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Oil & Gas Stock Roundup: Updates From CDEV and XOM Lead Week's Action
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It was a week when both oil and natural gas prices settled higher.
On the news front, Permian pure play Centennial Resource Development finalized a $7 billion transaction to combine with Colgate Energy, while U.S.-based energy biggie ExxonMobil (XOM - Free Report) agreed to sell natural gas fields in Texas for $750 million. Announcements from Chevron (CVX - Free Report) , Diamondback Energy (FANG - Free Report) and Petrobras (PBR - Free Report) also made it to the headlines.
Overall, it was a good seven-day period for the sector. West Texas Intermediate (WTI) crude futures gained 2.4% to close at $113.23 per barrel, while natural gas prices increased some 5.5% to end at $8.083 per million British thermal units (MMBtu). In particular, the oil market managed to maintain its forward momentum from the previous three weeks.
Coming back to the week ended May 20, the positive oil price action could be attributed to a report from the Energy Information Administration ("EIA") showing steep declines in crude and gasoline stocks. With oil product consumption remaining strong in the face of supply shortage, investors have been worried about a sustained rise in the price of the commodity.
The uptick also reflected concerns about supplies from Russia, which is one of the world's largest producers of the commodity. Raising the prospect of a dramatic fall in crude flows, speculation has it that the European Union could shortly follow the United States in blocking imports of Russian energy to protest Moscow’s invasion of Ukraine. In other words, the pending European embargo could lead to an acute supply squeeze.
Natural gas notched a healthy weekly gain, too, buoyed by hotter-than-normal early summer weather, lower domestic output, strong LNG shipments and high coal prices.
Recap of the Week’s Most-Important Stories
1. Permian-focused oil and gas producer Centennial Resource Development announced that it has signed an accord to merge with private equity-backed Colgate Energy Partners. The agreement, approved by both the firms’ board of directors and likely to close in the second half of this year, will create a $7 billion Permian Basin pure-play.
With the deal's closure, the merged entity will be the largest pure-play exploration and production company in the Delaware Basin, said Centennial Resource. In Delaware, a sub-basin of the broader Permian (the most prolific basin in the United States), the combined player will have operating activities across roughly 180,000 net leasehold acres and 40,000 net royalty acres. The Zacks Rank #1 (Strong Buy) company added that currently, the total combined production is 135,000 barrels of oil equivalent per day.
CDEV further mentioned that this prolific asset base will help the merged entity to return significant value to its stockholders. The merged company will be able to generate more than $1 billion of expected free cash flow in 2023. (Centennial Signs Merger Agreement With Colgate Energy)
2. ExxonMobil entered an agreement with U.S. natural gas producer BKV Corporation to divest its operated and non-operated Barnett Shale gas assets in Texas.
The divestment is part of America’s biggest energy group’s strategy to focus on more profitable assets with the lowest cost of supply. The transaction involves $750 million in cash, along with additional payments contingent on future natural gas prices. The deal is expected to close by the second quarter of this year.
Asset divestments are crucial components in ExxonMobil’s strategy to optimize cash management. In 2018, the company established a goal to raise $15 billion from asset divestments to reduce debt and focus on low-cost oil production. Notably, it is halfway toward achieving its goal. (ExxonMobil Announces Barnett Shale Asset Divestment)
3 Another American oil and gas supermajor, Chevron, recently announced that it authorized the Ballymore project in the U.S. Gulf of Mexico. With a design volume of 75,000 barrels of crude oil per day, the undertaking would be developed as a three-mile subsea tieback to the prevailing Chevron-run Blind Faith platform.
The undertaking at Ballymore will be CVX’s first development in the Norphlet trend of the U.S. Gulf of Mexico. The project will be in the Mississippi Canyon area in approximately 6,600 feet of water, roughly 160 miles southeast of New Orleans. Per Chevron, potential recoverable oil-equivalent resources for Ballymore could be more than 150 million barrels.
The project, which involves three production wells tied back via one flowline to the nearby Blind Faith facility, will need an investment of about $1.6 billion. The existing infrastructure is to be used for the transportation of the produced oil and natural gas. Ballymore is expected to pump its first oil in 2025. (Chevron Permits the Deepwater Gulf of Mexico Project)
4 Diamondback Energy said last week that it reached a deal to buy the remaining 26% stake that it does not already own in its publicly traded pipeline business Rattler Midstream LP. The transaction is primarily aimed at simplifying the corporate structure of the oil and gas explorer.
