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Oil & Gas Stock Roundup: CVX & HES Take Center Stage
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It was a week when both oil and natural gas prices recorded declines.
The headlines revolved around energy biggie Chevron’s (CVX - Free Report) resumption of drilling in Venezuela and a dispute over hydrocarbon explorer Hess Corporation’s (HES - Free Report) stake in an oil project. Developments associated with Diamond Offshore Drilling (DO - Free Report) , TC Energy (TRP - Free Report) and VAALCO Energy (EGY - Free Report) also grabbed attention.
Overall, it was a bearish seven-day period for the sector. West Texas Intermediate (WTI) crude futures decreased around 2.5% to close at $78.01 per barrel, while natural gas prices moved down 1.6% to end at $1.81 per million British thermal units (MMBtu).
The crude price action flipped into negative territory following a mixed jobs report that could mean slower fuel consumption. The commodity was also dragged down by worries regarding lackluster demand out of China.
Meanwhile, natural gas settled with a consecutive loss week over week, overwhelmed by excessive supply and insipid weather-related demand.
Recap of the Week’s Most Important Stories
1. American energy major Chevron restarted drilling operations in a pristine field located in Venezuela, marking a significant move to boost production amid challenging geopolitical circumstances. The drilling activities, initiated in mid-February, aim to exploit the heavy crude area of the Orinoco Belt, which is CVX's primary avenue for increasing production in Venezuela.
Situated in the Orinoco Belt, the targeted area represents CVX's most promising opportunity for near-term production escalation within Venezuela. With the company's other operational fields anticipated to face declining output in the foreseeable future, the Orinoco Belt emerges as a key focal point for sustaining and potentially enhancing CVX's presence in the country.
Chevron's plan covers the drilling of up to 30 new wells by 2025, signaling a robust commitment to expanding operations in Venezuela. This ambitious task is projected to substantially raise the overall production capacity of CVX's jointly managed ventures with the state-owned oil company, PDVSA, by 35%, culminating in an estimated daily output of 250,000 barrels by 2025. (Chevron Resumes Drilling Operations in Venezuela)
2. Leading upstream player Hess found itself at the center of a significant corporate tug-of-war over its lucrative oil assets in Guyana. This Zacks Rank #3 (Hold) company’s proposed sale of its 30% stake in the Stabroek Block, a major offshore oil project, triggered a contentious battle among some of the biggest names in the American oil industry.
Oil and gas behemoth ExxonMobil filed an arbitration claim with the International Chamber of Commerce in Paris, asserting its right of first refusal over Hess’ share in the Stabroek project. This legal maneuver is aimed at potentially blocking rival Chevron’s ongoing $53-billion acquisition of Hess, indicating ExxonMobil’s interest in countering the deal.
The Stabroek Block has been a crown jewel for Hess, drawing massive interest from global energy players due to its vast oil reserves. ExxonMobil’s aggressive step to potentially secure Hess’ assets underscores the block’s strategic importance in the global energy market. (Hess' Guyana Oil Assets Spark Major Energy Sector Dispute)
3. Diamond Offshore Drilling has been awarded a two-year contract extension with a subsidiary of European supermajor BP plc in the U.S. Gulf of Mexico. The extension has been secured for the Ocean BlackHornet drillship and represents approximately $350 million of additional backlog. The Ocean BlackHornet is a seventh-generation Gusto P10000 drillship built in 2014. It can operate at a depth of 12,000 feet and reach a maximum drilling depth of 40,000 feet.
Diamond Offshore’s fleet utilization level increased to 69% in the fourth quarter of 2023 from the prior-year level, while revenue efficiency remained intact. The offshore driller added $245 million in backlog during the fourth quarter. The company also secured $362 million in contract awards last month, in addition to its backlog worth $1.4 billion as of Jan 1, 2024.
DO mentions that the contract award strengthens its relationship with an important client in the Gulf of Mexico. This will significantly contribute to its 2025 and 2026 backlog and future cash flows. (Diamond Offshore Secures Additional Backlog Worth $350M)
4. TC Energy and its partner Northern New England Investment Company, Inc., a subsidiary of Énergir L.P., recently entered into a significant agreement to sell the Portland Natural Gas Transmission System (“PNGTS”). This strategic move involves a sale to BlackRock, facilitated through a fund managed by its Diversified Infrastructure business and investment funds operated by Morgan Stanley Infrastructure Partners.
