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Crude prices fell by a whisker last week and slipped below the $100-a-barrel level, while natural gas logged their lowest close in about three weeks amid a big storage build that eased worries about an imminent supply shortfall.

Among the newsmakers, Canada’s Encana Corp. (ECA - Analyst Report) said that it will buy 45,500 net Eagle Ford Shale acres in South Texas from Freeport-McMoRan (FCX - Analyst Report) for $3.1 billion.       

Crude Oil:

Crude prices got a boost from the latest services sector and initial claims numbers, providing further evidence that the U.S. economy is coming out of its winter freeze. This has fueled hopes for robust fuel and energy demand in the world’s biggest oil consumer. The positive momentum was further propelled by continued confrontation between Moscow and the West, threatening to derail hydrocarbon supplies from Russia.

However, the bulls were more than offset by a spike in gasoline inventories, while domestic crude production still remains at a very high level. Concerns over Chinese demand slowdown has also been a drag on prices.

As a result of these factors, by close of trade on Friday, West Texas Intermediate (WTI) oil settled at around $99.99 per barrel, losing a mere 0.1% for the week.    

Natural Gas:

Natural gas fell last week to their lowest level since mid-April on the back of a bearish supply data and predictions of warmer-than-expected weather across the U.S.

The EIA's weekly inventory release showed that natural gas stockpiles held in underground storage in the lower 48 states rose by 74 billion cubic feet (Bcf) for the week ended May 2, above the guided range (of 69–73 Bcf build). Moreover, the latest build – the fifth on the trot and the third successive above consensus injection – went a long way in easing fears about the timely replenishment of the inventories ahead of the next heating season, starting from November.

To make things worse, above-normal temperature forecasts – in bulk of the country over the next few days – are likely to limit natural gas’ demand for heating.  

Influenced by these factors, natural gas prices ended Friday at $4.50 per million Btu (MMBtu), down 3.4% over the week.

Energy Week That Was:

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

Encana to Acquire Oil-Rich Assets, Shares Rise

Canadian energy outfit Encana Corp. rose more than 4% after it entered into an agreement with mineral explorer Freeport-McMoRan’s oil and gas subsidiary to acquire 45,500 net acres of oil-rich Eagle Ford properties. Depending on regulatory approvals and some necessary closing conditions, the deal is anticipated to close sometime in the second quarter.

Being a predominantly natural gas player, Encana’s profit in recent times have fluctuated wildly due to volatile natural gas prices that made the company restructure its asset base with a focus on oil-producing resources. The latest deal, which aims to double the company’s oil output, corroborates this shift.

Stellar Results from EOG Resources

Independent energy explorer EOG Resources Inc. (EOG - Analyst Report) delivered stellar first quarter results on the back of a striking improvement in its crude and liquids production. During the Jan-Mar period, EOG’s total volume expanded 18.5% from the year-earlier level to 50.7 million barrels of oil equivalent, or 563.5 thousand barrels of oil equivalent per day. Crude oil and condensate production was 266.5 thousand barrels per day, up approximately 42.3% from the year-ago level.

Occidental Beats on Earnings

Oil and gas producer Occidental Petroleum Corp. (OXY - Analyst Report) reported better-than-expected March quarter earnings, primarily due to higher revenues and a decline in share counts. Total revenue surged 3.7% from the year-ago quarter higher due to increased sales from the company’s Oil and Gas (up 5.3% year over year) and Chemical (up 3.8% year over year) segments. However, lower domestic production dragged down volumes by 2.4%.

Solid Earnings from Transocean, to Spin-Off North Sea Rigs 

Offshore drilling giant Transocean Ltd. (RIG - Analyst Report) beat first quarter earnings and revenue forecasts, thanks to lower costs and higher dayrates. However, investors were unimpressed despite the outperformance, as the company still has around 20 floaters that are slated to become idle by 2014 and 2015. Earlier in the week, Transocean announced plans to create a subsidiary – Caledonia Offshore Drilling Co. – to spin-off eight of its North Sea-operated semisubmersile rigs.

Cimarex Energy Jumps on Earnings Beat, Asset Buy

Shares of Denver-based energy explorer Cimarex Energy Co. (XEC - Snapshot Report) jumped 9% after it reported a positive quarter and agreed to snap up oil and gas properties in western Oklahoma for $497 million. The company easily beat earnings estimates on volume growth and stronger prices.

Meanwhile, the asset buy – primarily in the Cana-Woodford shale play – is seen to strengthen Cimarex’s position in one of its key development areas. Simultaneously, Cimarex agreed to offload 50% stake in the assets to Devon Energy Corp. at the transaction’s conclusion, likely by June 30.

Performance Chart of Some Major Companies:

The following table shows the price movement of the major oil and gas players over the past 5 days and during the last 6 months.

Ticker

Last 5 Day’s Performance

6 month performance

XOM

-0.50%

+10.41%

CVX

0.00%

+4.29%

COP

+1.82%

+6.91%

OXY

+1.88%

-0.60%

SLB

-0.74%

+7.75%

RIG

-0.72%

-23.13%

VLO

-4.50%

+36.47%

TSO

-3.71%

+0.86%

 

Other Headline News on Energy:

Gulfport Energy Crashes on Weak Production Outlook

Prominent Utica shale player Gulfport Energy Corp. (GPOR - Snapshot Report) plunged 19% after management cut this year’s production outlook. The Oklahoma City-based energy company guided towards 2014 daily output of 37,000-42,000 barrels of oil-equivalent (BOE), lower than its previous view of 50,000-60,000 BOE. Reasons for the weak outlook include a shift to less aggressive production technique, continued midstream problems and delaying well completions to install a new program.

QEP Resources to Shed Gas Assets

Domestic energy explorer QEP Resources Inc. (QEP - Analyst Report) unveiled a trio of deals to sell primarily gas assets in the Midcontinent and Williston Basin for a combined price of $807 million. While QEP will get rid of its non-core acreage in the western Williston Basin for roughly $35 million, the company will sell properties in the Cana-Woodford and Granite Wash plays in the Western Anadarko Basin in Texas and Oklahoma for approximately $772 million.

Statoil Offloads 10% Stake in Azerbaijan

Norwegian energy giant Statoil ASA announced the sale of part of its stake in the BP plc operated Shah Deniz project off Azerbaijan and raised $1.45 billion from the deal. Statoil offloaded 10% stake in the Shah Deniz production sharing agreement and South Caucasus Pipeline Company to BP and state-owned SOCAR. Statoil’s interests in the Caspian Sea project is now 15%, after BP and SOCAR obtained 3.33% and 6.67% interests, respectively. Statoil’s disposal of assets is part of its strategy to restructure the asset portfolio based on rigid project prioritization.

This Week’s Outlook:

Apart from the usual releases – the U.S. government data on oil and natural gas – market participants will be tracking the April Retail Sales and Industrial Production numbers. Energy traders will also be focusing on developments in Ukraine.

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