FANG said that the all-stock deal would fold the outstanding units of Rattler Midstream into the parent at a ratio of 0.113 Diamondback Energy shares for each partnership unit, with the offer representing a premium of 17.3% based on the May 13 closing price. The firms said that the deal will benefit both and allow them to take advantage of the combined entity's scale and streamlined structure.
5. The Brazilian government-run oil major, Petrobras, recently stated that it received a go-ahead from Brazil’s antitrust watchdog — the General Superintendence of the Administrative Council for Economic Defense (“CADE”) — for the sale of the Isaac Sabbá Refinery (“REMAN”) to Ream Participações SA, a subsidiary of the distributor – Atem.
Petrobras initially announced this refinery sale agreement worth $189.5 million in August 2021. The refinery, which has a capacity of 46,000 barrels per day and includes a storage terminal, is in the northern state of Amazonas. REMAN is one of the eight refineries that Petrobras has put up for sale as part of a 2019 agreement with the antitrust supervisory body to increase competition in Brazil's oil refining business.
The transaction needs the final and unappealable authorization by CADE, which is subject to the elapse of the 15-day period imposed by Law 12.529/11 for the filing of any appeals by third parties or the revocation of the process by the CADE Tribunal. The closing of the deal is also subject to other purchase and sale agreement compliances. (Petrobras Refinery Sale Approved by Brazil Regulator)
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.
The Energy Select Sector SPDR — a popular way to track energy companies — rose 1.2% last week. Over the past six months, the sector tracker has increased 45.5%.
What’s Next in the Energy World?
With real-life activities returning to normalcy, gasoline and diesel prices have reached record highs. Amid this backdrop, market participants will closely track the regular releases to look for a more decisive price direction. 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 too. News related to the ongoing Russia-Ukraine geopolitical conflict and the potential demand hit from the coronavirus lockdowns in China will be the other factors that will dictate the near-term price movement for oil.
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Oil & Gas Stock Roundup: Updates From CDEV and XOM Lead Week's Action
It was a week when both oil and natural gas prices settled higher.
On the news front, Permian pure play Centennial Resource Development finalized a $7 billion transaction to combine with Colgate Energy, while U.S.-based energy biggie ExxonMobil (XOM - Free Report) agreed to sell natural gas fields in Texas for $750 million. Announcements from Chevron (CVX - Free Report) , Diamondback Energy (FANG - Free Report) and Petrobras (PBR - Free Report) also made it to the headlines.
Overall, it was a good seven-day period for the sector. West Texas Intermediate (WTI) crude futures gained 2.4% to close at $113.23 per barrel, while natural gas prices increased some 5.5% to end at $8.083 per million British thermal units (MMBtu). In particular, the oil market managed to maintain its forward momentum from the previous three weeks.
Coming back to the week ended May 20, the positive oil price action could be attributed to a report from the Energy Information Administration ("EIA") showing steep declines in crude and gasoline stocks. With oil product consumption remaining strong in the face of supply shortage, investors have been worried about a sustained rise in the price of the commodity.
The uptick also reflected concerns about supplies from Russia, which is one of the world's largest producers of the commodity. Raising the prospect of a dramatic fall in crude flows, speculation has it that the European Union could shortly follow the United States in blocking imports of Russian energy to protest Moscow’s invasion of Ukraine. In other words, the pending European embargo could lead to an acute supply squeeze.
Natural gas notched a healthy weekly gain, too, buoyed by hotter-than-normal early summer weather, lower domestic output, strong LNG shipments and high coal prices.
Recap of the Week’s Most-Important Stories
1. Permian-focused oil and gas producer Centennial Resource Development announced that it has signed an accord to merge with private equity-backed Colgate Energy Partners. The agreement, approved by both the firms’ board of directors and likely to close in the second half of this year, will create a $7 billion Permian Basin pure-play.
With the deal's closure, the merged entity will be the largest pure-play exploration and production company in the Delaware Basin, said Centennial Resource. In Delaware, a sub-basin of the broader Permian (the most prolific basin in the United States), the combined player will have operating activities across roughly 180,000 net leasehold acres and 40,000 net royalty acres. The Zacks Rank #1 (Strong Buy) company added that currently, the total combined production is 135,000 barrels of oil equivalent per day.
You can see the complete list of today’s Zacks #1 Rank stocks here.
