to reduce the company’s cost and enhance cash flow, as well as return to capital. The deal will also help the company to upgrade and streamline its upstream portfolio. (Read more Activist Investor Plans Carrizo Shake-Up, Hikes Stake )
5. SeaDrill Limited’s (NYSE:SDRL) shares increased 15.12% to eventually close at 23.6 cents on Apr 9, reflecting investors’ optimism after the company received virtually unanimous backing for its reorganization plan.
The company’s financial restructuring plan received approval from 99.8% of the creditors. Per the restructuring agreement, the international offshore drilling company will witness capital injection of $1.08 billion that would comprise $880 million of secured loans and $200 million equity.
SeaDrill’s restructuring plan will now have to be approved on a confirmation hearing scheduled to commence on Apr 17, 2018. Following the approval of the plan, existing shareholders will receive 1.9% stake in the post-restructuring equity.
Being one of the worst sufferers of the downturn and burdened with massive debt, the company had filed for Chapter 11 bankruptcy protection on Sep 12 to restructure its balance sheet amid volatile oil prices.
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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% | -9% |
CVX | +0.6% | -2.4% |
COP | -0.1% | +23.2% |
OXY | +4% | +6.9% |
SLB | -0.6% | -5.1% |
RIG | -1.8% | -5.9% |
VLO | +2.6% | +24.1% |
ANDV | +6.3% | +0.2% |
Despite the bearish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – remained essentially unchanged last week. The best performer was independent refiner Andeavor (NYSE:ANDV) whose stock jumped 6.3%, while offshore operator Transocean Ltd (NYSE:RIG). lagged the pack, down on the week by about 1.8%.
Longer-term, over six months, the sector tracker is down 0.9%. Oil giant Exxon Mobil (NYSE:XOM) was the major decliner during this period, experiencing a 9% price depreciation.
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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