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Oil & Gas Stock Roundup: Chevron's Kitimat Decision, NOV's Subdued Outllook & More

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It was a week when both oil and natural gas prices settled lower.

On the news front, integrated major Chevron (CVX - Free Report) decided to stop funding its Kitimat LNG export project in Western Canada, while oilfield services biggie NOV Inc. (NOV - Free Report) issued a revenue warning for the first quarter of 2021.

Overall, it was another not-so-good week for the sector. West Texas Intermediate (WTI) crude futures lost 6.4% to close at $61.42 per barrel and natural gas prices fell 2.5% in the week to end at $2.54 per million British thermal units (MMBtu). In fact, both the oil and gas markets extended their decline from the previous week.

Coming back to the week ended Mar 19, oil prices fell, as concerns over the reimposition of lockdowns in Europe and safety issues associated with the AstraZeneca COVID-19 vaccine dented the outlook for oil demand recovery.

Natural gas finished down too following a smaller-than-expected withdrawal from storage and the prospect of less consumption due to unfavorable changes in the weather data.

Recap of the Week’s Most-Important Stories

1.  Chevron recently announced its intention to halt the funding of its Kitimat LNG project as it was unable to find a prospective buyer. This decision, however, does not affect the company's other assets in Canada.

Chevron-Canada announced in December 2019 that it will sell its 50% stake in the proposed Kitimat LNG Project in British Columbia. The decision was in sync with the company’s portfolio optimization strategy aimed at maximizing returns and driving value. Also, Kitimat LNG was included in a US$2.2-billion Chevron asset impairment charge in 2019. However, the company failed to obtain a potential buyer for the project.

The Kitimat LNG plant is located in the northern part of the British Columbia province of Canada. Chevron has Woodside Energy Limited of Australia as its 50-50 joint-venture partner in the Kitimat LNG project. Natural gas producing assets in northeast B.C.'s Liard and Horn River Basins, the proposed 471-kilometer Pacific Trail Pipeline, and plans for an LNG liquefaction and export terminal at British Cove near Kitimat are all part of the project. (Chevron Decides to Stall Funding of Kitimat LNG Project)

2.  Shares of NOV plunged more than 10% after the company lowered its first-quarter 2021 guidance due to weather disturbances and lower-than-expected customer demands.

Clay Williams, chairman, president and CEO said, “Unfortunately, the extreme winter weather across Texas and Oklahoma, the ongoing effects of COVID-19 lockdowns, and the continued spending austerity from our oilfield customers are combining to take a greater-than-expected toll on our first quarter results.”

The Houston, TX-based company’s Rig Technologies unit and the Completion & Production Solutions unit were affected by logistical troubles from coronavirus-induced restrictions in Southeast Asia and postponements in certain projects. Also, shortage in the supply of acute global glass fiber hampered NOV’s fiberglass systems operations. As a result of these headwinds, the company now foresees its first-quarter sales in the $1.20-$1.25 billion range while its adjusted EBITDA loss is anticipated in the $15-$25 million band.

3.  Oilfield services provider Frank's International N.V. (FI - Free Report) recently announced its decision to merge with Expro Group, a privately-held international energy service company based in the United Kingdom. Per this all-stock transaction, nearly 65% of the combined entity will be held by Expro shareholders while the remaining 35% will be owned by Frank's shareholders.

Equipped with an extensive variety of complementary, specially designed equipment and facilities, the merged entity will offer customers an array of profitable, advanced solutions across the well lifecycle, leading to a stable, diverse revenue blend.

Further, the consolidated company will have a financially stable, debt-free balance sheet along with solid order backlog. Also, it will have the ability to generate more than $1 billion of pro forma annual revenues in addition to through-cycle free cash flow and growth. (Frank's Agrees to Merge WithExpro in an All-Stock Deal)

4.  In its recently published annual report, Royal Dutch Shell (RDS.A - Free Report) announced that its earnings from the trading of crude oil and refined products increased two-fold year over year to $2.6 billion in 2020.

Despite low commodity prices and a historic plunge in demand during the pandemic, Shell benefitted from its trading division and by taking advantage of such difficult circumstances, which allowed it to raise cash by storing oil to sell later. This reflects the importance of the Zacks Rank #2 (Buy) company’s massive trading, refining and retail operations during the short-term shift in supply and demand worldwide.

You can see the complete list of today’s Zacks #1 Rank stocks here.

In 2020, Shell’s Oil Products division achieved total earnings of $5.995 billion. Notably, its oil trading operations, internally known as Trading & Supply, accounted for 43% of the segment’s earnings, which significantly increased from the prior-year figure of $1.3 billion. The immensely high contribution from the trading operations enabled Shell to balance out the economic impacts of the pandemic.(Shell Makes $2.6B Profit in 2020 From Trading Business)

5.  HighPoint Resources announced that it filed for bankruptcy protection, with the intent that a speedy recovery from financial difficulties will help seal the previously announced merger deal with Bonanza Creek Energy Inc. (BCEI - Free Report) . The company filed a Chapter 11 petition in the United States Bankruptcy Court for the District of Delaware to restructure its debts and obligations, and keep the merger-deal alive. Notably, HighPoint estimated its liabilities to be around $1 billion.

Last November, HighPoint and Bonanza Creek reached an agreement of consolidation in a $376-million deal. The agreement involved merging of the two companies in the Denver-Julesburg (“DJ”) Basin to form a new entity as well as combine their property and production.

HighPoint declared Chapter 11 bankruptcy protection, following the approval of the companies’ shareholders to merge as part of a pre-packaged debt restructuring agreement. Notably, the bankruptcy plan and the merger deal with Bonanza Creek involve $625 million in unsecured debt in exchange for shares in the combined company. (HighPoint Seeks Bankruptcy Protection to Close Merger Deal)

Price Performance

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                 -8.8%               +59%
CVX                 -7.3%                +36.9%
COP                -11.1%              +53.4%
OXY                 -8.3%                +153.6%
SLB                 -6.8%                +56.1%
RIG                  -17.4%              +330.6%
VLO                 -10.6%              +55.4%.
MPC                -6.9%                +73.2%

The Energy Select Sector SPDR — a popular way to track energy companies — was down 7.5% last week. The worst performer was offshore driller Transocean (RIG - Free Report) whose stock slumped17.4%.

But for the longer term, over six months, the sector tracker has gained 56.5%. On the other end of the spectrum this time, Transocean was the major gainer, experiencing a 330.6% price appreciation.

What’s Next in the Energy World?

As global oil consumption gradually ticks up from the depths of coronavirus amid the OPEC+-led supply cuts, 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 closely followed too. Finally, news related to coronavirus vaccine approval/rollout/distribution will be of utmost importance.

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