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Both crude and natural gas prices declined during the past week.

Among the newsmakers, Chevron Corp. (CVX - Analyst Report), ConocoPhillips (COP - Analyst Report) and Baker Hughes Inc. (BHI - Analyst Report) cautioned investors about sub-par fourth quarter performance.   

Crude Oil:

Crude prices came under pressure last week, as markets were faced by an increase in Libyan oil exports to near-normal levels following months of political turmoil. The commodity was also hit by surprisingly weak U.S. jobs reading.

Sentiments were further weakened by the Energy Information Administration (EIA) report that showed a build in fuel (gasoline and distillate) supplies, apart from a tepid drop in oil inventories.

As per the EIA’s weekly ‘Petroleum Status Report,’ crude inventories fell by a smaller-than-expected 2.68 million barrels for the week ending Jan 3 to 357.89 million barrels. More worryingly, gasoline and distillate supplies were both up significantly from the week-ago levels.

As a result of these factors, by close of trade on Friday, West Texas Intermediate (WTI) oil was in the red and settled at $92.72 per barrel, losing 1.0% for the week. 

Natural Gas:

Investors continue to focus on temperature patterns to understand the fuel’s economic dynamics. As it is, natural gas fundamentals look uninspiring with supplies remaining ample in the face of underwhelming demand. In fact, it is expected to take many years for the commodity’s demand to match supply in the face of newer projects.

Natural gas fell to a one-month low last week, pulled down by a smaller year-over-year decrease in supplies and forecasts of a break in cold weather conditions.

The EIA's weekly inventory release showed that natural gas stockpiles held in underground storage in the lower 48 states fell by 157 billion cubic feet (Bcf) for the week ended Jan 3, slightly higher than the guided range (of 148–152 Bcf drawdown). However, the reduction was below last year’s withdrawal of 191 Bcf despite the cold snap that hit many cities during the current period.

Moreover, milder weather forecasts – in bulk of the country over the next few days – are likely to limit the commodity’s demand for heating.

Influenced by these factors, natural gas spot prices ended Friday at $4.05 per million Btu (MMBtu), down 7.7% over the week.

The Energy Week That Was:

The week’s energy coverage was dominated by the following news:

Chevron Expects Lower Q4 Production

Shares of U.S. energy giant Chevron Corp. were down almost 2% after the company warned investors about a drop in fourth quarter production. Though the San Ramon, Calif.-based integrated supermajor expects earnings for the period to be comparable to the previous quarter, lower volumes and slumping commodity prices will pull down the ‘Upstream’ segment result. However, on a slightly bullish note, the outlook for the ‘Downstream’ unit is positive with refining margin projected to increase in the U.S. West Coast.   

Weather to Dampen Conoco Q4 Yield

U.S.energy giant ConocoPhillips reported that poor weather conditions in the continental U.S. and North Sea will negatively impact its expected production for the fourth quarter. Notably, significant weather-related downtime in several operational areas has lately disrupted truck traffic and abandoned some wells.

In view of these challenges and turbulent weather in that region, ConocoPhillips lowered its output at its huge Ekofisk field in the North Sea last month. The company expects fourth-quarter output from continuing operations at 1,475 thousand barrels oil equivalent per day (Mboed), down from its earlier forecast of 1,485–1,525 Mboed.

Iraq Biz to Hurt BHI Q4 Earnings

In its fourth quarter preliminary operational update, oilfield services provider Baker Hughes Inc. said that its Iraqi business suffered disruptions and increased expenses during the period due to personnel movements, security measures and other nonrecurring items. These contributed to a loss in revenues. In fact, Baker Hughes’ pre-tax and after-tax profit is also likely to have been affected by around $80 million, or 18 cents per share due to disturbances in Iraq.

Moreover, weather delays late in the quarter affected activity in the U.S. and the North Sea. As a result, operating profit margins are expected to post a sequential decline in North America and Europe/Africa/Russia Caspian.

SandRidge to Divest GoM Assets

Oil and gas explorer SandRidge Energy Inc. (SD - Snapshot Report) announced the sale of its Gulf of Mexico assets to Fieldwood Energy LLC for a cash consideration of $750 million, along with an abandonment liability of $370 million. The sale, which is expected to close by March 31, is a strategic move by SandRidge to shift focus to its lucrative Mid-Continent business where it already has a strong presence.

The proceeds from this divestment are expected be incorporated in the company’s Mid-Continent drilling projects in due course. The move is also likely to boost the company’s financials, bringing more than $2.0 billion in pro-forma liquidity and lowering the leverage ratio to less than 3.0x.   

Hess to Separate Retail Unit

Oil and gas company Hess Corp’s (HES - Analyst Report) wholly owned subsidiary Hess Retail Corporation has filed paperwork with the U.S. Securities and Exchange Commission (SEC) for a potential spin-off of its retail unit. The spin-off of Hess’ gasoline stations and convenience store network is in response to a campaign by activist investor Elliott Management and comes almost a year after Hess planned to exit the energy trading and marketing businesses.

Performance Chart of Some Major Companies:

The following table shows the price movement of the major oil and gas players over the past week and during the last 6 months.

Ticker

Last Week’s Performance

6 month performance

XOM

+1.01%

+7.62%

CVX

-2.69%

-2.46%

COP

-1.56%

+6.22%

OXY

+0.35%

+4.02%

SLB

-0.20%

+14.74%

RIG

-0.29%

-2.92%

VLO

+7.88%

+48.47%

TSO

+0.65%

+4.18%

 

Other Headline News on Energy:

BHI Counts 26 More Rigs in Dec

In its monthly release, Baker Hughes reported worldwide rotary rig count for Dec 2013 to be 3,478, up 26 from 3,452 in Nov 2013, and up 88 from 3,390 in Dec 2012. The industry operated 2,143 rigs in the U.S. and 1,335 internationally in December. 

Statoil Shelves Kristin Gas Project

Statoil ASA (STO - Analyst Report) has decided to shelve its Kristin gas export project (KGEP) due to unsustainable economics. The Norwegian oil giant’s associates in KGEP also support the decision. Located on the southwestern part of the Halten Bank in the Norwegian Sea, the Kristin field is estimated to hold recoverable reserves of around 1.5 trillion cubic feet of gas and 240 billion barrels of condensate. However, the partners have decided to terminate the project due to increased costs and volume risk.

This Week’s Outlook:

Apart from the usual releases – the U.S. government data on oil and natural gas – market participants await data on retail sales and consumer prices.

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