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Oil & Gas Stock Roundup: Exxon’s Petrochem Plant Buy, WildHorse’s Eagle Ford Acquisition & More

Zacks

It was a week where oil prices posted their largest single day gain since Dec 1 and natural gas futures spiked higher to levels last seen in Jan.

On the news front, integrated major ExxonMobil Corp. XOM agreed to buy a refining and petrochemical plant in Singapore from Jurong Aromatics, while energy explorer WildHorse Resource Development Corp. WRD struck a deal to acquire Eagle Ford acreage for $625 million in cash and stock.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained 3.5% to close at $47.84 per barrel, while natural gas prices jumped 4.8% to $3.424 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Shell, Concho Resources Reports Strong Q1, Apache Misses.)

Oil prices scored their first gain in four weeks, bolstered by suggestions from top exporters that the OPEC and non-OPEC countries might expand output cuts until the end of Mar 2018. The commodity was further encouraged by a big draw in weekly U.S. crude inventories.


Natural gas also turned higher following a smaller-than-expected storage build.

Recap of the Week’s Most Important Stories

1. The world’s largest publicly traded oil company ExxonMobil Corp. recently announced that it is acquiring a massive petrochemical plant in Singapore from Jurong Aromatics Corp. Pte Ltd. at a discounted price. ExxonMobil refused to reveal the exact acquisition price.

The transaction is expected to be completed in the second half of 2017. The plant, which is located on Jurong Island in Singapore, is believed to be one of the largest in the world. The plant was built for $2.4 billion and has an annual production capacity of 1.4 million tons. It is likely to provide operational and logistical synergies for ExxonMobil’s neighboring integrated refining and petrochemical complex.

ExxonMobil's largest refining-petrochemical complex is in Singapore and it has a crude oil processing capacity of 592,000 barrels per day and two steam crackers. Acquisition of the Jurong aromatics plant will boost ExxonMobil’s aromatics production in Singapore to more than 3.5 million tons per year, including 1.8 million tons of paraxylene.(Read more: ExxonMobil to Acquire Petrochemical Plant in Singapore.)

2. Oil and natural gas company WildHorse Resource Development Corp. recently struck a $625 million deal with The Woodlands, TX-based upstream operator Anadarko Petroleum Corp. and subsidiaries of private equity giant KKR & Co. L.P. to purchase 111,000 net acres in the Eagle Ford Shale in South Texas and related production. The transaction is expected to be completed by the end of June. WildHorse currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The cash and stock transaction will enhance WildHorse’s asset base, adding 949 net locations along with 22.9 million barrels of oil equivalent developed reserves. Should the deal go through, WildHorse will own 385,000 net acres, making the company the second-largest operator in Eagle Ford Shale. The company also mentioned that the acquired properties have produced 7,583 barrels of oil equivalent per day from 386 operated wells in the last quarter of 2016.

Per the terms of the deal, WildHorse will pay Anadarko and KKR $556 million and $69 million, respectively. While Anadarko will receive cash, the payment to KKR will be made through 6.3 million shares of common stocks. In order to fund the acquisition, The Carlyle Group L.P. will buy $435 million of WildHorse’s convertible preferred stock. (Read more: WildHorse to Acquire Eagle Ford Shale Assets for $625M.)

3. Energy giant BP plc BP recently announced that it has commenced gas production from first two fields of West Nile Delta project, located offshore Egypt. First gas from the Taurus and Libra fields marked the start-up of the second upstream project among the seven developments BP planned for this year.

The fields comprise nine wells that have been producing gas and condensate at a rate of 700 million standard cubic feet of gas per day and 1000 barrels per day, respectively. The reported numbers are almost 20% higher than what the company initially estimated. The produced gas will likely be distributed in Egypt through the national gas grid.

Both Taurus and Libra fields came online eight months ahead of time and the project did not exceed the budget. Investors should know that The West Nile Delta development comprises five gas fields and is undergoing development under two different projects. Once all the fields start production to full capacity by 2019, the combined output could reach up to almost 1.5 billion cubic feet per day. The peak output will meet 30% of the current gas production of Egypt. (Read more: BP Announces First Gas from 2 Offshore Wells in Egypt.)

4. Upstream firm Cimarex Energy Co. XEC reported first-quarter 2017 earnings of $1.05 per share beat the Zacks Consensus Estimate of 85 cents. In the January–March quarter of 2016, the company had incurred a loss of 40 cents per share. The improvement is mainly attributable to increase in production and higher oil and gas price realizations.

In the quarter under review, total production – oil, natural gas and natural gas liquids – averaged 1,063 million cubic feet equivalent (MMcfe) per day, up 9% year over year. Meanwhile, realized prices for natural gas, crude oil and natural gas liquids displayed year-over-year increases of 57%, 70%, and 107%, respectively.

Cimarex Energy's net cash from operating activities during the quarter was $249.5 million compared with $85.4 million in the prior-year period. The company spent $306 million for exploration and development during the first three months of this year. This was primarily funded with cash flow from operations and cash in hand.

Total production for the second quarter of 2017 is projected to average 1.08–1.13 Bcfe per day. Full-year 2017 production is now estimated at the range of 1.09–1.13 Bcfe per day, up 15% from the midpoint of the 2016 level. Capital investment for exploration and development has been reiterated at $1.1–$1.2 billion for 2017. (Read more: Cimarex Energy Beats Q1 Earnings, Revenue Estimates.)

5. Brazil's state-run energy giant Petrobras PBR announced first quarter net income of $1,417 million or 11 cents per share, compared with a loss of $318 million or 2 cents in the year-earlier quarter. Earnings per ADR came in at 22 cents (1 ADR equivalent to 2 shares in the Brazilian market), well ahead of the Zacks Consensus Estimate of 7 cents.

Higher oil prices and cost cuts were primarily responsible for the turnaround, which helped Petrobras post its best quarterly earnings in two years.

Importantly, Petrobras generated free cash flows of $4,250 million for the three-month period ended Mar 31 — positive for the eighth quarter in a row – reflecting operational improvement and lower investments. Moreover, adjusted EBITDA rose 48% to $8,030 million.

During the three months ended Mar 31, 2017, Petrobras’ capital investments and expenditures totaled $3,670 million, lower than the $3,987 million incurred in the year-ago period. Also, over the past year, the company cut its workforce by 17% through a voluntary separation program. (Read more: Petrobras Q1 Earnings Buoyed by Higher Oil, Cost Cuts.)

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

-0.06%

-2.85%

CVX

-1.48%

-1.17%

COP

-1.22%

+8.78%

OXY

+1.44%

-9.59%

SLB

-0.88%

-10.11%

RIG

-2.39%

-1.91%

VLO

+2.50%

+1.36%

TSO

+2.11%

-5.31%

Over the course of last week, the Energy Select Sector SPDR – a popular way to track energy companies – rose by 0.68%. The best performer was downstream operator Valero Energy Corp. VLO whose stock price increased 2.50%.

But longer-term, over the last 6 months, the sector tracker is down 3.61%. Oilfield services giant Schlumberger Ltd. SLB was the major laggard during this period, experiencing a 10.11% price decline.

What’s Next in the Energy World?

With the Q1 earnings season effectively behind us, market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas. Energy traders will also be focusing on the Baker Hughes data on rig count.

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