It was a week which saw oil prices climb back above $50 a barrel, while natural gas futures soared to their highest levels since Dec 2014. 

While the successful OPEC deal dominated market tone for the week, there were other important releases as well. Among major developments, European oil major BP plc (BP Quick QuoteBP - Free Report) decided to move ahead with the $9 billion Mad Dog Phase 2 deepwater project in the Gulf of Mexico and pipeline operator Kinder Morgan Inc. (KMI Quick QuoteKMI - Free Report) got Canadian government’s approval for the Trans Mountain pipeline expansion.

Overall, it was an excellent week for the sector. West Texas Intermediate (WTI) crude futures rallied 12.2% to close at $51.68 per barrel, while natural gas prices jumped 7.3% to $3.436 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon's Liberia Drilling, BP's Egyptian Deal and More.)

Oil capped the biggest weekly gain since Jan 2009 following the Organization of Petroleum Exporting Countries (or OPEC) cartel’s success in reaching an output deal. In a bold but not unexpected move, OPEC agreed on Nov 30 to reduce production starting next month. Seen as a desperate bid to put a floor on falling oil prices, the group – led by Saudi Arabia – promised to take 1.2 million barrels a day out of the market.

OPEC's decision to cut oil production was not totally surprising though the magnitude of reduction were deeper than many analysts had expected. The move aims to trim output to 32.5 million barrels per day -- at the low end of a preliminary agreement struck in September.

Russia, which is not part of the body that pumps a third of the world’s oil, will also join output cuts for the first time in 15 years. The biggest supplier outside the bloc relented from its longstanding position of only freezing production and agreed to cut 300,000 barrels from its record high output of more than 10 million barrels a day.

Meanwhile, natural gas also turned sharply higher following the season’s second withdrawal and forecasts of colder weather that translates into strong demand for the heating fuel.

Recap of the Week’s Most Important Stories

1.    World’s British energy giant BP plc has given green light for a deepwater project – Mad Dog Phase 2 – located in the Gulf of Mexico.

Mad Dog Phase 2 will comprise a new floating production platform, which will have a producing capacity of about 140,000 gross barrels of crude oil per day from up to 14 production wells. The project is expected to come online in late 2021.

BP is the operator of the project with an interest of 60.5%. In 2013, BP and its partners decided to re-examine the Mad Dog Phase 2 project after an initial design proved too complicated and expensive.

BP has since been working with the co-owners and contractors to streamline and systematize the platform’s design to lower overall project cost by about 60%. At present, the improved $9 billion project – including capacity for water injection – is anticipated to be profitable at or below current oil prices. (Read more: BP Approves Mad Dog Phase 2 Project, Strengthens U.S. Ties.)

2.    Houston, TX-based energy infrastructure provider Kinder Morgan Inc. announced that it has received approval from the Government of Canada for the Trans Mountain Expansion Project.

The 1,150 kilometer Trans Mountain pipeline system has been operational and providing the sole West Coast access for Canadian oil products for over six decades. In 2012, Kinder Morgan Canada announced its intention to proceed with the proposed plans to expand the existing Trans Mountain Pipeline system between Edmonton, Alberta and Burnaby, British Columbia following strong commitments from its customers.

Trans Mountain Expansion Project is expected to enable Canadians to reach out to the world markets for its resources by further developing an existing pipeline system. The expansion project, which is expected to cost CAD$6.8 billion, is believed to have direct and lasting benefits. These comprise $46.7 billion in taxes and royalties for governments, over 800,000 person years of employment over the span of the project. The project will also enable producers to generate revenues of an additional $73.5 billion. (Read more: Kinder Morgan's Trans Mountain Project Gets Final Approval.)

3.    Oilfield services provider Baker Hughes Inc. recently declared that it has entered into an accord with private equity firm CSL Capital Management and investment banking giant The Goldman Sachs Group Inc. (GS Quick QuoteGS - Free Report) to create a fracturing joint venture (JV). Baker Hughes currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The JV – a hydraulic fracturing firm – will be headquartered in Tomball, TX and is expected to operate under the BJ Services brand of Baker Hughes. It is to be noted that Baker Hughes will have 46.7% interest in the new entity, while the remaining 53.3% will be held by CSL Capital Management and Goldman's West Street Energy Partners.

Per the deal, Baker Hughes’ North American land cementing and hydraulic fracturing operations – comprising U.S and Canadian properties – will get added to the JV. However, international pressure pumping operations or Gulf of Mexico offshore pressure pumping businesses of Baker Hughes will not be part of the entity. Moreover, the Allied Energy Services platform of CSL Capital Management will also be included in the JV. (Read more: Baker Hughes to Create New Fracturing Joint Venture.)

4.    Energy explorer Chesapeake Energy Corp. (CHK Quick QuoteCHK - Free Report) inked a divestment agreement for part of its acreages in Haynesville Shale area for roughly $450 million. Per Reuters, natural gas producer Indigo Minerals LLC is the buyer of the properties.

The deal entails Chesapeake to offload 78,000 net acres from the region, of which approximately 40,000 net acres is considered to be core acreage. The sale – likely to be completed by the first quarter of 2017 – also comprises 250 wells with production capacity of 30 million cubic feet of gas every day.

Including this transaction, Chesapeake has garnered gross proceeds of roughly $2 billion from the deals that are either completed or signed during 2016. The company also announced that it is seeking potential buyers for an additional 50,000 acres in its Haynesville Shale region within the first quarter of the next year. (Read more: Chesapeake to Divest Part of Haynesville Properties.)

5.    Brazil's state-run energy giant Petrobras (PBR Quick QuotePBR - Free Report) announced that a Brazilian federal court has issued an order to block the sale of the interest of its subsidiary, BR Distribuidora. Also, the court has suspended the company’s transfer of rights of oil and natural gas exploration, development and production of a set of onshore fields.

The sale process was blocked on the request of the members of an oil worker’s union in the northern state of Sergipe. The workers argued that Petrobras should hold a public tender to sell the stake in the subsidiary instead of the current private negotiation. Petrobras intends to appeal the order.

Petrobras, with net debt of around $103.56 billion, is the most indebted energy company in the world. The company is undergoing a deep financial crisis due to low oil prices and the loss of goodwill owing to the discovery of massive corruption within its ranks. As a result, the company intended to sell its stake in BR Distribuidora – Brazil's largest fuel distribution company.

Price Performance

The following table shows the price movement of some 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 up 2.57%. Consequently, investors witnessed buying in most market heavyweights. The best performer was rig supplier Transocean Ltd. (RIG Quick QuoteRIG - Free Report) whose stock price soared 17.30%.

Longer-term, over the last 6 months, the sector tracker has gained 11%. Again, Transocean was one of the major beneficiaries during this period, experiencing a 25.16% 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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