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Oil & Gas Stock Roundup: Week's Action Highlighted by Shell and Petrobras

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It was a week wherein oil prices lost some steam but natural gas futures maintained their winning streak.

On the news front, European energy biggie Shell plc (SHEL - Free Report) declared a production start-up from the PowerNap deepwater field in the U.S. Gulf of Mexico, while Brazil’s Petrobras (PBR - Free Report) saw its CEO being replaced by the Brazilian government. Announcements from TotalEnergies (TTE - Free Report) , Transocean (RIG - Free Report) and PetroChina also made it to the headlines.

Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures lost 12.8% to close at $99.27 per barrel but natural gas prices rose 2.7% to end at $5.720 per million British thermal units (MMBtu). In particular, the oil market fell for the third time  in four weeks.

Coming back to the week ended Apr 1, oil prices fell below $100 as investors turned their attention to the possible release of oil from the U.S. Strategic Petroleum Reserve (“SPR”) into the commercial market. In an all-out effort to keep a lid on soaring pump prices, President Biden announced an emergency drawdown of one million barrels of oil per day for six months from May from the SPR. The SPR is a massive supply of government crude that is used in unforeseen circumstances. In fact, it’s the SPR story (or the possibility of 180 million barrels of more oil) that sent the market lower.

Meanwhile, natural gas finished up following a decline in output and the ongoing strength in U.S. LNG exports.

Recap of the Week’s Most-Important Stories

1. London-based energy major Shell declared the start of production at PowerNap, a deep-water offshore oil field under development in the U.S. Gulf of Mexico. The projected highest output of the field is around 20,000 barrels of oil equivalent per day.

Identified by Zacks Rank #1 (Strong Buy) Shell in 2014, PowerNap is in the south-central Mississippi Canyon region, roughly 150 miles from New Orleans in about 4,200 feet of water. The three wells produce oil and natural gas through an insulated 19-mile flowline.

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

PowerNap is a subsea tie-back to the Shell-operated Olympus production hub in the prolific Mars Corridor. Oil production from PowerNap will be delivered to market on the Mars pipeline, which is run by Shell Pipeline Co. and co-owned by Shell Midstream Partners L.P., which has a majority 71.5% stake, and BP Midstream Partners LP, which holds about a 28.5% interest. (Shell Starts Deep-Water Production in the Gulf of Mexico)

2.   The Brazilian government-owned oil major, Petrobras, will now see its third chief executive officer since early 2021 after the current CEO, Joaquim Silva e Luna, was ousted as a consequence of increasing political pressure to keep a check on fuel prices in Brazil.

The expulsion of Luna just after a year of his appointment for the role comes less than a month after Petrobras declared a hike in prices for gasoline and diesel. The company’s decision to raise the wholesale price for gasoline by 19% and the price for diesel fuel by 25% outraged Jair Bolsonaro, the Brazilian president.

However, since then, the president has stated recurrently that although he cannot get involved directly in the operations of PBR, he can make changes in the senior management of the company. (Petrobras CEO Removed Amid Rising Fuel Prices in Brazil)

3   French integrated major TotalEnergies announced that it has signed two Memorandums of Understanding (MoU) with utility holding company Sempra Energy for the development of more clean energy in North America. One MoU is signed for the Vista Pacífico LNG export project in Mexico, and the other for the co-development of several onshore and offshore renewables projects.

Per the MoU signed for the Vista Pacífico LNG export project in Mexico, TotalEnergies is set to offtake one-third of SRE’s future LNG production and become a shareholder in the project with a minimum stake of 16.6%. This MoU further extends the existing partnership of TotalEnergies and Sempra Energy in Cameron LNG — a 12-million ton per year (Mt/y) LNG export facility operating in Hackberry, LA — and ECA LNG, a nearly 3 Mt/y liquefaction facility under construction in Baja California, Mexico.

TotalEnergies has its presence throughout the LNG value chain and has LNG operations across the globe. TTE aims to have a global LNG portfolio of nearly 50 Mt/y by 2025 and this agreement will assist TTE to meet its target. (TotalEnergies and Sempra Agree to Develop Clean Energy)

4   The Vernier, Switzerland-based offshore driller, Transocean, declared that it bought a minority interest in Ocean Minerals Ltd., a firm that engages in the exploration of seabed resources comprising metals vital to the augmenting renewable energy market.

Ocean Minerals, via its partner Moana Minerals Limited, was granted a license by the Cook Islands Seabed Minerals Authority last month for the exploration of polymetallic nodules within the Cook Islands’ exclusive economic zone area. Crucial minerals like cobalt, nickel, copper, manganese and rare earth metals found in the nodules are important for the production of high-capacity batteries. The Cook Islands is one among many offshore sites worldwide with huge, accessible deposits of nodules having high concentrations of these important minerals.

Transocean stated that it is working in collaboration with Ocean Minerals on technology and services that would be needed to gather nodules from the seabed upon receiving a production license. The driller mentioned that the responsible reclamation of nodules would provide the extra supply required to support the rising demand. (Transocean Buys a Stake in Seabed Exploration Firm)

5.   PetroChina reported 2021 earnings of RMB 92,161 million (or RMB 0.50 per share) — the highest since 2014 — compared with RMB 19,002 million or RMB 0.10 in the year-earlier period.

One of China’s big three oil giants, PetroChina’s earnings were buoyed by the recovery in energy prices and demand from the pandemic lows. Further, China’s dominant oil and gas producer’s total revenues during the year rose 35.2% from the 2020 level to RMB 2,614,349 million.

At the end of 2021, the group’s cash balance was RMB 136,789 million and long-term debt amounted to RMB 287,175 million. PetroChina’s debt-to-capital ratio was 16.9%. Meanwhile, cash flow from operating activities was RMB 341,469 million. Capital expenditure for the year reached RMB 251,178 million, up 1.9% from the year-ago level. (PetroChina 2021 Earnings Surge in Best Year Since 2014)

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                -2.4%               +35%
CVX                 -3%                  +55.3%
COP                -6.2%               +40.2%
OXY                 -1%                  +76.4%
SLB                 -4.6%               +35.8%
RIG                  -7.8%               +17.8%
VLO                 +4.1%              +35.6%
MPC                +3.1%              +34.5%

The Energy Select Sector SPDR — a popular way to track energy companies — was down 2.1% last week. But over the past six months, the sector tracker has increased 40.2%.

What’s Next in the Energy World?

As the global oil consumption outlook strengthens amid tightening fundamentals, market participants will closely track 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 oilfield service firm Baker Hughes, which is a pointer to the trends in U.S. crude production, is closely followed. News related to the ongoing Russia-Ukraine geopolitical conflict will be of utmost importance too. Finally, investors will keep an eye on the potential demand hit from the resurgence of new coronavirus cases and the pandemic-related lockdowns in China.a