Oil & Gas Stock Roundup: Shell Unveils New Strategy, BP to Spin Off Norway Business

It was a week where oil prices climbed to an 11-month high and natural gas futures soared to their best level since late September.

On the news front, Royal Dutch Shell plc unveiled a strategy to reshape the company through steeper cost cuts, while BP plc (BP - Free Report) has agreed to spin off Its local business in Norway.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures rose 0.9% to close at $49.07 per barrel, while natural gas prices jumped 6.6% to $2.556 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Devon Energy Unloads $1B in Assets, Schlumberger Buys Omron Unit.)

Oil prices moved north for the eighth time in 10 weeks on continued supply disruptions in Nigeria. Things were further helped by the U.S. Energy Department's weekly inventory release that showed a large drop in crude stockpiles. However, most of the gains were erased after the Baker Hughes report revealed a rise in the U.S. oil rig count for the second straight week – indicating resurgence in shale drilling activities.

Natural gas surged big time following a bullish inventory report and predictions of strong cooling demand with forecasts of warmer temperature across the country over the next few days.

Recap of the Week’s Most Important Stories

1.    Europe’s largest energy producer Royal Dutch Shell plc reiterated plans to further cut costs and confirmed that the 3-year $30 billion asset sale program was well on track. In its new mid-term strategy, the company announced several steps to cope with the ‘lower for longer oil’ and pay down its ballooning debt following the $54 billion BG Group acquisition.

According to Shell management, these policies will help reassure investors about the company’s ability to cover the all-important dividend payment. This has assumed significance after Shell had to dig into reserves for shareholder payouts during the first quarter when cash flow fell below the dividend bill.

The group’s Chief Executive hopes the new strategy will lift stock price, improve shareholder returns to about 10% by the end of the decade and eventually catapult Shell to its glory days by making it the best oil investment. (See More: Royal Dutch Shell Unveils New Plans, Eyes No. 1 Spot.)

2.    Oil giant BP plc and Det norske oljeselskap, along with the latter’s shareholder Aker ASA, will form the largest Norwegian independent oil and gas producer.

The new entity, to be renamed Aker BP ASA, will combine the assets as well as expertise of both the companies’ Norwegian exploration and production operations. Per the terms of the proposed transaction, Aker BP will be operated independently. It will also be listed on the Oslo Stock Exchange.

Shareholders of Aker BP will be current Det norske stakeholder Aker, other Det norske shareholders and BP, with 40%, 30% and 30%, respectively. BP is also entitled to collect a cash payment of $140 million and positive working capital adjustments as part of the transaction. (See More: BP, Det norske to Jointly Form Largest Norwegian Producer.)

3.    Independent natural gas operator Southwestern Energy Co. (SWN - Free Report) announced that it has entered into a definitive agreement with energy explorer Antero Resources Corp. Per the agreement, Southwestern Energy will sell approximately 55,000 net acres in West Virginia for $450 million. The cash proceeds from the transaction – expected to close in the third quarter of 2016 – are earmarked to reduce the principal balance of the company's $750 million term loan due in Nov 2018.

The properties to be disposed are located in Doddridge, Harrison, Marion, Monongalia, Pleasants, Ritchie, Tyler and Wetzel Counties and are currently producing from the Marcellus Shale. Net production from this acreage is approximately 14 million cubic feet of gas equivalent per day, primarily from non-operated wells. Proved reserves were 11 billion cubic feet equivalent (Bcfe) as of Dec 31, 2015. The company had no plan to drill on these properties before 2023. (See More: Southwestern Energy to Sell Southwest Appalachia Acreage.)

4.    Pipeline giant Williams Companies Inc. (WMB - Free Report) and Energy Transfer Equity L.P.’s merger was recently approved by the U.S. Federal Trade Commission, subject to certain conditions.

The approval is contingent on the combined entity agreeing to sell Williams' 50% stake in an interstate natural gas pipeline that serves Florida - its electric power companies in particular. The antitrust approval was the last regulatory hurdle for the closure of this $20 billion deal.

Notably, Williams’ shareholders will vote for the pending merger on Jun 27. Under the current terms, the merger will fall though if it is not closed by Jun 28, 2016. (See More: Williams-Energy Transfer Receives Merger Approval with Conditions.)

5.    Norwegian energy giant Statoil ASA announced that it has completed the drilling of wildcat well 30/11-13. The well’s proven gas/condensate and is located in the North Sea. The well encountered gas columns at two levels in the top part of the Tarbert formation, at a total of 16 feet and 101 feet, respectively, of which 13 and 72 feet had good-to-moderate reservoir properties.

The preliminary estimation of the size of the discovery is 35–105 million standard cubic feet of recoverable oil equivalents. Well 30/11-13 was drilled to a vertical depth of 10,869 feet below the sea surface and was terminated in the Ness formation. It is the fourth exploration well in production license 272.

Well 30/11-13 was drilled by the Songa Delta drilling facility, which will continue the drilling campaign by drilling wildcat well 30/11-14 in the same production license operated by Statoil. (See More: Statoil Strikes Gas at Wildcat Well 30/11-13 in North Sea.)

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’ edged up 0.07% on lingering supply disruptions. Consequently, investors witnessed buying in some large companies. The best performer was offshore drilling giant Transocean Ltd. (RIG - Free Report) that added 17.64% to its stock price.

Longer-term, over the last 6 months, the sector tracker is up 10.56%. The world’s largest publicly traded oil company Exxon Mobil Corp. was the main beneficiary during this period, experiencing a 19.15% 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. Moreover, oil prices will again guide market proceedings to a significant extent.

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