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Oil & Gas Stock Roundup: M&A, Corporate Announcements Take Center Stage
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It was yet another week when both oil and natural gas prices posted losses.
The headlines revolved around energy producer Occidental Petroleum’s (OXY - Free Report) $12 billion deal to acquire Texas shale driller CrownRock LP and American biggie ExxonMobil’s (XOM - Free Report) five-year corporate plan. Developments associated with Chevron (CVX - Free Report) , Phillips 66 (PSX - Free Report) and Hess Corporation (HES - Free Report) also grabbed attention.
Overall, it was a bearish seven-day period for the sector. West Texas Intermediate (WTI) crude futures decreased around 3.8% to close at $71.23 per barrel, while natural gas prices moved down 8.3% to end at $2.581 per million British thermal units (MMBtu).
The crude price action remained negative for the seventh week running on demand concerns after government data showed record-high production. Even the OPEC+ announcement of nearly 2 million barrels per day of additional production cuts was unable to shore up oil prices as the market looked for stronger commitments.
Meanwhile, natural gas slumped to a three-and-a-half-month low, overwhelmed by high production and insipid weather-related demand.
Recap of the Week’s Most Important Stories
1. Houston, TX-based energy company Occidental Petroleum has entered into a purchase agreement to acquire Midland-based oil and gas producer CrownRock L.P. The buyout will take place in a cash and stock deal worth approximately $12 billion, including the assumption of CrownRock’s outstanding debt.
Occidental plans to fund the acquisition by taking on $9.1 billion in new debt, issuing about $1.7 billion in common stock and taking over CrownRock's $1.2 billion in outstanding debt. With the fulfillment of normal closing requirements and the acquisition of regulatory clearances, the deal is expected to close in the first quarter of 2024.
This agreement enhances Occidental’s premier Permian portfolio with the addition of 170,000 barrels of oil equivalent per day (Mboed) of high-margin, lower-decline unconventional production and about 1,700 undeveloped sites in 2024. On a diluted share basis, higher free cash flow is anticipated, with $1 billion in the first year based on $70 per barrel WTI. (Occidental to Buy CrownRock in a $12B Cash & Stock Deal)
2. U.S. supermajor ExxonMobil expects a substantial rise in its earnings potential through 2027, with upstream earnings projected to more than double from the 2019 reported level. The outlook is underpinned by robust production growth in the Permian Basin and Guyana.
XOM mentioned that effective implementation of its strategic initiatives since 2019 enhanced its earnings capacity, contributing about $10 billion to its annual earnings and cash flow at a real Brent price of $60 per barrel. The company is progressing toward achieving an additional $14 billion in earnings and cash flow growth potential over the next four years.
The company predicts a production increase to 3.8 million barrels of oil equivalent per day (Boe/d) in 2024, up from this year’s 3.7 million Boe/d, as it places its confidence in growth from the Permian shale basin and Guyana. OM indicated that it anticipates maintaining a flat production until the end of this year, standing at 3.7 million Boe/d primarily due to its withdrawal from Russia. (ExxonMobil Expects Raised Earnings & Oil Production)
3. Small rival Chevron recently outlined its planned capital expenditure for 2024, focusing on strategic investments in both traditional and new energy sectors. The company expects to spend between $15.5 billion and $16.5 billion on capital projects for its consolidated subsidiaries, with an additional $3 billion allocated for affiliate ventures. This announcement not only signifies a financial plan but also serves as a roadmap for Chevron's commitment to sustainable growth and innovation.
Chevron's upstream spending for 2024 is poised at an impressive $14 billion, with a significant allocation to the United States. Approximately $6.5 billion is reserved for the development of the Zacks Rank #3 (Hold) company’s U.S. shale and tight portfolio. Within this, a noteworthy $5 billion is dedicated to the Permian Basin development, showcasing Chevron's commitment to harnessing the potential of this prolific resource.
A substantial 25% of U.S. upstream Capex is reserved for projects in the Gulf of Mexico. Among these, the Anchor project stands out with an objective to achieve its first oil in 2024. Chevron's strategic investments in this region underscore its dedication to diversification and tapping into diverse energy sources. (Chevron Raises 2024 Capex, Eyes Lower Carbon Future)
4. Phillips 66 disclosed a 2024 capital budget of $2.2 billion, with $923 million allocated to sustaining capital and $1.3 billion for growth capital. The figure is lower than the downstream operator’s projected capital spending for 2023, which is estimated at $2.5 billion. The budget aligns with PSX’s strategic goal of returning $13-$15 billion to shareholders by the end of 2024.
