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Analyst Blog

Royal Dutch Shell plc’s (RDS.A - Analyst Report) $2.1 billion portfolio reshuffle and Apache Corp’s (APA - Analyst Report) big oil find off Western Australia were the major headlines over the past week. 

Overall, it was a bearish week for the sector. West Texas Intermediate (WTI) crude futures declined for the fourth consecutive week to close at $97.35 per barrel. Meanwhile, natural gas prices broke their winning streak and ended the week at around $3.8 per million Btu (MMBtu), down 4.7% from the previous week. (See last ‘Oil & Gas Stock Roundup’ here: Kinder Morgan Soars on $70B Restructuring Mega-Deal)

Oil prices fell further below $100 to their lowest level since late January on the commodity’s plentiful inventory, dismal GDP report from the Eurozone and reopening of Libyan export facilities. The negative sentiment was partially offset by the anticipated supply disruption out of Russia – a top energy producer and exporter – following renewed tensions with Ukraine.

Natural gas fared even worse, weighed down by an above-average supply gain and expectations of tepid electric power demand with forecasts of cooler-than-normal summer weather across most parts of the U.S.

Recap of the Week’s Most Important Stories

1.    In a bid to restructure its North American shale portfolio, European oil major Royal Dutch Shell plc announced that it has entered into agreements to sell its position in the mature Pinedale and Haynesville acreage. The deals would fetch about $2.1 billion in cash for Shell, in addition to properties in the promising Marcellus and Utica shale plays. (Read More: Shell in $2.1B North American Portfolio Restructuring Move)

2.    U.S. energy firm, Apache Corp. announced that it has struck oil in the Canning Basin, off the shore of Western Australia. The discovery, at the Phoenix South-1 well, marks the company’s first find in the region and is believed to be a significant one. Preliminary estimates indicate about 300 million barrels of oil in the area, based on six light oil samples collected from the region. Moreover, the company stated that the oil and reservoir quality are indicative of a commercial discovery, which could mean a new oil province in Australia.

3.    World’s largest oilfield services company Schlumberger Ltd. (SLB - Analyst Report) became one of the first major U.S. companies to announce that its quarterly earnings would be hurt due to sanctions imposed by the U.S. and European Union (EU) on Russia over the Ukraine crisis. The Houston, TX-based Schlumberger – which drills on the island of Sakhalin with Rosneft – sees its third-quarter profit to be hurt by about 3 cents per share, as the penalties confine the engagement of people and equipment in Russia. (Read More: Schlumberger Q3 Earnings to Suffer for Sanctions on Russia)

4.    British energy major BP plc’s (BP - Analyst Report) associate, BP Trinidad and Tobago (BpTT) received the nod for its Juniper offshore gas project. The development will comprise construction of a normally unmanned platform, along with related subsea infrastructure. The project – a first of its kind for BpTT – will consist of five subsea wells and a production capacity of around 590 million standard cubic feet a day.  (Read More: BP Receives Approval for its Juniper Offshore Gas Project)

5.    Oil drilling equipment maker Cameron International Corp. (CAM - Analyst Report) announced that it has signed a deal with industrial goods manufacturer, Ingersoll-Rand Plc (IR) for the sale of its Centrifugal Compression business. The transaction is valued at about $850 million in cash. Cameron anticipates after-tax proceeds of about $600 million from the sale which it intends to use to buy back stocks. The transaction is expected to close by 2014.

Price Performance

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

 

Company

Last Week

Last 6 Months

XOM

+1.54%

+5.93%

CVX

-0.09%

+11.18%

COP

-1.18%

+22.06%

OXY

+1.20%

+5.96%

SLB

-0.28%

+19.52%

RIG

-0.73%

-8.27%

VLO

+4.73%

+5.58%

TSO

+3.63%

+27.18%

Over the course of last week, refiner Valero Energy Corp. (VLO - Analyst Report) was the best performer among the market heavyweights, adding 4.7% to its stock price. The downstream operator recently beat Q2 earnings estimates, thriving on higher refining throughput volumes. On the other end of the spectrum, the biggest loser was U.S. independent oil and gas company ConocoPhillips (COP - Analyst Report), which fell 1.2% during the period amid falling crude prices.

Over the last 6 months, Tesoro Corp. (TSO - Analyst Report) – another U.S. refiner – was the leader of the pack with its shares advancing 27.2%. Investors have rewarded the company for its continued focus on shareholder returns. But offshore driller Transocean Ltd. (RIG - Analyst Report) witnessed an 8.3% price decline over the same time frame on the back of rig oversupply that has led the industry into a cyclical downturn.

What’s Next in the Energy World?

Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking Wednesday’s minutes of Federal Reserve’s July policy meeting, together with reports on housing and consumer prices.

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