BP, COP Drop Denali

The BP Plc ( BP - Analyst Report ) and ConocoPhillips’ ( COP - Analyst Report ) Denali joint venture (JV) project has been scrapped. The JV was shelved as the companies failed to secure support that was needed to justify further advancement of this project. Persistently falling natural gas prices was also a reason cited for the mutual decision.

The North American gas market has transformed since the Denali project commenced in 2008. Excessive volumes of shale gas created an imbalance in the demand-supply ration, and resulted in declining gas prices, which took a toll on the BP-ConocoPhillips venture.

The $35 billion Denali was competing with TransCanada Corp. ( TRP - Snapshot Report ) in pipeline construction to ship natural gas from Alaska's North Slope to markets in the U.S. Lower-48. It was a part of the Alaska Gas Pipeline proposal to transport natural gas from its source in Alaska to the U.S. Midwest.

Denali’s departure leaves TransCanada and its partner ExxonMobil Corp. ( XOM - Analyst Report ) with space and freedom to continue with their tender, though legislators remain dissatisfied with their pace of work.

Denali, the now discarded 1,750 mile pipeline, was once proposed to be the largest private investments in North America and was scheduled to be in service in 2020. It was planned to stretch across Alaska and into Alberta, aiming to ship 4.5 billion cubic feet of gas daily to North American markets. Notably, $165 million and more than 760,000 man hours were invested in the Denali JV.

U.K.-based BP is one of the world's largest energy companies, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemical products. On the other hand, Texas-based ConocoPhillips is a major globally integrated oil company engaged in the exploration and production of oil and natural gas, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses.

We are maintaining our long-term Neutral recommendation on both ConocoPhillips and BP stocks. The companies also retain a Zacks #3 Rank, which translates into a short-term Hold rating.