The sustaining capital budget incorporates $300 million in efficiencies achieved through the company’s business transformation initiatives. Before the business transformation, Phillips 66 historically spent an average of $1 billion per year on sustaining capital. With the inclusion of DCP Midstream consolidation, an additional $200 million in sustaining capital is accounted for.
Phillips 66 intends to allocate $1.1 billion in Refining, with $412 million allocated for sustaining capital. The Refining growth capital of $654 million encompasses the completion of the San Francisco Refinery conversion in Rodeo, transforming it into one of the world’s largest renewable fuels facilities. The capital budget includes initiatives aimed at enhancing the refining performance. (Phillips 66 Announces $2.2B Capital Expenditure for 2024).
5. Chevron and Hess disclosed that they have received a request for additional information from the Federal Trade Commission (FTC) concerning the former’s planned $53 billion deal to acquire the upstream explorer. This disclosure, found in an 8-K filing, underscores the heightened regulatory scrutiny surrounding major business transactions.
The companies have pledged to respond promptly to the second request, emphasizing their commitment to working cooperatively with the FTC throughout the review process. It's worth noting that the Hart-Scott-Rodino waiting period is now extended until 30 days after both CVX and HES have substantially complied with this additional request.
As CVX and HES navigate the intricate web of regulatory requirements, transparency and cooperation with the FTC emerge as the cornerstones of a successful merger. The companies are positioned to demonstrate not only the strategic benefits of the deal but also their commitment to adhering to antitrust regulations and fostering a competitive marketplace. (Chevron-Hess' $53B Merger Faces Regulatory Scrutiny).
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 and gas moving down for the week, stocks were mostly negative. The Energy Select Sector SPDR — a popular way to track energy companies — fell 3.3% last week. But over the past six months, the sector tracker has increased 1.2%.
What’s Next in the Energy World?
As usual, market participants will closely track the regular releases to look for guidance on the direction of the commodities. 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.
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Oil & Gas Stock Roundup: M&A, Corporate Announcements Take Center Stage
It was yet another week when both oil and natural gas prices posted losses.
The headlines revolved around energy producer Occidental Petroleum’s (OXY - Free Report) $12 billion deal to acquire Texas shale driller CrownRock LP and American biggie ExxonMobil’s (XOM - Free Report) five-year corporate plan. Developments associated with Chevron (CVX - Free Report) , Phillips 66 (PSX - Free Report) and Hess Corporation (HES - Free Report) also grabbed attention.
Overall, it was a bearish seven-day period for the sector. West Texas Intermediate (WTI) crude futures decreased around 3.8% to close at $71.23 per barrel, while natural gas prices moved down 8.3% to end at $2.581 per million British thermal units (MMBtu).
The crude price action remained negative for the seventh week running on demand concerns after government data showed record-high production. Even the OPEC+ announcement of nearly 2 million barrels per day of additional production cuts was unable to shore up oil prices as the market looked for stronger commitments.
Meanwhile, natural gas slumped to a three-and-a-half-month low, overwhelmed by high production and insipid weather-related demand.
Recap of the Week’s Most Important Stories
1. Houston, TX-based energy company Occidental Petroleum has entered into a purchase agreement to acquire Midland-based oil and gas producer CrownRock L.P. The buyout will take place in a cash and stock deal worth approximately $12 billion, including the assumption of CrownRock’s outstanding debt.
Occidental plans to fund the acquisition by taking on $9.1 billion in new debt, issuing about $1.7 billion in common stock and taking over CrownRock's $1.2 billion in outstanding debt. With the fulfillment of normal closing requirements and the acquisition of regulatory clearances, the deal is expected to close in the first quarter of 2024.
This agreement enhances Occidental’s premier Permian portfolio with the addition of 170,000 barrels of oil equivalent per day (Mboed) of high-margin, lower-decline unconventional production and about 1,700 undeveloped sites in 2024. On a diluted share basis, higher free cash flow is anticipated, with $1 billion in the first year based on $70 per barrel WTI. (Occidental to Buy CrownRock in a $12B Cash & Stock Deal)
2. U.S. supermajor ExxonMobil expects a substantial rise in its earnings potential through 2027, with upstream earnings projected to more than double from the 2019 reported level. The outlook is underpinned by robust production growth in the Permian Basin and Guyana.
