It was a week where both oil and gas prices finished sharply lower.

On the news front, BP plc (BP Quick QuoteBP - Free Report) announced a second strategic partnership with China’s state-owned energy company CNPC for shale gas exploration, while Diamond Offshore Drilling Inc. (DO Quick QuoteDO - Free Report) said its contract for the semisubmersible Ocean Valor was canceled more than two years early.

Overall, it was a dismal week for the sector. West Texas Intermediate (WTI) crude futures dived 6.7% to close at $44.44 per barrel, while natural gas prices ended down 4.2% to $2.792 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon Scraps Alaska Project, Shell Offloads Some GoM Assets.)

Oil prices sank to its second weekly loss in a row after the U.S. Energy Department's inventory release showed that crude stockpiles recorded a much larger-than-anticipated build, thus remaining at record high levels for this time of year. The commodity also suffered from a strong dollar that made the greenback-priced crude expensive for investors holding foreign currency.

Natural gas fared badly too following a higher-than-expected increase in supplies. It was also dragged down by expectations of tepid heating demand with the imminent arrival of colder autumn temperatures.

Recap of the Week’s Most Important Stories

1.    British energy giant BP plc announced that it has inked a production sharing contract (‘PSC’) with China National Petroleum Corporation ("CNPC") for shale gas exploration, development and production. The PSC pertains to an acreage of about 1,000 square kilometers at Rong Chang Bei in the Sichuan Basin. CNPC will operate the block.

This is the second contract between BP and the Chinese state-owned firm. The first PSC was signed in Mar 2016 and related to the adjoining Neijiang-Dazu block. The companies had also entered into a framework agreement on strategic cooperation in Oct 2015.

 The latest PSC emphasizes BP’s commitment to explore and develop unconventional resources in China. The framework agreement includes potential future fuel retailing ventures in China, promising new oil and LNG trading opportunities globally and carbon emissions trading as well as knowledge sharing around low carbon energy and management practices. (Read more: BP Signs Second Chinese Shale Gas Agreement with CNPC.)

2.    Houston-based driller Diamond Offshore Drilling Inc. reported that Brazil’s Petrobras (PBR Quick QuotePBR - Free Report) has canceled a rig contract. Investors soured on shares in Diamond Offshore following the news and the stock fell almost 11% to $16.51 on Thursday. Petrobras opted to terminate the contract for the semisubmersible Ocean Valor. The drillship was contracted through October 2018 at a dayrate of around $455,000.

This is another sign that the collapse in crude prices that began in mid-2014 amid a glut of supply and slowing demand for the commodity has affected the offshore drillers badly as oil companies cut back their capital spending.

3.    Norwegian oil giant Statoil ASA has inked a Memorandum of Understanding (‘MoU’) with Brazil’s state-run energy behemoth Petrobras in order to strengthen their ties in the South American country. The MoU was signed by the two parties during the ONS 2016 conference in Stavanger.

The purpose of the MoU is to assess joint participation in the future tenders for exploration areas and to enhance upstream cooperation in producing fields in the Santos and Campos offshore basins. Moreover, the agreement outlined a prospective framework for collaboration on value creating opportunities in the gas value chain.

The companies’ objective is to capture value through use of technology and simplification of operational activities. Currently, Petrobras and Statoil are partners in 13 blocks in either exploration or production – 10 in Brazil and three elsewhere. (Read more: Statoil-Petrobras MOU for Joint Participation in Future Projects.)

4.    The challenging operating environment notwithstanding, energy-engineering services provider Matrix Service Co. (MTRX Quick QuoteMTRX - Free Report) reported strong fiscal fourth-quarter numbers. While sales and earnings declined from the year-ago period due to low commodity prices, both results exceeded expectations. The outperformance came on the back of heightened activity on a power plant project and storage terminals related to an oil pipeline.

The company, which shelled out some $10.5 million to repurchase more than 650,000 shares in fiscal 2016, also managed to lower its SG&A expenses 11% year-over-year to $19.6 million in the most recent quarter. As of Jun 30, 2016, Matrix Service’s total backlog stood at $868.7 million.

For fiscal 2017, the company is guiding for EPS of $1.10-$1.40 (on revenue of $1.3 billion to $1.45 billion) – up from this fiscal year’s $1.07 – driven by a number of under-construction projects and the expected receipt of additional awards.

5.    Brazil's troubled state-run energy giant Petrobras announced that its voluntary layoff program, which came to an end on Aug 31, has been accepted by 11,704 employees.

In Apr 2016, the Rio de Janeiro-based oil producer had launched this program to lay off 21% of its staff or around 12,000 workers between 2016 and 2020. This voluntary retrenchment program was in line with the company’s plan to cut costs, reduce its debt level and strengthen its balance sheet.

Petrobras expects this program to cost around 4 billion reais ($1.23 billion) and generate savings up to 33 billion reais through 2020. The company has already set aside an amount of 1.2 billion reais in the second quarter to provide for the expenses. (Read more: Petrobras' Layoff Program Ends; 11,704 Take the Offer.)

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.

Over the course of last week, ‘The Energy Select Sector SPDR’ was down 0.83% amid a large supply increase. Consequently, investors witnessed selling in most market heavyweights. The worst performer was Houston-based oil and gas finder ConocoPhillips (COP Quick QuoteCOP - Free Report) whose stock price fell 4.76%.

But longer-term, over the last 6 months, the sector tracker has jumped 14.41%. U.S. energy major Chevron Corp. (CVX Quick QuoteCVX - Free Report) was the main beneficiary during this period, experiencing a 15.31% price increase.

What’s Next in the Energy World?

As usual, market participants will be closely tracking the regular weekly releases i.e. the U.S. government data on oil and natural gas. Energy traders will also be focusing on the Baker Hughes data on rig count.

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