The deal stands at a substantial gross purchase price of $1.14 billion, inclusive of the assumption of $250 million in outstanding Senior Notes held at PNGTS. This transaction indicates a valuation of approximately 11 times the reported 2023 comparable EBITDA.
Despite the divestiture of PNGTS, TC Energy maintained its financial guidance and growth outlook through 2026. The company is poised to leverage its operational expertise and strategic initiatives to drive sustainable growth and value creation for its stakeholders. (TC Energy, Energir Agree to Sell PNGTS in a $1.14B Deal).
5. VAALCO Energy entered into an agreement to acquire Svenska Petroleum Exploration AB from Petroswede AB for a gross consideration of $66.5 million. Svenska Petroleum Exploration AB is a privately held exploration and production company based in Stockholm, Sweden. As part of the acquisition, the West Africa-focused oil and gas finder will acquire 100% of the share capital of Svenska from Petroswede AB, effective from Oct 1, 2023.
The purchase will be funded by a pre-closing dividend on Svenska’s balance sheet to Petroswede AB and VAALCO’s cash-on-hand without issuing any debt or equity. The deal is expected to close in the second quarter of 2024, subject to customary closing conditions. VAALCO expects net cash due at closing to be in the range of $30-$40 million.
Svenska’s primary asset consists of a 27.39% non-operated working interest and a 30.43% paying interest in the CI-40 Block, which includes the producing Baobab field. The Baobab field is operated by Canadian Natural Resources Ltd., which holds a 57.61% working interest in the project. The remaining 15% working interest is held by the national oil company, Petroci Holding. (VAALCO's Acquisition Expands Its West African Footprint).
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.
Stocks had a mixed week, indicative of the uncertain trading in oil and gas. The Energy Select Sector SPDR — a popular way to track energy companies — rose 1.2% last week. But over the past six months, the sector tracker has decreased 1.9%.
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. As a matter of fact, fuel demand and the rate of stock drawdowns in the coming weeks will determine the trend in commodity prices. 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: CVX & HES Take Center Stage
It was a week when both oil and natural gas prices recorded declines.
The headlines revolved around energy biggie Chevron’s (CVX - Free Report) resumption of drilling in Venezuela and a dispute over hydrocarbon explorer Hess Corporation’s (HES - Free Report) stake in an oil project. Developments associated with Diamond Offshore Drilling (DO - Free Report) , TC Energy (TRP - Free Report) and VAALCO Energy (EGY - Free Report) also grabbed attention.
Overall, it was a bearish seven-day period for the sector. West Texas Intermediate (WTI) crude futures decreased around 2.5% to close at $78.01 per barrel, while natural gas prices moved down 1.6% to end at $1.81 per million British thermal units (MMBtu).
The crude price action flipped into negative territory following a mixed jobs report that could mean slower fuel consumption. The commodity was also dragged down by worries regarding lackluster demand out of China.
Meanwhile, natural gas settled with a consecutive loss week over week, overwhelmed by excessive supply and insipid weather-related demand.
Recap of the Week’s Most Important Stories
1. American energy major Chevron restarted drilling operations in a pristine field located in Venezuela, marking a significant move to boost production amid challenging geopolitical circumstances. The drilling activities, initiated in mid-February, aim to exploit the heavy crude area of the Orinoco Belt, which is CVX's primary avenue for increasing production in Venezuela.
Situated in the Orinoco Belt, the targeted area represents CVX's most promising opportunity for near-term production escalation within Venezuela. With the company's other operational fields anticipated to face declining output in the foreseeable future, the Orinoco Belt emerges as a key focal point for sustaining and potentially enhancing CVX's presence in the country.
Chevron's plan covers the drilling of up to 30 new wells by 2025, signaling a robust commitment to expanding operations in Venezuela. This ambitious task is projected to substantially raise the overall production capacity of CVX's jointly managed ventures with the state-owned oil company, PDVSA, by 35%, culminating in an estimated daily output of 250,000 barrels by 2025. (Chevron Resumes Drilling Operations in Venezuela)
2. Leading upstream player Hess found itself at the center of a significant corporate tug-of-war over its lucrative oil assets in Guyana. This Zacks Rank #3 (Hold) company’s proposed sale of its 30% stake in the Stabroek Block, a major offshore oil project, triggered a contentious battle among some of the biggest names in the American oil industry.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Oil and gas behemoth ExxonMobil filed an arbitration claim with the International Chamber of Commerce in Paris, asserting its right of first refusal over Hess’ share in the Stabroek project. This legal maneuver is aimed at potentially blocking rival Chevron’s ongoing $53-billion acquisition of Hess, indicating ExxonMobil’s interest in countering the deal.
