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Shell's Q4 Update & Sunoco's $1B Sale Lead the Oil & Gas Stock Roundup

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It was a week when oil prices dropped while natural gas futures continued the northward journey.

The headlines revolved around energy biggie Shell’s (SHEL - Free Report) Q4 earnings update and downstream operator Sunoco LP’s (SUN - Free Report) $1 billion deal for the sale of some of its retail holdings. Developments associated with Eni (E - Free Report) , TC Energy (TRP - Free Report) and Valaris Limited (VAL - Free Report) also grabbed attention.

Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures decreased around 1.5% to close at $72.68 per barrel, but natural gas prices surged 14.5% to end at $3.31 per million British thermal units (MMBtu).

The crude price action turned negative on continued demand concerns as record-high domestic production added to the supply glut. A government report outlining builds in crude and fuel stockpiles added to the downbeat sentiment.

Meanwhile, natural gas rallied sharply following bullish inventory numbers to go with strong heating demand.

Recap of the Week’s Most Important Stories

1.    British energy major Shell flagged a non-cash impairment charge of $2.5-$4.5 billion for the fourth quarter. These charges primarily stem from the Singapore refining and chemicals hub, for which the company has recently expressed its intentions to sell.

The company attributes this charge to a combination of macroeconomic factors, external developments and strategic portfolio choices. Notably, the decision to sell its Singapore Chemicals & Products assets is a significant contributor to this impairment charge. The assets encompass a substantial 237,000 barrels per day (bpd) refinery and a 1-million metric ton per year ethylene plant located on Singapore's Bukom and Jurong islands. Shell had disclosed a strategic review for these facilities last year.

Despite the impairment charge, Shell expressed optimism about its quarterly performance. The integrated gas trading and optimization sector is expected to see a substantial increase from the previous three months’ level. Additionally, the company forecasts a production range of 880,000-920,000 barrels of oil equivalent per day (Boe/d) from this unit. In the upstream business, Shell expects production in the band of 1.83-1.93 million Boe/d for the fourth quarter. These forecasts indicate a resilient operational performance. (Shell Flags Q4 Impairment Charge, Eyes Singapore Hub Sale)

2.    Sunoco announced a significant shift in its business operations with a series of major transactions. The prominent motor fuels distributor announced plans to sell 204 convenience stores in West Texas, New Mexico and Oklahoma to retail giant, 7-Eleven Inc. The deal, valued at $1 billion, marks a crucial move in reshaping the Zacks Rank #1 (Strong Buy) firm’s business portfolio. You can see the complete list of today’s Zacks #1 Rank stocks here.

As part of this sale, Sunoco is set to amend its existing take-or-pay fuel supply agreement with 7-Eleven. The amendment aims to incorporate additional fuel gross profit, enhancing the financial benefits of the deal for Sunoco. The sale proceeds are expected to play a crucial role in SUN’s future financial strategy.

Sunoco plans to use these funds to significantly reduce its debt level, strengthening its balance sheet. The move is anticipated to help the company capitalize on growth opportunities, while continuing to ensure robust distribution growth. (Sunoco Signs Deals to Restructure Its Business Portfolio)

3. Rome-based energy biggie Eni’s renewables arm, Plenitude, has taken a significant step in expanding its U.S. solar portfolio with the acquisition of an 80% stake in three solar photovoltaic plants. The deal, announced on Wednesday, involves the purchase from EDP Renewables and encompasses the Timber Road and Blue Harvest solar farms in Ohio, along with the Cattlemen plant in Texas, covering a vast expanse of 1,500 hectares.

Plenitude's share in this venture amounts to an impressive 272 megawatt alternating current (MWac) out of the total 340 MWac installed capacity across the three solar farms. These strategic additions are expected to contribute more than 800 MW hours/year of clean power to the U.S. energy grid.

The move aligns with Plenitude's ambition to achieve 1.2 gigawatts (GW) of installed capacity in the United States, contributing to its global target of 7 GW by 2026. Stefano Goberti, the CEO of Plenitude, expressed the company's satisfaction with the agreement, emphasizing the positive impact on their overall capacity and the advancement of clean energy goals. (Eni's Plenitude Secures 80% Stake in US Solar Farm Trio)

4.   Canadian energy infrastructure provider TC Energy announced its commitment to proceed with the C$4.5 billion Ontario Pumped Storage Project in collaboration with the Saugeen Ojibway Nation. The company plans to initiate discussions with federal and provincial regulators to establish a potential long-term revenue framework for the ambitious project.

The decision followed a directive from Ontario's minister of energy to the Independent Electricity System Operator, outlining the next steps for the project, including the formation of a cost recovery agreement. This guidance from the energy minister is seen as crucial in facilitating the ongoing development of the Ontario Pumped Storage Project, which aligns with the province's strategic goal of creating a sustainable and clean electricity system.

The project is positioned as a made-in-Ontario solution, with its design, engineering, and construction to be executed by a domestic supply chain. During the construction phase, the project is expected to generate 1,000 well-paid, unionized jobs, with more than 75% of materials and supplies sourced from Ontario-based companies. (TC Energy Advances C$4.5B Ontario Pumped Storage Project).

5.   Valaris, an offshore driller, has successfully secured new deals and contract extensions, adding approximately $1.14 billion to the firm backlog, excluding mobilization fees and capital reimbursements. The awards include two multi-year contracts for its drillships and several jackup deals spread over the North Sea, Trinidad and Australia.

Included among the most recent awards is the previously announced contract extension with the Brazilian energy company Petrobras for VALARIS DS-4, which entails work for the Buzios deepwater oilfield. This 1,064-day contract is valued at $519 million and is expected to start in December 2024.

Among other notable awards, the U.K.-based exploration and production player Harbour Energy and Valaris have signed a three-year contract extension for the VALARIS 120 heavy-duty harsh environment jack-up rig for work in the U.K. North Sea. The extended contract is in direct continuation of the existing firm program and is expected to begin in the third quarter of 2025. (Valaris Adds $1B Backlog From Drillship & Jackup Deals).

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                -2.6%                 -1%
CVX                 -2.1%                 -4.1%
COP                -4.1%                +4.3%
OXY                 -1.5%                 -2.2%
SLB                 -3.7%                 -12.6%
RIG                  -9.3%                -28.7%
VLO                 +1.9%                +15.9%
MPC                +3.3%                +33%

With oil moving down for the week, stocks were mostly negative. The Energy Select Sector SPDR — a popular way to track energy companies — fell 2.4% last week. But over the past six months, the sector tracker has increased 1.5%.

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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