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ExxonMobil & Chevron Highlight the Oil & Gas Stock Roundup

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It was a week when oil prices trended slightly upward and natural gas futures registered their highest settlement since February 2014.

On the news front, American biggie ExxonMobil (XOM - Free Report) confirmed another oil discovery off the coast of Guyana, while smaller rival Chevron (CVX - Free Report) agreed to partner renewable fuel producer Gevo to boost the supply of sustainable aviation fuel.

Overall, it was another good week for the sector. West Texas Intermediate (WTI) crude futures inched up 0.6% to close at $69.72 per barrel and natural gas prices gained 4.8% to reach $4.938 per million British thermal units (MMBtu). Overall, both the commodities managed to maintain their forward momentum from the previous two weeks.

Coming back to the holiday-shortened week ended Sep 10, oil prices edged higher, underpinned by a report from the Energy Information Administration ("EIA") that showed draws in crude and fuel stockpiles. While analysts cited the hefty inventory declines as a one-off, hurricane-induced event, the markets responded positively to the continued production disruption from the Gulf of Mexico (GoM). However, the commodity pared back most of its gains after China made a surprise announcement to auction off oil from its national reserve to soften spiraling feedstock costs for domestic refiners.

Meanwhile, natural gas climbed handsomely, buoyed by the big declines in the offshore GoM volumes and the slow restoration of production back online. Investors also focused on the prospect of a higher power burn (or cooling demand) during the remainder of this month.

Recap of the Week’s Most-Important Stories

1.  ExxonMobil recently discovered hydrocarbons at Pinktail in the Stabroek Block, located offshore Guyana. The Pinktail well found 220 feet of net pay at 3.7 miles southeast of Yellowtail-1, which is moving rapidly toward the final investment decision. It is also close to the currently producing Liza Phase 1. Operator ExxonMobil owns a 45% stake in the 6.6 million acres Stabroek Block, while partners Hess Corporation and CNOOC Ltd. hold a 30% and 25% interest, respectively.

Close proximity to other discoveries certainly boosts Pinktail’s economic value. Drilled at 5,938 feet of water, Pinktail marks the 20th significant discovery in the Stabroek Block. With the latest find, ExxonMobil has added to its previously estimated 9 billion barrels of oil equivalent of recoverable resource in the block.

The supermajor also announced the successful appraisal of the Turbot discovery. Additionally, the Turbot-2 well found 43 feet of a newly identified, high-quality hydrocarbon-bearing sandstone reservoir net pay. Its characteristics might be somewhat different from the Turbot-1 discovery well. The test results are likely to be used during future developments. (ExxonMobil Finds Hydrocarbons at Pinktail Offshore Guyana)

2.   Chevron and renewable energy firm Gevo, Inc. have signed a letter of intent to jointly invest in the construction and operation of one or more new facilities to turn inedible corn into sustainable aviation fuel, thereby lowering the lifecycle carbon intensity of aviation fuels.

Proteins and corn oil will also be produced at the new plants. Chevron will have the right to offtake about 150 million gallons per year to market to customers besides co-investing with Gevo in one or more projects.

As the focus on energy transition accelerates, the Gevo deal is one of the eight that San Ramon, CA-based integrated major snapped up in the last couple of weeks to invest in hydrogen, green jet fuel and renewable natural gas. Besides, Chevron is attempting to build a better image to investors ahead of an investor presentation on environmental, social and governance. (Chevron, Gevo to Collaborate on Sustainable Aviation Fuel)

3.   The Williams Companies’ (WMB - Free Report) board recently approved a new share repurchase program worth $1.5 billion, which was implemented with immediate effect. The move underscores the energy infrastructure provider’s sound financial position and its commitment to reward its shareholders.

Management noted that the announcement throws light on the company’s dedication to enhancing shareholder value. Its strong balance sheet along with excess free cash flow enables it to take advantage of this investment opportunity.

Williams’ solid cash flow generation capacity supports its shareholder-friendly activities. Even during the coronavirus-ravaged 2020, the company generated distributable cash flow of $3.35 billion, indicating a 2% rise from the figure generated in 2019. (Williams Lifts Shareholder Value With $1.5B Buyback Plan)

4.   Enbridge (ENB - Free Report) has announced the signing of a definitive purchase agreement with EnCap Flatrock Midstream to buy logistics provider Moda Midstream Operating LLC for a cash consideration of $3 billion.

The transaction, awaiting customary regulatory approvals and closing conditions, will likely consummate in the fourth quarter of this year. The most important part of the transaction is that the leading North American midstream company has agreed to acquire a 100% operating interest in the Ingleside Energy Center, situated close to Corpus Christi, TX.

Ingleside Energy Center, to be renamed as Enbridge Ingleside Energy Center, is the largest crude export terminal in North America which was responsible for loading roughly 25% of all U.S. Gulf Coast crude exports last year. The state-of-the-art terminal was built in 2018 and it has a capacity to export 1.5 million barrels per day, with a storage capacity of 15.6 million barrels. Ingleside Energy Center connects international markets with prolific basins like Permian and Eagle Ford Shale play, thereby assuring long-term sustainability in cashflows. (Enbridge Inks $3B Deal to Buy Big Oil Export Terminal)

5.  Suncor Energy (SU - Free Report) and co-owners finalized the previously announced agreement to restructure the ownership of the Terra Nova offshore oil project off Canada's east coast.

Since late 2019, the production from the Terra Nova floating, production, storage and offloading (“FPSO”) facility has been offline as the authority for the province ordered the shutdown of operations due to the company's violation of obligations regarding the excess fire water pumps on the FPSO. However, the Zacks Rank #1 (Strong Buy) Suncor and Terra Nova co-owners agreed to shuffle their shares to save the troubled project and extend its life.

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

In a separate transaction, Suncor entered into an agreement to increase its ownership interest in the White Rose oilfield asset. The West White Rose project was intended to obtain 200 million barrels of light crude oil and extend the life of the White Rose oil field by 14 years. Upon the approval to restart the project, the Canadian energy firm will increase its interest in the White Rose offshore field from 27.5% to 40%. (Suncor Restructures Deal for 2 Offshore Canada Projects)

Price Performance

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

Company    Last Week    Last 6 Months

XOM                 -1.6%               -12.9%
CVX                  -1.5%               -12.2%
COP                 -0.9%               -5.8%
OXY                  -3.6%               -18.5%
SLB                  -4.7%               -7.7%
RIG                   -5.9%               -22.2%
VLO                  -2%                   -23.1%
MPC                 -2.4%                -1.5%

The Energy Select Sector SPDR — a popular way to track energy companies — was down 1.7% last week. The worst performer was offshore contract drilling operator Transocean Ltd. (RIG - Free Report) whose stock lost 5.9%.

Over the past six months, the sector tracker has decreased 10.8%. Independent refiner Valero Energy (VLO - Free Report) was the major casualty during the period, experiencing a 23.1% price depreciation.

What’s Next in the Energy World?

As the global oil consumption outlook strengthens amid tightening fundamentals, market participants will be closely tracking the regular releases to watch for signs that could further validate the upward momentum. 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 the energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed too. News related to coronavirus vaccine approval/rollout/distribution will be of utmost importance.