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Oil & Gas Stock Roundup: Comstock’s Acquisition, Shell’s Strategy Update & More

Zacks

It was a week where oil prices rebounded following its collapse into a bear market. Meanwhile, natural gas futures dropped to fresh three-year lows.

On the news front, Comstock Resources CRK agreed to acquire privately-held Cover Park Energy in a $2.2 billion deal. Meanwhile, Royal Dutch Shell RDS.A pledged to return at least $125 billion to its shareholders via dividends and share repurchase between 2021 and 2025.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures edged up 0.9% to close at $53.99 per barrel, natural gas prices moved down 4.8% for the week to finish at $2.337 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Deals From Chevron, Canadian Natural & TC Energy)

The U.S. crude benchmark came out of a bear market following settlement of the trade dispute between the U.S. and Mexico. Indications that the output caps by major oil producing countries will continue beyond June, also boosted the commodity. Data showing drillers in the United States cutting oil rigs the most in six weeks brought further upside.


However, natural gas prices suffered after a government report showed another larger-than-expected increase in natural gas supplies. The bearish injection, which was also higher than the five-year average, intensified a sell-off that left the U.S. benchmark with its lowest close in three years.

Recap of the Week’s Most Important Stories

1. In a bid to bolster Haynesville acreage, Comstock Resourcesis set to acquire Dallas-based Cover Park Energy LLC, a privately-held company, for $2.2 billion. The combined entity will have substantial scale advantage with attractive organic growth opportunities, going forward.

The cash and stock transaction, which is valued at $2.2 billion, includes the assumption of Covey Park’s outstanding debt and retirement of the existing preferred units, aggregating $1.1 billion. Per the deal, equity owners of Covey Park will receive $700 million in cash, 28.8 million shares of newly issued shares of Comstock stock at $6 apiece and $210 million of newly issued perpetual convertible preferred stock.

Comstock’s major position in the prolific Haynesville/Bossier shale play complements Cover Park’s properties, strengthening the former’s foothold in the region. (Read more Comstock to Snap Up Cover Park to Boost Haynesville Acreage)

2. In view of Royal Dutch Shell’s commitment of returning value to its shareholders, the company is set to shower investors with generous dividends and buybacks after 2020, as a show of confidence in cash generating ability.

In a strategy update, the European energy giant announced plans to return at least $125 billion to its shareholders via dividends and share repurchase in the 2021-2025-time frame, as long as Brent crude do not fall below $60 per barrel. The projection compares favorably with the distribution of $90 billion between 2016 and 2020. The potential payout will be more than double the total distribution within 2011-2015.

Notably, even amid gloomy market conditions, Shell reported the biggest profit among peers in 2018. It managed to retain the top position among peers in the free cash flow (FCF) parameter. The metric recorded remarkable 43% y/y growth in 2018. While the firm is riding high on FCFs, what’s surprising is the fact that it has kept its dividend frozen for 20 consecutive quarters. However, the company plans to hike dividend payout after the completion of the $25-billion share repurchase program by 2020-end.(Read more Shell to Ramp Up Buybacks & Dividends on Growing Cash Pile)

3. W&T Offshore, Inc. WTI recently announced the discovery of oil in the deepwater Gladden Deep well, situated in the Gulf of Mexico. The ownership interest of the upstream energy player in the discovery is 17.3%. W&T Offshore added that the discovery has been made from its first exploratory well for this year. Importantly, this well is among the 14 that have been set for the drilling project.

W&T Offshore added that it discovered 201 feet of net oil pay in the Gladden Deep well following the completion of drilling to a depth of 18,324 feet. The company added that the well is likely to come online by the December quarter of 2019 and the produced oil is expected to be transported to the Medusa spar, through the Gladden pipeline.

Along with the operational update, W&T Offshore announced the receipt of an award from the Bureau of Ocean Energy Management, allowing it to operate in eight deepwater and six shallow water blocks. Notably, the company was the highest bidder in 14 of the 15 blocks under the federal lease sale that was held on Mar 20, 2019.(Read more W&T Offshore Discovers Oil in Gulf of Mexico, Wins 14 Blocks)

4. Continental Resources, Inc. CLR recently announced the initiation of a quarterly dividend and a share buyback program. These growth initiatives and shareholder-friendly moves are expected to boost investors’ sentiments. The board of directors of the Zacks Rank #2 (Buy) company has given a green signal for the initiation of a dividend of 5 cents per share.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The move reflects the company’s strong focus on returning cash to its shareholders. The dividend amount translates to 20 cents per share on an annualized basis. However, it reflects a dividend yield of 0.6%, lower than the industry average of 1.1%. The dividend is likely to be paid on Nov 21, to stockholders of record as of Nov 7.

Moreover, it approved a $1-billion share buyback program, which is expected to commence in the second quarter of 2019 and continue through 2020. The company expects a major portion of the amount to be used this year.(Read more Continental Rewards Investors With Dividend Initiation)

5. Eni S.p.A. E recently announced that it has discovered a new oil site offshore Angola. The latest find marks the Italian energy giant’s fifth oil discovery in the prolific deep-water Block 15/06 in the past 12 months. The discovery occurred at the Agidigbo exploration prospect.

Post-drill results are indicating that 300-400 million barrels of light oil is in place. At the site, the company used the West Gemini drillship of Seadrill Limited at a water depth of 275 meters. The drillship was used to reach a total depth of 3800 meters. At the prospect, Eni has an appraisal campaign planned for early 2020. Production from the prospect is expected to be fast-tracked to the Armada Olombendo FPSO, near the East Hub facilities, which are located around 10 kilometers away.

Notably, the latest discovery follows the Kalimba, Afoxe, Agogo and Ndungu findings. Total light oil from these five findings is projected at around 1.8 billion barrels. The latest discovery will further strengthen the company’s presence in the country as well as in Africa.(Read more Eni Hits Oil for the 5th Time in Block 15/06 Offshore Angola)

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

+5.4%

-2.3%

CVX

+6.7%

+5.9%

COP

0%

-9.4%

OXY

-2.3%

-26%

SLB

+4.1%

-14%

RIG

-1.8%

-26.2%

VLO

+6.2%

+3.5%

MPC

+2.2%

-22.3%

The Energy Select Sector SPDR – a popular way to track energy companies – rose 4.3% last week. The best performer was integrated major Chevron CVX whose stock jumped 5.4%.

But longer-term, over six months, the sector tracker is down 2.6%. Offshore driller Transocean Ltd. RIG was the major loser during this period, experiencing a 26.2% price decline.

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. Finally, the closely watched monthly reports from three key agencies (EIA, OPEC and the IEA) are due for release this week.

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