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Crude prices registered another weekly loss as product stocks rose, while natural gas extended gains on forecasts of warmer temperatures.

Among the newsmakers, Houston, TX-based oil and gas explorer Marathon Oil Corp. (MRO - Analyst Report) agreed to unload its Norwegian assets for $2.1 billion, while the Scandinavian country’s energy biggie Statoil ASA (STO - Analyst Report) announced the premature termination of a rig contract with Diamond Offshore Drilling Inc. (DO - Analyst Report).        

Crude Oil:

Crude prices edged down last week, pressured by a spike in gasoline and distillate inventories, while domestic crude production continues to remain at a very high level. Geopolitical forces also played their part in dampening sentiments, with confrontation between Moscow and the West – that threatens to derail hydrocarbon supplies from Russia – receding for the time being.

However, to some extent the bears were offset by encouraging May’s nonfarm payroll report, 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. Investor sentiment also gained from the announcement of stimulus measures by the European Central Bank intended to boost Eurozone’s recovery, and renewed violence in Libya.

As a result of these factors, by close of trade on Friday, West Texas Intermediate (WTI) oil settled at around $102.66 per barrel, shedding 0.7% for the week.      

Natural Gas:

Natural gas rallied to a four-week high last week on expectations of an uptick in electric power demand with the imminent arrival of summer months. This was partially offset by a bearish supply data.

The commodity found support from the impending onset of warmer-than-normal summertime mercury readings across much of the U.S. that is likely to boost gas-fired electricity demand for air conditioning.

Prices received additional boost from the Obama administration’s pledge to clamp down on carbon emissions from coal-fired electricity plants, thereby brightening the outlook for natural gas demand.

However, some of the gain was lost following the EIA's weekly inventory release, which showed natural gas stockpiles held in underground storage in the lower 48 states rose by 119 billion cubic feet (Bcf) for the week ended May 30, above the guided range (of 114–118 Bcf build).

Influenced by these factors, natural gas prices ended Friday at $4.71 per million Btu (MMBtu), up 3.7% over the week.

Energy Week That Was:

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

Marathon Oil to Sell $2.1B Norway Biz

Oil and natural gas explorer Marathon Oil Corp. has signed a definitive contract with Det norske oljeselskap ASA to sell its Norway operations for $2.1 billion − after adjusting debt, net working capital and interest on purchase price. The deal is slated for a fourth quarter closure, subject to regulatory approvals.

The divestiture favors Marathon Oil’s long-term growth plans in which its Norway assets do not fit. Marathon Oil added that the to-be sold Norwegian properties contributed roughly 80,000 barrels of oil equivalent every day to its total output in 2013.    

Diamond Offshore & Statoil Deal Canceled

Shares of contract driller Diamond Offshore Drilling Inc.fell 3.7% following the news of Norwegian energy giant Statoil ASA having canceled its drilling contract for the mid-water semisubmersible, Ocean Vanguard. Statoil terminated the rig contract – which provided a dayrate of about $454,000 – nine months before the expected date.

Per the terms of the deal, the rig was anticipated to be used till the end of Feb 2015. Technical aspects related to the rig were cited as the reason behind the contract’s termination by Statoil. No further details were disclosed by the company. However, Diamond Offshore challenged Statoil's basis for cancelling the contract and plans to protect its rights under the drilling contract.

SeaDrill & TOTAL in $1.1B Deal

Norwegian oilfield service firm SeaDrill Ltd. (SDRL - Snapshot Report) has signed a five-year contract – worth $1.1 billion – with French oil and gas major TOTAL SA’s (TOT - Analyst Report) Nigerian arm, Total Upstream Nigeria Ltd. Per the contract, TOTAL will employ SeaDrill’s ultra-deepwater drillship West Jupiter for its EGINA ultra-deep offshore project in Nigeria.

West Jupiter, a 6th generation drillship, will likely be delivered in Aug 2014 and will have the capacity to work at a water depth of up to 12,000 feet and drill to a depth of 37,500 feet. SeaDrill management believes that the contract has given the company an opportunity to strategically increase its presence in the Nigerian market.

Phillips 66 Takes Over Beaumont Terminal

Independent refiner Phillips 66 (PSX - Analyst Report) is acquiring a 7.1 million barrel storage terminal near Beaumont, TX. The purchase forms a part of the company’s effort to ramp up logistics and transportation assets and will be the largest terminal in the Phillips 66 portfolio. Currently owned by UNOCAL, a subsidiary of energy major Chevron Corp. (CVX - Analyst Report), the Beaumont terminal is strategically located on the U.S. Gulf Coast. The terminal intends to serve its own refineries as well as that of others on the U.S. Gulf Coast. Hence, it has considerable prospects of expansion.

Chesapeake Energy to Sell Transportation Assets

Chesapeake Energy Corp. (CHK - Analyst Report) is seemingly focused on divesting its assets to streamline its business and reducing debt. In this regard, this U.S. gas giant recently announced that it would dispose its crude oil trucking assets to Rose Rock Midstream L.P. Per the agreement, Rose Rock would acquire 124 trucks, 122 trailers and miscellaneous equipment operating in Texas, Oklahoma and Ohio; and take around 200 Chesapeake employees under its wings.

The partnership would also provide term transportation agreement at market rates with Chesapeake Energy Marketing Inc., a subsidiary of Chesapeake. The transaction will close in the second quarter of 2014.      

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

+1.08%

+6.01%

CVX

+0.93%

+0.69%

COP

+1.03%

+14.76%

OXY

+0.66%

+7.77%

SLB

+1.79%

+20.40%

RIG

+1.07%

-14.00%

VLO

-1.59%

+19.68%

TSO

+3.15%

+0.40%

 

Other Headline News on Energy:

Helmerich & Payne Ups Div; Wins Rig Contracts

Contract drilling services provider Helmerich & Payne Inc. announced an increase in dividend for the quarter ending Jun 30. The new dividend of 68.75 cents per share reflects a 10% hike from the prior-quarter dividend of 62.5 cents. The company stated that the new payout will be disbursed on Sep 2 to shareholders of record as of Aug 15. Helmerich & Payne also announced that it has received multi-year term contracts from five upstream companies to build as well as operate 9 additional proprietary FlexRigs, which are likely to bring high returns.

Oceaneering Takes Over AIRSIS

Oilfield services company Oceaneering International Inc. has purchased AIRSIS Inc., a provider of remote asset management software services. The financial terms of the transaction have not been disclosed by either party. The latest buy is likely to boost Oceaneering’s current asset tracking service offered on offshore drilling rigs and vessels employed in subsea activities.

Patterson-UTI Arm Signs Pressure Pumping Deal

A subsidiary of the onshore contract driller Patterson-UTI Energy Inc. has signed a deal with a privately held company to acquire its pressure pumping operations based in East Texas. The closure of the agreement – comprising 31,500 horsepower of hydraulic fracturing equipment – is expected in the next 10 days. The acquisition provides Patterson-UTI a new operational base to carry out drilling activities in East Texas and Louisiana. It should also support the company’s existing pressure pumping operations that provide well services in the Permian, Barnett and Eagle Ford basins.

This Week’s Outlook:

Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking Thursday’s U.S. retail sales report.

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