It was a week wherein oil futures closed at their highest levels since March and gas prices hit a nine-month high.
On the news front, Kinder Morgan (KMI - Free Report) placed Elba Island (Georgia) LNG Unit 7 in service, while TOTAL SE’s (TOT - Free Report) majority-owned SunPower Corporation (SPWR - Free Report) successfully completed a spin-off transaction.
Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained1.5% to close at $42.97 per barrel, while natural gas prices increased 8.5% for the week to finish at 2.657 per million Btu (MMBtu).
The crude benchmark rose to its highest in five months after a weekly report from the Energy Information Administration ("EIA") showed a stockpile draw. The decline in oil inventories was the fifth in as many weeks and came in tandem with a fall in gasoline supplies. The commodity also got a leg up from Hurricane Laura-related supply disruptions.
Meanwhile, natural gas rallied to its highest in 2020 due to robust cooling demand and expectations of continued favorable weather, which is likely to translate into the burning of more fuel to feed higher electricity consumption for air-conditioning. The steady improvement in shipments of LNG for export and the impending supply drop tied to lower crude production are the other positives in the natural gas story.
Recap of the Week’s Most-Important Stories
1. Kinder Morgan recently announced that it has brought the Movable Modular Liquefaction Unit 7 online under the Elba Liquefaction project. With this latest move, full commercial operations at the $2-billion facility have kickstarted.
The facility’s construction process started on Nov 1, 2016 after receiving project authorizations from the regulatory body on Jun 1. The company now has 10 units running at the site, with a liquefying capacity of 0.3 MTPA per unit. It has a total capacity of 2.5 million tons per annum of LNG for export.
Trains 1-6 and 8-10 were already in service. Notably, all the 10 units were earlier expected to come online by the end of this summer. It has EIG Global Energy Partners as a partner at the facility. The liquefaction facility has Royal Dutch Shell plc as a long-term client of the project. (Kinder Morgan Brings Final Train at Elba Facility Online)
2. TOTAL SE announced that its unit, SunPower Corporation (SPWR - Free Report) has completed the spin-off of Maxeon Solar Technologies (MAXN) into a separate entity. The new entity will focus on the development of the solar panel technology. After this spin-off, SunPower will concentrate on the North American distributed generation and storage market.
TOTAL will continue to be the major shareholder of SunPower with a 51.7% shareholding. It will have a 34.6% shareholding in the new company, Maxeon Solar Technologies. So, this spin-off in a way will benefit TOTAL and expand its reach in the solar energy business, as SunPower and Maxeon Solar Technologies will now concentrate on two different areas.
Tianjin Zhonghuan Semiconductor Co., Ltd., a long-term partner of SunPower, is acquiring 28.848% shares of Maxeon Solar Technologies through a $298-million equity investment. The investment will aid Maxeon Solar to increase the production of high-quality Maxeon® 5 premium solar panels. (TOTAL's Unit SunPower Spins Off Maxeon Solar Technologies)
3. The Williams Companies, Inc. (WMB - Free Report) recently announced its strategy for a sustainable environment wherein it is targeting a 56% absolute reduction in greenhouse gas emissions by 2030 from the 2005 levels, thereby inching closer to the net-zero greenhouse gas emission goal by 2050.
The plan is aimed at addressing climate change issues and creating a clean energy economy with a low carbon footprint. To meet this objective, the U.S. natural gas processing and transmission firm is prepping for common sense methane emission reduction by spotting leakages and renovating equipment as well as assessing improvements in the same on a site-specific basis. Most importantly, the company is expanding its renewable energy storage. Its near-term efforts will also include exploration of renewable energy opportunities, comprising renewable natural gas and solar energy.
This climate commitment move follows Williams’ recently announced plans to install solar projects with capacities of around one and 40 megawatt (MW) on lands nearby its existing facilities. The solar power installations are expected to come online in late 2021. (Williams Sets New Goal to Trim Greenhouse Gas Emissions)
4. Royal Dutch Shell plc (RDS.A - Free Report) recently secured permission from Mexico's National Hydrocarbons Commission to perform all activities in its exploration plan for the ultra-deepwater Xochicalco oilfield in the Gulf of Mexico.
Xochicalco field is located 123 miles offshore the city of Tampico in the northern province of Tamaulipas. Per the plan, Zacks Rank #2 (Buy) Shell will initiate drilling of an extra well and a sidetrack. The field is situated in the Perdido fold belt, an area with no significant history of exploration activity nor any remote connection to any existing infrastructure, which make it technically challenging.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shell will drill a well at depths of five miles and reach the Wilcox formation with prospective reserves of as much as 562 million barrels of oil equivalent. Further, to better understand the reservoir, the company plans to drill more wells, thereby improving its investment in the play from $104 million in the original exploration plan, which was first approved last June, to $345.8 million. (Shell to Explore Xochicalco Field, Ups Investment to $345.8M)
5. In its weekly release, Baker Hughes Company (BKR - Free Report) reported that the U.S. rig count was in line with the prior-week’s count despite some producers shutting rigs due to Hurricane Laura, which made landfall on Aug 27. Rigs engaged in the exploration and production of oil and natural gas in the United States were 254 in the week through Aug 28, in line with the prior-week’s count. The current national rig count is, however, well below the prior year’s 904.
Oil rig count was 180 in the week through Aug 28 compared with 183 in the week ended Aug 21. Investors should also note that the current tally of oil rigs — far from the peak of 1,609 attained in October 2014 — is also below the year-ago 742.
The natural gas rig count of 72 was higher than the prior-week’s count of 69. However, the count of rigs exploring the commodity is lower than the prior-year week’s 162. Importantly, per the latest report, the number of natural gas-directed rigs is 95.5% below the all-time high of 1,606 recorded in 2008. (US Oil & Gas Rig Tally Flat Despite Hurricane Laura)
The following table shows the price movement of some the major oil and gas players over past week and during the last six months.
Company Last Week Last 6 Months
XOM -0.8% -23.4%
CVX +0.6% -11%
COP +0.6% -23.3%
OXY -0.2% -61.9%
SLB +4.5% -31.2%
RIG +18.4% -62.7%
VLO +4.3% -20.8%
MPC +4.8% -26.3%
The Energy Select Sector SPDR — a popular way to track energy companies — gained 1.1% last week. The best performer was offshore driller Transocean Ltd. (RIG - Free Report) whose stock jumped 18.4%.
For the longer term, over six months, the sector tracker is down 21.8%. On the other end of the spectrum this time, Transocean was the major loser during the period, experiencing a 62.7% price plunge.
What’s Next in the Energy World?
As global oil consumption gradually ticks up from the depths of coronavirus, market participants will be closely tracking the regular releases to watch for signs that could further validate a rebound. In this context, the U.S.government’s statistics on oil and natural gas — one of the few solid indicators that comes out regularly — will be on energy traders' radar. Data on rig count from energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is also closely followed.
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