It was a week when both oil and natural gas prices settled significantly higher.
On the news front, ConocoPhillips (COP - Free Report) said its board increased quarterly dividend by 2.4%, while Hess Corporation (HES - Free Report) sold its working interest in Gulf of Mexico’s Shenzi Field for $505 million.
Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained9.6% to close at $40.60 per barrel, while natural gas prices increased more than 12% for the week to finish at 2.741 per million Btu (MMBtu). In particular, the oil markets reversed their decline from the previous week, when the commodity fell sharply.
Coming back to the week ended Oct 9, oil prices posted a hefty rise on the back of Hurricane Delta-related production disruptions and a U.S. government data showing a decline in fuel (gasoline and distillate) stockpiles.
Natural gas finished sharply higher too on cold weather forecasts that should result in the heating fuel’s increased demand.
Recap of the Week’s Most-Important Stories
1. ConocoPhillips recently announced a hike in quarterly dividend, as a shareholder-friendly measure. While many leading energy firms are either considering or have opted for a cut in dividend payouts amid the coronavirus pandemic, the company’s decision to increase dividend is expected to send positive signals to investors.
The new dividend of 43 cents per share (or $1.72 annually) reflects a 2.4% increase from the prior payout of 42 cents. The dividend is likely to be paid on Dec 1, to stockholders of record as of Oct 19. The dividend yield, based on the new payout and the last closing market price, is approximately 4.5%.
This new move to boost shareholder value came following the stock buyback decision announced in September-end. ConocoPhillips plans to resume share repurchase of $1 billion in the fourth quarter, following a five-month hiatus. It will use the cash available on the balance sheet to fund the stock buybacks. Earlier, it had slowed down the pace of the 2020 stock buy-back program due to market uncertainties. (ConocoPhillips Rewards Investors With Dividend Hike)
2. Hess recently agreed to divest a 28% working interest in the Shenzi Field — located in the deepwater Gulf of Mexico (GoM) — to BHP Billiton of BHP Group (BBL - Free Report) , an Australia-based company. The divestment is expected to fetch Hess $505 million.
The effective date of the deal is Jul 1, 2020. Net production from the Shenzi Field, a six-lease development, for the first eight months of this year averaged 11,000 barrels of oil equivalent per day, a significant portion of which was oil. The company expects the deal to close before 2020-end, following which BHP is expected to hold a 72% stake in the field. Repsol S.A., another partner in the field, will hold the remaining 28% interest.
The divestment is in line with the company’s strategy of preserving cash and the value of assets. Especially, given the current volatile market situation, Hess intends to focus on more profitable assets with higher returns. As such, it intends to invest the proceeds from the divestment in Guyana operations. (Hess to Divest Shenzi Field Stake in GoM for $505 Million)
3. Cabot Oil & Gas Corporation (COG - Free Report) issued an operational update for the third quarter of 2020. The company started a production curtailment plan on Sep 18 in response to the sharp decline in natural gas prices throughout Appalachia.The temporary production cut is part of the upstream operator’s efforts to improve margins going forward when prices go up. Despite the curtailment program, Cabot's third-quarter production guidance remains at its previously mentioned range.
Considering the impact of curtailments leading to an average of 450 Mmcfe per day of lower gross production month to date, Cabot’s fourth-quarter 2020 production guidance is pegged at 2,300-2,350 Mmcfe per day, the annual production guidance for 2020 being 2,325-2,340 Mmcfe per day against a capital program of $575 million. Earlier, Zacks Rank #3 (Hold) Cabot had expected its 2020 production to be 2,350-2,375 Mmcfe per day.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Due to the tightened demand-supply fundamentals, the company expects a significant increase in natural gas prices in 2021. This, in turn, will trigger growth in Cabot's free cash flow next year, allowing the company to utilize the excess amount for the increased return of capital to its shareholders and the repayment of debt. (Cabot Sees Lower 2020 Output, Expects Natural Gas Price Hike)
4. TC Energy Corporation (TRP - Free Report) recently announced that it has offered to acquire all TC PipeLines’ (TCP - Free Report) outstanding units for $1.48 billion that it does not completely own. The move comes at a time when the company plans to remove the master limited partnership (MLP) structure of TC PipeLines, a corporate set-up once popular in the U.S. pipeline industry.
This strategic action will provide TC PipeLines unitholders with 0.650 common shares of TC Energy for each issued and outstanding publicly held TCP common unit, accounting for a 5.4% premium to the closing price as of Oct 2.
TC Energy’s takeover bid for its pipeline partnership is part of the ongoing simplification of corporate structures in the MLP space. The series of transactions — primarily consolidations by parents structured as C-Corps leading to the elimination of the MLP model — are aimed at better corporate governance and a lower cost of capital in a softer market. (TC Energy Offers $1.48B Acquisition Deal to TC PipeLines)
5. TOTAL SE (TOT - Free Report) announced that it has further expanded renewable operations through the acquisition of a 20% stake in the Eolmed floating wind farm pilot project, located in the Mediterranean, off the coast of Gruissan and near Port-La-Nouvelle (Occitan region).
TOTAL is focused on expanding renewable operations globally and aims to produce 35 gigawatts (GW) of energy from renewable sources by 2025 from the present level of 7 GW.
TOTAL reaffirms the net-zero emission target for 2050 and has plans to reduce Scope 3 emissions by European customers by 30%, in absolute value, within 2030. The company has maintained planned investment in the range of $1.5-$2 billion annually in low-carbon electricity generation to achieve long-term goal. (TOTAL Buys 20% of Eolmed Wind Project, Widens Renewable Base)
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 +5.3% -20%
CVX +3.9% -12.3%
COP +6.2% +3.8%
OXY +9.6% -29.5%
SLB +4.2% +1.1%
RIG +7.5% -41.1%
VLO +7.1% -13.3%
MPC +6.5% +20.4%
The Energy Select Sector SPDR — a popular way to track energy companies — gained 5% last week. The best performer was Houston-based oil and gas producer Occidental Petroleumwhose stock jumped 9.6%.
For the longer term, over six months, the sector tracker has lost 8.7%. Offshore driller Transocean was the major loser during the period, experiencing a 41.1% price decline.
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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