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Oil & Gas Stock Roundup Headlined by Cabot-Cimarex Merger & Shell's Power Contract

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

On the news front, U.S. shale drillers Cabot Oil & Gas (COG - Free Report) and Cimarex Energy (XEC - Free Report) entered into an all-stock merger agreement, while European integrated major Royal Dutch Shell (RDS.A - Free Report) struck an A$3.2 billion long-term battery storage contract in Australia.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained 4.3% to close at $66.32 per barrel and natural gas prices edged up 0.3% in the week to end at $2.99 per million British thermal units (MMBtu). In particular, the oil market reversed its decline from the previous week, when the commodity fell 2.7%.

Coming back to the week ended May 21, oil prices marked their highest settlement since 2018 after U.S. government data showed a weekly draw in crude, gasoline and distillate supplies. In particular, the commodity was buoyed by signs of strong demand. While oil supplies declined to a three-month low, gasoline consumption was at the highest since March last year. Moreover, distillate stockpiles reached the lowest level since April 2020. Prices have also been driven up by OPEC+ coalition’s gradual loosening of the output cuts, reflecting their confidence in the fuel’s usage.

Natural gas finished up too on the prospect of more weather-related consumption and strong liquefied natural gas (“LNG”) feedgas deliveries.

Recap of the Week’s Most-Important Stories

1.  Cabot Oil & Gas recently entered into a definitive agreement with Cimarex Energy to merge in an all-stock deal of equals. Per the terms of the deal, which is unanimously approved by both companies' board members, Cimarex shareholders will receive 4.0146 Cabot common stock for each Cimarex common stock they hold. Post completion of the transaction, Cabot stockholders will own a 49.5% interest of the combined entity while the rest will be held by Cimarex stakeholders.

Despite market upheavals, the combined company will be well positioned to provide greater capital returns to its shareholders. It also intends to declare and pay out a special dividend of 50 cents per share to all its common shareholders shortly after the deal closes.

Following the news of the Cabot-Cimarex deal, shares of the former lost 6.8% yesterday while the latter’s stock was down more than 7% for the day. Per analysts tracking this transaction, the sell-off was prompted by increasing diversification as Cabot is mostly a natural gas explorer in the Appalachian’s Marcellus Shale while Cimarex is focused on oil drilling in the Marcellus shale basin in Texas and Oklahoma. (Cabot to Merge With Cimarex Energy in All-Stock Deal)

2.   Royal Dutch Shell recently won a 10-year power supply deal worth A$3.2 billion from Australia's New South Wales (NSW) state, which includes delivering battery back-up power for wind and solar energy.  

Shell through its subsidiary Shell Energy, the former ERM Power business that the oil major had purchased in 2019, won the contract to serve the state government, which is NSW's second-largest power user.

The unit CEO Greg Joiner said that “Shell Energy recognizes that batteries have an important role to play in transitioning to and managing risk in a lower carbon energy future. This long-term services agreement is a model for how large energy users can access dispatchable power like battery storage, which complements renewables, while contributing to a cleaner and more resilient power system.” (Shell Clinches A$3.2B Battery Storage Deal From NSW)

3.  Suncor Energy’s (SU - Free Report) latest initiative is to reach net-zero emissions by 2050, which aligns with the national goal of Canada and is about 25% stronger on an intensity basis per barrel than its 2015 target.

In 2015, the Canada government had announced a climate target to reduce 30% of the country’s greenhouse gas (“GHG”) emissions below the 2005 levels by 2030. The Zacks Rank #1 (Strong Buy) company went a step further than its peers to slash overall emissions across its operations by 10 million tons per year by 2030. Notably, this would imply a nearly 30% reduction in GHG emissions, which amounted to 29 million tons in 2019.

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

Moreover, Suncor, the second-largest oil producer in Canada, intends to increase production to an unprecedented level of 800,000 barrels per day within 2021-25, while reducing more than one-third of GHG emissions. The company plans to raise oil production by debottlenecking or enhancing the efficiency of its existing facilities instead of developing new projects. (Suncor Commits to Achieve Net-Zero Emissions by 2050)

4.  Halliburton (HAL - Free Report) announced that its shareholders did not approve its proposed executive compensation plan. Notably, the decision, on a non-binding advisory basis, was made at the company's annual stockholder meeting on May 19.

According to a recent filing, about 53% of shareholder votes were cast against the company’s pay program. Halliburton’s board of directors is disappointed by the opposing votes on the compensation program, even though the company was ahead of its peers in total shareholder return performance and devised its pay structure in a way to attract, motivate and retain employees.

In 2020, Halliburton CEO Miller and other executives committed to cut payments after the coronavirus outbreak tormented the oil market and triggered unprecedented mass layoffs in the industry. Despite a pay cut, Miller reportedly received an overall compensation 293 times the median compensation for Halliburton employees. Per the company, the significant increase in 2020 compensation was due to changes in plans and reporting. (Halliburton Gets Rejection Over Executive Compensation)

5.  Oasis Petroleum (OAS - Free Report) recently announced that it is leaving the Permian Basin to focus only on the Williston Basin. The company is selling its Permian acreage for a total gross price of approximately $481 million to an unnamed buyer. The divested assets add up to 24,000 net acres and produced 7,200 barrels of oil equivalent (Boe) per day in the first quarter.

Upon fulfilling all the customary conditions and pending approvals, the deal will be closed by the end of next month. After completion of the transaction, Oasis Petroleum will receive $406 million. In addition, if West Texas Intermediate oil prices average above $60 per barrel in each calendar year, the company will get up to three $25-million annual contingent payments in 2023, 2024 and 2025.

CEO Danny Brown considers the divested Permian position a valuable asset. However, given the amount of consolidation that has occurred since the asset was purchased in 2018, Oasis Petroleum’s ability to build a meaningful scale around that position became relatively constrained. (Oasis Drops Down Permian to Become Williston Pure Play)

Price Performance

The following table shows the price movement of some the major oil and gas players over the past week and during the last six months.

Company    Last Week    Last 6 Months

XOM                 -0.9%             +51.4%
CVX                 -0.3%              +18.7%
COP                +0.2%             +45.8%
OXY                 +3.3%             +79.2%
SLB                 -1.9%              +52.2%
RIG                 -1%                  +85.2%
VLO                +4.1%              +41.5%
MPC               +3.7%              +54%

The Energy Select Sector SPDR — a popular way to track energy companies — ended up essentially unchanged last week. But over the past six months, the sector tracker has surged 42.2%. Offshore driller Transocean Ltd. (RIG - Free Report) was the major gainer during the period, experiencing an 85.2% price appreciation.

What’s Next in the Energy World?

As global oil consumption outlook strengthens amid the OPEC+ led calibrated supply cuts and successful vaccine deployments, 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 come 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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