CDEV further mentioned that this prolific asset base will help the merged entity to return significant value to its stockholders. The merged company will be able to generate more than $1 billion of expected free cash flow in 2023. (Centennial Signs Merger Agreement With Colgate Energy)
2. ExxonMobil entered an agreement with U.S. natural gas producer BKV Corporation to divest its operated and non-operated Barnett Shale gas assets in Texas.
The divestment is part of America’s biggest energy group’s strategy to focus on more profitable assets with the lowest cost of supply. The transaction involves $750 million in cash, along with additional payments contingent on future natural gas prices. The deal is expected to close by the second quarter of this year.
Asset divestments are crucial components in ExxonMobil’s strategy to optimize cash management. In 2018, the company established a goal to raise $15 billion from asset divestments to reduce debt and focus on low-cost oil production. Notably, it is halfway toward achieving its goal. (ExxonMobil Announces Barnett Shale Asset Divestment)
3 Another American oil and gas supermajor, Chevron, recently announced that it authorized the Ballymore project in the U.S. Gulf of Mexico. With a design volume of 75,000 barrels of crude oil per day, the undertaking would be developed as a three-mile subsea tieback to the prevailing Chevron-run Blind Faith platform.
The undertaking at Ballymore will be CVX’s first development in the Norphlet trend of the U.S. Gulf of Mexico. The project will be in the Mississippi Canyon area in approximately 6,600 feet of water, roughly 160 miles southeast of New Orleans. Per Chevron, potential recoverable oil-equivalent resources for Ballymore could be more than 150 million barrels.
The project, which involves three production wells tied back via one flowline to the nearby Blind Faith facility, will need an investment of about $1.6 billion. The existing infrastructure is to be used for the transportation of the produced oil and natural gas. Ballymore is expected to pump its first oil in 2025. (Chevron Permits the Deepwater Gulf of Mexico Project)
4 Diamondback Energy said last week that it reached a deal to buy the remaining 26% stake that it does not already own in its publicly traded pipeline business Rattler Midstream LP. The transaction is primarily aimed at simplifying the corporate structure of the oil and gas explorer.
FANG said that the all-stock deal would fold the outstanding units of Rattler Midstream into the parent at a ratio of 0.113 Diamondback Energy shares for each partnership unit, with the offer representing a premium of 17.3% based on the May 13 closing price. The firms said that the deal will benefit both and allow them to take advantage of the combined entity's scale and streamlined structure.
Diamondback Energy said the deal was approved by both the boards and is expected to close in the third quarter of this year. (Diamondback to Buy Rest of Rattler in All-Stock Deal)
5. The Brazilian government-run oil major, Petrobras, recently stated that it received a go-ahead from Brazil’s antitrust watchdog — the General Superintendence of the Administrative Council for Economic Defense (“CADE”) — for the sale of the Isaac Sabbá Refinery (“REMAN”) to Ream Participações SA, a subsidiary of the distributor – Atem.
Petrobras initially announced this refinery sale agreement worth $189.5 million in August 2021. The refinery, which has a capacity of 46,000 barrels per day and includes a storage terminal, is in the northern state of Amazonas. REMAN is one of the eight refineries that Petrobras has put up for sale as part of a 2019 agreement with the antitrust supervisory body to increase competition in Brazil's oil refining business.
The transaction needs the final and unappealable authorization by CADE, which is subject to the elapse of the 15-day period imposed by Law 12.529/11 for the filing of any appeals by third parties or the revocation of the process by the CADE Tribunal. The closing of the deal is also subject to other purchase and sale agreement compliances. (Petrobras Refinery Sale Approved by Brazil Regulator)
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 +3.4% +48.7%
CVX +0.8% +47.3%
COP +2.5% +46.3%
OXY -1.3% +103.3%
SLB +0.9% +39.8%
RIG +3.7% +27.3%
VLO -1.4% +70.3%
MPC +0.7% +50.7%
The Energy Select Sector SPDR — a popular way to track energy companies — rose 1.2% last week. Over the past six months, the sector tracker has increased 45.5%.
What’s Next in the Energy World?
With real-life activities returning to normalcy, gasoline and diesel prices have reached record highs. Amid this backdrop, market participants will closely track the regular releases to look for a more decisive price direction. 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 too. News related to the ongoing Russia-Ukraine geopolitical conflict and the potential demand hit from the coronavirus lockdowns in China will be the other factors that will dictate the near-term price movement for oil.