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Oil & Gas Stock Roundup: Shell Q2 Update, Valero's Buyback & More
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It was a week when oil prices moved down while natural gas futures registered their first increase in a month.
On the news front, British energy behemoth Shell (SHEL - Free Report) issued an update on its upcoming Q2 earnings, while downstream operator Valero Energy (VLO - Free Report) authorized the repurchase of up to $2.5 billion of its common stock. Developments associated with Ovintiv (OVV - Free Report) , The Williams Companies (WMB - Free Report) and PDC Energy also made it to the headlines.
Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures fell 3.4% to close at $104.79 per barrel, but natural gas prices gained around 5.3% to end at $6.034 per million British thermal units (MMBtu). In particular, the oil market reversed its course after rising last week.
Coming back to the holiday-shortened week ended Jul 8, the oil price action returned to the negative zone due to investors’ tryst with slowing economic growth (and by extension, crude demand). The Energy Information Administration’s ("EIA") latest report showing a big stockpile build also put pressure on prices.
Meanwhile, natural gas finished up following a smaller-than-anticipated increase in supplies and strong power burn.
Recap of the Week’s Most-Important Stories
1. Shell said that it expects a boost of around $1 billion to its bottom line in the second quarter from skyrocketing margins for gasoline and other energy products. The company released a preliminary report for the April-June period wherein the London-based energy biggie informed that higher profitability from crude and fuel sales could bring onboard between $800 million and $1.2 billion in the quarter.
The Zacks Rank #1 (Strong Buy) European energy major added that persistently high oil and natural gas prices boosted the value of its energy holdings. In that context, Shell will be able to reverse $3.5-4.5 billion in impairment charges that it took during the pandemic when coronavirus and associated demand deceleration wiped billions off the oil and natural gas asset value.
2. Valero Energy recently received the board of directors' nod for a new stock repurchase authorization of $2.5 billion. With this, the refining giant has replaced the prior authorization declared in January 2018. It has already repurchased roughly 45.4 million shares of its common stock since the prior authorization.
This reflects the strong focus of Valero Energy to return capital to its shareholders. Apart from stock repurchases, it has been paying higher dividend yields over the past two years than the composite stocks belonging to the industry. VLO is targeting a payout that will continue to be lucrative in the same business space.
The sharp gains in oil prices to over $100-a-barrel have enabled companies to generate strong revenues. Higher commodity prices and a bullish demand picture pushed up free cash flow, allowing energy operators (like VLO) to step up shareholder distributions in the form of dividends and buybacks. (Valero Cheers Investors With $2.5B Buyback Approvals)
3. The Denver-based independent energy producer — Ovintiv — recently declared that it has signed agreements with undisclosed entities for the sale of portions of its oil and gas assets situated in the Uinta and Bakken Basins in the United States for a total consideration of roughly $250 million.
OVV’s Uinta Basin assets, which are being sold, include about 3,000 gross vertical wells. These are said to be mature waterflood assets, with operating expenses of approximately $35.00 per barrel of oil equivalent. The Bakken assets, however, comprise approximately 88 wells, primarily located in Richland County, MT, nearly 30 miles from the company’s primary Bakken position.
Ovintiv mentioned that as a result of these deals, along with robust financial and operational results, it has chosen to accelerate the doubling of its cash returns to shareholders. Starting immediately from the third quarter, the company will augment its returns to shareholders to 50% of the last reported quarter's non-GAAP free cash flow after base dividends. Earlier, OVV had planned to boost cash returns to the 50% level, commencing on Oct 1. The share repurchase is expected to be used to deliver cash returns in the third quarter. (Ovintiv to Sell Shale Assets, Accelerate Share Repurchase)
4 The Williams Companies recently announced that it has made the final investment decision (“FID”) on the Louisiana Energy Gateway, a clean energy project. The project will collect about 1.8 billion cubic feet per day (Bcf/d) of natural gas produced in the Haynesville Basin for supply to premium markets, such as Transco, industrial markets and the rising LNG export demand along the Gulf Coast.
The Tulsa, OK-based pipeline operator stated that it aims to create additional investment prospects for carbon capture and storage (“CCS”) and follow-on projects for bigger LNG market access via this project, which is anticipated to go into service in late 2024.
