It was a week which saw oil prices settle at its lowest level since Aug 10, while natural gas futures rose to a 2½ month high.
On the news front, domestic upstream operator Anadarko Petroleum Corp. APC has agreed to buy deepwater Gulf of Mexico (GoM) properties from Freeport McMoRan Inc. for $2 billion, while Canada’s Encana Corp. ECA launched a $1 billion share offering to pay debt and boost drilling.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures plunged 6.2% to close at $43.03 per barrel, natural gas prices ended up 5.4% to $2.948 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Spectra Energy & Enbridge to Merge, Apache Scores Big in Texas.)
Oil prices moved south for the third time in 4 weeks after the Paris-based International Energy Agency (‘IEA’) projected a bleak demand outlook for the commodity. In its monthly report, the energy-monitoring body that advises oil-consuming countries, said that global crude demand will rise by 1.3 million barrels a day in 2016 – down by about 100,000 barrels a day from its earlier projection.
The IEA also trimmed next year’s forecast by 200,000 barrels per day to growth of 1.2 million barrels a day. With demand growth slowing amid the specter of record high inventories and rising supply, the agency warned that the world’s oil surplus is set to persist at least until mid-2017.
Before IEA’s weak demand predictions, crude was already falling on OPEC’s worries about the oversupply crisis. On Monday, the international cartel of oil producers said that it expects production from non-member countries – such as Russia – to increase in 2017, reversing prior expectations of a drop.
Finally, expectations regarding the resumption of shipments from Nigeria and Libya proved another headwind for oil prices.
Meanwhile, natural gas eked out a handsome gain following an in-line build and predictions of strong gas-powered cooling demand with forecasts of warmer temperature throughout Sep.
Recap of the Week’s Most Important Stories
1. Oil and gas finder Anadarko Petroleum Corp. has inked a deal to acquire mining giant Freeport McMoRan Inc.’s deepwater Gulf of Mexico assets for a consideration of $2 billion in a bid to expand its operation in the region and gain additional scope for exploration. The transaction is anticipated to close by 2016 end.
The acquisition will double Anadarko’s ownership in the Lucius development to 49% from 23.8%, thereby enabling the company to leverage future value addition at Lucius and achieve over 400 million barrels of oil equivalent (BOE) in estimated recovery from the development.
The to-be-bought assets are expected to generate $3 billion free cash flow over the next five years, while adding nearly 80,000 BOE per day to Anadarko’s production volume (80% crude). (Read more: Anadarko Acquires Freeport's Gulf of Mexico Assets.)
2. Canadian energy explorer Encana Corp. announced the pricing of its previously declared public share offering. The company has offered 107 million of its common shares at US$9.35 per share. Encana – which currently carries a Zacks Rank #1 (Strong Buy) – expects to generate gross proceeds of more than US$1 billion from the offering. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Encana is expected to utilize nearly half of the net proceeds to lower its long-term debt and strengthen its balance sheet. The remainder will be utilized by the company to fund a portion of its 2017 capital budget.
The capital budget of 2017 is mainly focused on boosting oil and petroleum liquids production from Encana's Permian Basin – where the company is a top tier operator – by increasing the number of rigs. This, in turn, is expected to double the number of wells on stream in the Permian in 2017 from that in 2016.
3. Leading Houston-based oil and gas finder ConocoPhillips COP is on track to divest its entire 40% stake in an oil and gas production sharing block that it operates on the South Natuna Sea Block B off Indonesia. The assets will be purchased by Indonesia’s PT Medco Energi Tbk.
ConocoPhillips has been contemplating the sale of its interest in Block B – which produces about 300 million standard cubic feet of gas and 30,000 barrels of oil a day – and related facilities in the Natuna since Aug 2015. Neither of the companies disclosed any details relating to the transaction.
This acquisition is being viewed by many as an attempt by Indonesian officials to strengthen defenses of the nation’s maritime borders by ramping up of energy projects as well as boosting resource nationalism.
The block is located in an energy-rich chain at the edge of the South China Sea in the Natuna Islands. Notably, Indonesia has faced increasingly aggressive maritime moves by China in this region.
4. Italy’s Eni SpA E has signed a deal with the government of Montenegro to explore four offshore blocks in the country for a period of 30 years. The blocks cover 1,228 square kilometers and the company received the exploration license following the First International Competitive Bid Round.
Per the concession contract, Eni will be the operator of blocks 4118-4, 4118-5, 4118-9 and 4118-10 with a 50% interest. The remaining stake will be held by OAO NOVATEK — Russia’s leading gas player.
Eni management added that this contract reflects its aim to significantly strengthen the company’s upstream portfolio. Eni has been present in the region as a leading exploration and production player since early '60. (Read more: Eni in 30-Year Exploration Deal with Montenegro Government.)
5. Onshore contract driller Patterson-UTI Energy Inc. PTEN recently declared that it has signed a deal to acquire Calgary, Alberta-based drilling technology company, Warrior Rig Ltd., and certain related entities. The transaction amount has not been disclosed as yet.
Patterson-UTI expects that the deal would improve its competitive position within the high-spec rig market and expand its technology portfolio. The transaction is subject to customary closing conditions, and is expected to conclude soon. (Read more: Patterson-UTI Signs Agreement to Acquire Warrior Rig.)
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.
Last 6 Months
Over the course of last week, ‘The Energy Select Sector SPDR’ was down 2.47% amid bearish outlook from world’s leading energy bodies. Consequently, investors witnessed selling in most market heavyweights. The worst performer was domestic oil and gas explorer Occidental Petroleum Corp. OXY whose stock price fell 6.17%.
But longer-term, over the last 6 months, the sector tracker has gained 6.54%. U.S. energy major Chevron Corp. CVX has been one of the beneficiaries during this period, experiencing a 1.66% price increase.
What’s Next in the Energy World?
As usual, market participants will be closely tracking the regular weekly releases i.e. the U.S. government data on oil and natural gas. Energy traders will also be focusing on the Baker Hughes data on rig count.
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