It was a week where oil rebounded to levels not seen since January but natural gas futures settled down further.

On the news front, European supermajor Royal Dutch Shell plc sold its entire stake in Iraq’s West Qurna 1 oilfield to a Japanese firm for $406 million, while independent explorer Apache Corp. (APA Quick QuoteAPA - Free Report) made a significant oil discovery in the North Sea.

Overall, it was another mixed week for the sector. While West Texas Intermediate (WTI) crude futures gained around 5.6% to close at $65.88 per barrel, natural gas prices fell 3.6% to $2.591 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Shell Quits New Zealand, Statoil to Become Equinor)

The U.S. oil benchmark jumped above the psychologically important $65 per barrel level last week following the release of EIA crude inventory numbers, renewed geopolitical tensions in the Middle East and Fed announcement on interest rates.

The federal government’s EIA report revealed that crude inventories fell by 2.6 million barrels for the week ending Mar 16. Stockpiles have shrunk in 36 of the last 50 weeks and are down more than 105 million barrels since April last year. The gradual fall has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 428.3 million barrels, current crude supplies are 19.7% below the year-ago period and are in the bottom half of the average range during this time of the year.

Apart from the bullish government data, oil prices were also supported by growing concerns over tensions between major crude producers Iran and Saudi Arabia. There is widespread speculation that Saudi Arabia’s Crown Prince Mohammed bin Salman's ongoing state visit to Washington is aimed at ramping up pressure to reimpose sanctions on Iran. Fast falling production in Venezuela have added to the jitters.

Finally, oil prices were also supported by the Federal Reserve’s decision to raise interest rates. As widely expected, the U.S. central bank opted to hike the benchmark lending rate a quarter-point to between 1.5% and 1.75%. This led to dollar weakness that made the greenback-priced crude more affordable for investors holding foreign currency.

Meanwhile, natural gas prices moved lower last week following a smaller-than-expected decrease in supplies. The 86 billion cubic feet (Bcf) withdrawal was also below last year’s net shrinkage of 137 Bcf for the reported week. The continued strength in production also played spoilsport.

Recap of the Week’s Most Important Stories

1.    Royal Dutch Shell plc is set to offload its entire stake in Iraq-based West Qurna 1 oil field through a $406 million deal, moving ahead with its divestment goals. This represents the second international divestment deal that the company announced in a week after declaring its intention to exit New Zealand by selling its portfolio of energy assets in a $578 million deal.

Per the latest divestment deal, the Anglo-Dutch supermajor will vend 19.6% interest in the West Qurna 1 oil field to Japan's Itochu Corp. According to the agreement, Itochu will assume a debt of $144 million. The deal has already received necessary regulatory approvals and is scheduled for completion within a next few days.

The move will help Shell proceed with its $30-billion divestment program. The deal provides the company with a major uplift in its drive to decrease debt following the acquisition of BG Group for $47 billion. The divestment is expected to reduce the company’s cost and enhance cash flow as well as return to capital.

2.    Apache Corp. recently announced that it has made an oil discovery at its Garten prospect on Block 9/18a Area-W of the North Sea. The significant finding falls in the United Kingdom sector, near the Beryl Alpha Platform, where the independent energy company is focused for future potential.

The Garten prospect encountered more than 700 feet of net oil pay in its reservoirs. Per the company, the recoverable resource from the prospect can surpass 10 million barrels of light oil - at the upper-end mark of its pre-drill measures. Apache owns a 100% working interest in the prospect. The new find is the 2500th exploration well off the coast in the UK Continental Shelf. Apache has used modern data and technologies to discover new possibilities in the area, per its latest efforts to improve capital efficiency.

Notably, the latest discovery is Apache's fourth commercial find in the Beryl region in the preceding three years. The well, located 6 kilometers south of the Beryl Alpha platform, will be tied back to the facility. This is in line with the company’s strategy of focusing on exploration near its already operated fields to avoid the long cycle time of large-scale projects. Apache is working with the U.K. Oil and Gas Authority for achieving regulatory approvals of production in the Garten prospect, which is expected in 2019's first quarter. (Read more Apache Finds Oil at Garten Prospect in UK North Sea)

3.    SandRidge Energy, Inc. (SD Quick QuoteSD - Free Report) , an oil and gas player, recently aborted plans to merge with Tulsa-based rival Midstates Petroleum Company, in an all-stock deal. Last month, Midstates Petroleum had made the proposal to merge with SandRidge after the latter dropped its plan to acquire Colorado-based Bonanza, Creek Energy, Inc. following intense opposition from its shareholders.

Had the deal been finalized, it surely would have improved the scale and value for both the players by creating one of the largest entities in the Mississippian Lime shale formation, as both the companies have a strong presence in the region. However, the merger would entail a significant risk as Mississippi Lime requires much higher commodity prices to prove highly productive.

The company is skeptical about Midstates’ reserves, and the economic feasibility of drilling locations at current oil and gas prices. Further, SandRidge believes that the merger is not likely to unlock substantial synergies unless the company employs Midstates’ assets with high operational efficiency. As such, SandRidge does not support Midstates’ estimate that the merger would result in free cash flows of $320-$400 million over the next four years. The company thus views the collaboration as highly dilutive and not in the best interests of shareholders. (Read more SandRidge Nixes Merger Plan With Midstates Petroleum)

4.    PetroChina Company Ltd. recently received stakes in two offshore oil concessions from the national oil company of UAE, Abu Dhabi National Oil Company ("ADNOC"), for a total consideration of $1.18 billion. The Zacks Rank #2 (Buy) Chinese oil company signed the agreements that have a term of 40 years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Per the deal, PetroChina paid a fee of $600 million for a 10% stake in the Lower Zakum concession, and $575 million for 10% interest in the Umm Shaif and Nassr concession. While operator ADNOC retains the majority shares (60%) in both the concessions, other oil companies are also present in the projects.

Crude production capacity from the Umm Shaif field combined with the Nasr field is 460,000 barrels per day. ADNOC intends to reduce Abu Dhabi’s dependency on imported gas by processing 500 million standard cubic feet of gas per day from the Umm Shaif for the rising domestic energy demand.(Read more PetroChina Buys Oil Stakes in UAE for $1.18 Billion)

5.    BP p.l.c. (BP Quick QuoteBP - Free Report) has selected Susan Dio as the chairman and president of its vast operations in the United States.

The British energy giant manages a large-scale business in the United States including both upstream and downstream activities. The company also focuses on renewable energies in the country. Notably, since 2005, the company has hitherto spent more than $100 billion for all its U.S activities.

With Susan Dio’s election, BP is going to hand over the reins of responsibility of its vital US operations to a woman for the first time. During 2017, the company’s businesses in the United States contributed to $88.7 billion, representing nearly 34% of the total sales and other operating revenues. (Read more BP Elects Susan Dio to Head Extensive U.S. Operations)

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.

Reflecting the week’s bullish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +1.1% return last week. The best performer was oil and gas producer ConocoPhillips (COP Quick QuoteCOP - Free Report) whose stock jumped 6.2%.

Longer-term, over six months, the sector tracker is down 0.7%. Oil giant ExxonMobil Corp. (XOM Quick QuoteXOM - Free Report) was the major decliner during this period, experiencing a 9.1% price depreciation.

What’s Next in the Energy World?

As usual, market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas - one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count.

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