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Oil & Gas Stock Roundup: Crude Dips Below $40, Cobalt Sells Angola Blocks

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It was a week where oil prices fell below the key psychological level of $40-a-barrel and natural gas futures slumped to a 1½ month low. On the news front, the top story came from Cobalt International Energy Inc.’s sale of its Angolan oil assets for $1.75 billion.

Overall, it was a bearish week for the sector. West Texas Intermediate (WTI) crude futures dived 6.2% to close at $40.45 per barrel, while natural gas prices fell 4.5% to $2.68 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Crude Sinks Further, Shell Gets Arctic Drilling OK.)

Oil prices extended their losing streak and fell for the eighth straight week, the backdrop being another increase in the number of crude-directed rigs. An upwardly moving rig count has underlined concerns about an expansion in the commodity’s global supply glut. The recent turn of events in Greece, Iran and China also created pressure. In particular, Chinese growth worries have sparked fears about a drop in oil demand from the country.

Natural gas fared poorly as well as the effects of a bullish inventory build was more than offset by predictions of weak late summer cooling demand with forecasts of mild weather across majority of the country over the next few days.

Recap of the Week’s Most Important Stories

1.    Houston-based energy explorer Cobalt International Energy Inc. announced the sale of its interest in blocks 21/09 and 20/11, offshore Angola, to the country’s state-owned oil company, Sociedad Nacional De Combustiveis De Angola (SONANGOL). The $1.75 billion transaction – with an effective date of Jan 1, 2015 – is subject to customary approvals by the Angolan government. 

Following the unloading, Cobalt will relinquish its 40% working interest in the blocks to SONANGOL, which will increase its interest in the prospect from 60% to 100%. Apart from improving liquidity, the move will allow Cobalt to focus on its core deepwater properties in offshore North America and West Africa.

2.    Sunoco L.P. (SUN - Free Report) , a unit of natural gas transportation and storage partnership Energy Transfer Partners L.P., declared that it is planning to acquire a wholesale motor fuel distribution business. Depending on customary closing conditions, the agreement is anticipated to be closed by the fourth quarter. Investors should know that Sunoco will likely finance the transaction by amount obtainable under its revolving credit facility.

For the purchase, one of the affiliates of Sunoco has signed a deal with an undisclosed seller. Sunoco will likely spend roughly $57 million along with the value of closing inventory on hand for the acquisition. The distribution business serves Northeast U.S. by distributing 55 million gallons of gasoline every year. It is to be noted that the agreement also includes the purchase of 30 fee and leased assets. (See More: Sunoco LP to Buy Fuel Distribution Business in Northeast US.)

3.    OneSubsea, operated by oil drilling equipment maker Cameron International Corp. and oilfield services provider Schlumberger Ltd. (SLB - Free Report) has secured a contract from Shell Offshore Inc., an unit of Anglo-Dutch energy major Royal Dutch Shell plc. Per the terms, OneSubsea will supply subsea processing systems for Shell Offshore’s Stones development in the Gulf of Mexico (GoM).

The contract, which was awarded during the second quarter of 2015, follows the Technology Qualification Program. Per the contract, OneSubsea will supply the industry’s first 15,000 psi subsea pump system. The subsea pump system will then be set up in a water depth of about 9,500 feet (2,900 meters) in the GoM. The system is anticipated to be complete for delivery from Horsoy by early 2018. The system will be tied back to Stones FPSO. (See More: Schlumberger's OneSubsea Awarded Shell Offshore Contract.)

4.    In its latest fleet status report, offshore drilling giant Transocean Ltd. (RIG - Free Report) disclosed new deals worth $35 million. The company also announced that the expected out-of-service time for 2015 has been changed by over 15 days since its last report. Per the report, Dhirubhai Deepwater KG2 – a dynamic positioning drillship – has received a 3 month contract extension, under which it will work in offshore India at dayrates of $295,000. The award has added $25 million to the company’s existing project backlog.

Further, its 6th generation semi-submersible Transocean Barents has received a contract extension for to work in the Norwegian North Sea at dayrates of $300,000. The award has added $10 million to the company’s current project backlog. Finally, Transocean mentioned that the 5th generation semi-submersible Sedco Express and the 3rd generation semi-submersibles GSF Rig 135, Actinia, Transocean Searcher and Transocean Prospect are currently idle. (See More: Transocean Fleet Update: Contract Extensions Worth $35M.)

5.    Brazilian state-run energy company Petrobras (PBR - Free Report) announced production report for the month of July. The company’s total production improved from that in the previous month as well as from the year-ago level. Petrobras reported total oil and natural gas production of 2.796 million barrels of oil equivalent per day (boed) in July, up from 2.746 million boed in Jun 2015 and 2.699 boed in Jul 2014.

The company reported oil and natural gas volumes of 2.611 million in Brazil, up 2.3% from 2.553 million in June. Outside the country, Petrobras churned out 184,600 boed in Jul 2015. This reflects a 4.2% decline from that in the prior month. Planned shutdown of the platform in the Saint Malo field, in Gulf of Mexico led to the decline. (See More: Petrobras Operational Update: July Production Improves.) 

Price Performance

The following table shows the price movement of the major oil and gas players over the past week and during the last 6 months.

Company

Last Week

Last 6 Months

XOM

-8.62%

-23.30%

CVX

-10.57%

-33.58%

COP

-9.99%

-36.43%

OXY

-11.11%

-18.05%

SLB

-9.75%

-13.31%

RIG

-7.83%

-23.57%

VLO

-11.89%

-4.49%

TSO

-14.34%

-1.01%

Energy investors witnessed another bout of heavy selling in major companies amid mounting evidence of oil’s supply demand mismatch. Of the lot, the biggest loser was offshore driller downstream operator Tesoro Corp. , which fell 14.3% during the period.

Over the last 6 months, Houston-based independent exploration and production company ConocoPhillips has been the laggard, as it witnessed a 36.4% price decline over the same time frame.

What’s Next in the Energy World?

Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking a series of crucial economic reports, including those on home sales, durable orders, consumer confidence, personal spending.

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