The Louisiana Energy Gateway Project’s announcement further backs the company’s recently declared collaboration with Context Labs, Encino Environmental and Satlantis, whose technology solutions will be integrated into the project and thus will allow the measurement of end-to-end, verifiable and transparent emissions data to validate the low-carbon benefits of the natural gas produced and delivered by Haynesville. (Williams Declares FID on Louisiana Energy Gateway Project)
5. PDC Energy, the Denver, CO-based independent upstream operator, recently declared that the regulatory watchdog — Colorado Oil and Gas Conservation Commission (COGCC) — has ratified PDCE’s Broe Oil & Gas Development Plan (“OGDP”) permit, which includes 30 wells located in rural Weld County in Colorado.
Initiated by Great Western Petroleum, LLC, the Broe OGDP, which was acquired by PDC Energy in May 2022 for $543 million, signifies PDCE’s first OGDP approval on the Great Western acreage. Along with the previously approved Kenosha OGDP, the company added 99 new wells to its inventory in June, and will shortly have more than 675 permits, and drilled and uncompleted wells.
The Senior Vice President of Operations at PDC Energy, David Lillo, thanked his team at PDCE, along with leadership and staff at the COGCC, and mentioned that Broe is the second PDC OGDP to obtain a go-ahead this month and the third approval within the last 12 months. He further stated that the company’s integration of the Great Western assets continues to go well as suggested by the approval. Operationally, the new permits add to the company’s established inventory of projects in the Denver-Julesburg Basin, giving the company “good visibility well into 2024 at current activity levels,” he ended. (PDC Energy New Permit Boosts Colorado Drilling Inventory)
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.
With oil being in red for the week, most stocks were down too. In fact, the Energy Select Sector SPDR — a popular way to track energy companies — fell 2.2% last week. Over the past six months, the sector tracker has increased 12.2%.
What’s Next in the Energy World?
Following last week’s mixed fortunes for oil and gas, market participants will closely track the regular releases to look for further guidance on the direction of prices. 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/natural gas production, is closely followed too. News related to the ongoing Russia-Ukraine geopolitical conflict and the potential demand loss from fresh coronavirus curbs in China will be the other factors that will dictate the near-term price movement of the commodities. Finally, the closely watched monthly reports from three key agencies (EIA, OPEC and the IEA) complete the releases this week.
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Oil & Gas Stock Roundup: Shell Q2 Update, Valero's Buyback & More
It was a week when oil prices moved down while natural gas futures registered their first increase in a month.
On the news front, British energy behemoth Shell (SHEL - Free Report) issued an update on its upcoming Q2 earnings, while downstream operator Valero Energy (VLO - Free Report) authorized the repurchase of up to $2.5 billion of its common stock. Developments associated with Ovintiv (OVV - Free Report) , The Williams Companies (WMB - Free Report) and PDC Energy also made it to the headlines.
Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures fell 3.4% to close at $104.79 per barrel, but natural gas prices gained around 5.3% to end at $6.034 per million British thermal units (MMBtu). In particular, the oil market reversed its course after rising last week.
Coming back to the holiday-shortened week ended Jul 8, the oil price action returned to the negative zone due to investors’ tryst with slowing economic growth (and by extension, crude demand). The Energy Information Administration’s ("EIA") latest report showing a big stockpile build also put pressure on prices.
Meanwhile, natural gas finished up following a smaller-than-anticipated increase in supplies and strong power burn.
Recap of the Week’s Most-Important Stories
1. Shell said that it expects a boost of around $1 billion to its bottom line in the second quarter from skyrocketing margins for gasoline and other energy products. The company released a preliminary report for the April-June period wherein the London-based energy biggie informed that higher profitability from crude and fuel sales could bring onboard between $800 million and $1.2 billion in the quarter.
The Zacks Rank #1 (Strong Buy) European energy major added that persistently high oil and natural gas prices boosted the value of its energy holdings. In that context, Shell will be able to reverse $3.5-4.5 billion in impairment charges that it took during the pandemic when coronavirus and associated demand deceleration wiped billions off the oil and natural gas asset value.
You can see the complete list of today’s Zacks #1 Rank stocks here.
At the same time, the company’s exit from Russia will cost some $300 million to $350 million on its quarterly earnings. (Shell Sees Soaring Margins in Preliminary Q2 Earnings)
2. Valero Energy recently received the board of directors' nod for a new stock repurchase authorization of $2.5 billion. With this, the refining giant has replaced the prior authorization declared in January 2018. It has already repurchased roughly 45.4 million shares of its common stock since the prior authorization.
This reflects the strong focus of Valero Energy to return capital to its shareholders. Apart from stock repurchases, it has been paying higher dividend yields over the past two years than the composite stocks belonging to the industry. VLO is targeting a payout that will continue to be lucrative in the same business space.