The Stabroek Block has been a crown jewel for Hess, drawing massive interest from global energy players due to its vast oil reserves. ExxonMobil’s aggressive step to potentially secure Hess’ assets underscores the block’s strategic importance in the global energy market. (Hess' Guyana Oil Assets Spark Major Energy Sector Dispute)
3. Diamond Offshore Drilling has been awarded a two-year contract extension with a subsidiary of European supermajor BP plc in the U.S. Gulf of Mexico. The extension has been secured for the Ocean BlackHornet drillship and represents approximately $350 million of additional backlog. The Ocean BlackHornet is a seventh-generation Gusto P10000 drillship built in 2014. It can operate at a depth of 12,000 feet and reach a maximum drilling depth of 40,000 feet.
Diamond Offshore’s fleet utilization level increased to 69% in the fourth quarter of 2023 from the prior-year level, while revenue efficiency remained intact. The offshore driller added $245 million in backlog during the fourth quarter. The company also secured $362 million in contract awards last month, in addition to its backlog worth $1.4 billion as of Jan 1, 2024.
DO mentions that the contract award strengthens its relationship with an important client in the Gulf of Mexico. This will significantly contribute to its 2025 and 2026 backlog and future cash flows. (Diamond Offshore Secures Additional Backlog Worth $350M)
4. TC Energy and its partner Northern New England Investment Company, Inc., a subsidiary of Énergir L.P., recently entered into a significant agreement to sell the Portland Natural Gas Transmission System (“PNGTS”). This strategic move involves a sale to BlackRock, facilitated through a fund managed by its Diversified Infrastructure business and investment funds operated by Morgan Stanley Infrastructure Partners.
The deal stands at a substantial gross purchase price of $1.14 billion, inclusive of the assumption of $250 million in outstanding Senior Notes held at PNGTS. This transaction indicates a valuation of approximately 11 times the reported 2023 comparable EBITDA.
Despite the divestiture of PNGTS, TC Energy maintained its financial guidance and growth outlook through 2026. The company is poised to leverage its operational expertise and strategic initiatives to drive sustainable growth and value creation for its stakeholders. (TC Energy, Energir Agree to Sell PNGTS in a $1.14B Deal).
5. VAALCO Energy entered into an agreement to acquire Svenska Petroleum Exploration AB from Petroswede AB for a gross consideration of $66.5 million. Svenska Petroleum Exploration AB is a privately held exploration and production company based in Stockholm, Sweden. As part of the acquisition, the West Africa-focused oil and gas finder will acquire 100% of the share capital of Svenska from Petroswede AB, effective from Oct 1, 2023.
The purchase will be funded by a pre-closing dividend on Svenska’s balance sheet to Petroswede AB and VAALCO’s cash-on-hand without issuing any debt or equity. The deal is expected to close in the second quarter of 2024, subject to customary closing conditions. VAALCO expects net cash due at closing to be in the range of $30-$40 million.
Svenska’s primary asset consists of a 27.39% non-operated working interest and a 30.43% paying interest in the CI-40 Block, which includes the producing Baobab field. The Baobab field is operated by Canadian Natural Resources Ltd., which holds a 57.61% working interest in the project. The remaining 15% working interest is held by the national oil company, Petroci Holding. (VAALCO's Acquisition Expands Its West African Footprint).
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% -4.5%
CVX -1.9% -7.2%
COP -1.1% -4.3%
OXY -0.6% -3.6%
SLB +2.1% -15.2%
RIG +3.1% -33.1%
VLO +4.4% +4.7%
MPC +3.7% +17.8%
Stocks had a mixed week, indicative of the uncertain trading in oil and gas. The Energy Select Sector SPDR — a popular way to track energy companies — rose 1.2% last week. But over the past six months, the sector tracker has decreased 1.9%.
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. As a matter of fact, fuel demand and the rate of stock drawdowns in the coming weeks will determine the trend in commodity prices. 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.