XOM mentioned that effective implementation of its strategic initiatives since 2019 enhanced its earnings capacity, contributing about $10 billion to its annual earnings and cash flow at a real Brent price of $60 per barrel. The company is progressing toward achieving an additional $14 billion in earnings and cash flow growth potential over the next four years.
The company predicts a production increase to 3.8 million barrels of oil equivalent per day (Boe/d) in 2024, up from this year’s 3.7 million Boe/d, as it places its confidence in growth from the Permian shale basin and Guyana. OM indicated that it anticipates maintaining a flat production until the end of this year, standing at 3.7 million Boe/d primarily due to its withdrawal from Russia. (ExxonMobil Expects Raised Earnings & Oil Production)
3. Small rival Chevron recently outlined its planned capital expenditure for 2024, focusing on strategic investments in both traditional and new energy sectors. The company expects to spend between $15.5 billion and $16.5 billion on capital projects for its consolidated subsidiaries, with an additional $3 billion allocated for affiliate ventures. This announcement not only signifies a financial plan but also serves as a roadmap for Chevron's commitment to sustainable growth and innovation.
Chevron's upstream spending for 2024 is poised at an impressive $14 billion, with a significant allocation to the United States. Approximately $6.5 billion is reserved for the development of the Zacks Rank #3 (Hold) company’s U.S. shale and tight portfolio. Within this, a noteworthy $5 billion is dedicated to the Permian Basin development, showcasing Chevron's commitment to harnessing the potential of this prolific resource.
You can see the complete list of today’s Zacks #1 Rank stocks here.
A substantial 25% of U.S. upstream Capex is reserved for projects in the Gulf of Mexico. Among these, the Anchor project stands out with an objective to achieve its first oil in 2024. Chevron's strategic investments in this region underscore its dedication to diversification and tapping into diverse energy sources. (Chevron Raises 2024 Capex, Eyes Lower Carbon Future)
4. Phillips 66 disclosed a 2024 capital budget of $2.2 billion, with $923 million allocated to sustaining capital and $1.3 billion for growth capital. The figure is lower than the downstream operator’s projected capital spending for 2023, which is estimated at $2.5 billion. The budget aligns with PSX’s strategic goal of returning $13-$15 billion to shareholders by the end of 2024.
The sustaining capital budget incorporates $300 million in efficiencies achieved through the company’s business transformation initiatives. Before the business transformation, Phillips 66 historically spent an average of $1 billion per year on sustaining capital. With the inclusion of DCP Midstream consolidation, an additional $200 million in sustaining capital is accounted for.
Phillips 66 intends to allocate $1.1 billion in Refining, with $412 million allocated for sustaining capital. The Refining growth capital of $654 million encompasses the completion of the San Francisco Refinery conversion in Rodeo, transforming it into one of the world’s largest renewable fuels facilities. The capital budget includes initiatives aimed at enhancing the refining performance. (Phillips 66 Announces $2.2B Capital Expenditure for 2024).
5. Chevron and Hess disclosed that they have received a request for additional information from the Federal Trade Commission (FTC) concerning the former’s planned $53 billion deal to acquire the upstream explorer. This disclosure, found in an 8-K filing, underscores the heightened regulatory scrutiny surrounding major business transactions.
The companies have pledged to respond promptly to the second request, emphasizing their commitment to working cooperatively with the FTC throughout the review process. It's worth noting that the Hart-Scott-Rodino waiting period is now extended until 30 days after both CVX and HES have substantially complied with this additional request.
As CVX and HES navigate the intricate web of regulatory requirements, transparency and cooperation with the FTC emerge as the cornerstones of a successful merger. The companies are positioned to demonstrate not only the strategic benefits of the deal but also their commitment to adhering to antitrust regulations and fostering a competitive marketplace. (Chevron-Hess' $53B Merger Faces Regulatory Scrutiny).
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 -3.3% -7.2%
CVX -0.3% -9.1%
COP -2.7% +8%
OXY -3.7% -3.8%
SLB -6.4% +3.4%
RIG -10.8% -6.9%
VLO -2.8% +8.9%
MPC -5.5% +27.3%
With oil and gas moving down for the week, stocks were mostly negative. The Energy Select Sector SPDR — a popular way to track energy companies — fell 3.3% last week. But over the past six months, the sector tracker has increased 1.2%.
What’s Next in the Energy World?
As usual, market participants will closely track the regular releases to look for guidance on the direction of the commodities. 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.