The sharp gains in oil prices to over $100-a-barrel have enabled companies to generate strong revenues. Higher commodity prices and a bullish demand picture pushed up free cash flow, allowing energy operators (like VLO) to step up shareholder distributions in the form of dividends and buybacks. (Valero Cheers Investors With $2.5B Buyback Approvals)
3. The Denver-based independent energy producer — Ovintiv — recently declared that it has signed agreements with undisclosed entities for the sale of portions of its oil and gas assets situated in the Uinta and Bakken Basins in the United States for a total consideration of roughly $250 million.
OVV’s Uinta Basin assets, which are being sold, include about 3,000 gross vertical wells. These are said to be mature waterflood assets, with operating expenses of approximately $35.00 per barrel of oil equivalent. The Bakken assets, however, comprise approximately 88 wells, primarily located in Richland County, MT, nearly 30 miles from the company’s primary Bakken position.
Ovintiv mentioned that as a result of these deals, along with robust financial and operational results, it has chosen to accelerate the doubling of its cash returns to shareholders. Starting immediately from the third quarter, the company will augment its returns to shareholders to 50% of the last reported quarter's non-GAAP free cash flow after base dividends. Earlier, OVV had planned to boost cash returns to the 50% level, commencing on Oct 1. The share repurchase is expected to be used to deliver cash returns in the third quarter. (Ovintiv to Sell Shale Assets, Accelerate Share Repurchase)
4 The Williams Companies recently announced that it has made the final investment decision (“FID”) on the Louisiana Energy Gateway, a clean energy project. The project will collect about 1.8 billion cubic feet per day (Bcf/d) of natural gas produced in the Haynesville Basin for supply to premium markets, such as Transco, industrial markets and the rising LNG export demand along the Gulf Coast.
The Tulsa, OK-based pipeline operator stated that it aims to create additional investment prospects for carbon capture and storage (“CCS”) and follow-on projects for bigger LNG market access via this project, which is anticipated to go into service in late 2024.
The Louisiana Energy Gateway Project’s announcement further backs the company’s recently declared collaboration with Context Labs, Encino Environmental and Satlantis, whose technology solutions will be integrated into the project and thus will allow the measurement of end-to-end, verifiable and transparent emissions data to validate the low-carbon benefits of the natural gas produced and delivered by Haynesville. (Williams Declares FID on Louisiana Energy Gateway Project)
5. PDC Energy, the Denver, CO-based independent upstream operator, recently declared that the regulatory watchdog — Colorado Oil and Gas Conservation Commission (COGCC) — has ratified PDCE’s Broe Oil & Gas Development Plan (“OGDP”) permit, which includes 30 wells located in rural Weld County in Colorado.
Initiated by Great Western Petroleum, LLC, the Broe OGDP, which was acquired by PDC Energy in May 2022 for $543 million, signifies PDCE’s first OGDP approval on the Great Western acreage. Along with the previously approved Kenosha OGDP, the company added 99 new wells to its inventory in June, and will shortly have more than 675 permits, and drilled and uncompleted wells.
The Senior Vice President of Operations at PDC Energy, David Lillo, thanked his team at PDCE, along with leadership and staff at the COGCC, and mentioned that Broe is the second PDC OGDP to obtain a go-ahead this month and the third approval within the last 12 months. He further stated that the company’s integration of the Great Western assets continues to go well as suggested by the approval. Operationally, the new permits add to the company’s established inventory of projects in the Denver-Julesburg Basin, giving the company “good visibility well into 2024 at current activity levels,” he ended. (PDC Energy New Permit Boosts Colorado Drilling Inventory)
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 -1.7% +20.6%
CVX -2.6% +11.6%
COP -5% +4.4%
OXY +0.4% +74.8%
SLB -3.7% -5.9%
RIG -5.7% -17.5%
VLO -0.9% +27.6%
MPC -1.4% +14.6%
With oil being in red for the week, most stocks were down too. In fact, the Energy Select Sector SPDR — a popular way to track energy companies — fell 2.2% last week. Over the past six months, the sector tracker has increased 12.2%.
What’s Next in the Energy World?
Following last week’s mixed fortunes for oil and gas, market participants will closely track the regular releases to look for further guidance on the direction of prices. 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/natural gas production, is closely followed too. News related to the ongoing Russia-Ukraine geopolitical conflict and the potential demand loss from fresh coronavirus curbs in China will be the other factors that will dictate the near-term price movement of the commodities. Finally, the closely watched monthly reports from three key agencies (EIA, OPEC and the IEA) complete the releases this week.