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Oil & Gas Stock Roundup: Exxon Bids for InterOil, BP's Oil Spill Cost Hits $62B

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It was a week where oil prices settled higher, while natural gas futures lost ground.

On the news front, Exxon Mobil Corp. (XOM - Free Report) launched a bid for Papua New Guinea explorer InterOil Corp., while BP plc (BP - Free Report) is set to incur nearly $62 billion in costs for the deadly 2010 Gulf of Mexico oil spill.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures edged up 1.2% to close at $45.95 per barrel, natural gas prices fell 1.6% to $2.756 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Chevron OKs $37B Tengiz Expansion, National Oilwell Teams Up with GE.)

Oil prices moved north on robust economic data from the U.S. and China – the world’s top two fuel consuming nations – that bolstered prospects for energy demand.

However, some of the gains were erased after the Baker Hughes report revealed a rise in the U.S. oil rig count – indicating resurgence in shale drilling activities. Oil traders were also disappointed by the U.S. Energy Department's weekly inventory release, which showed a smaller-than-anticipated drop in crude stockpiles and a climb in domestic output.

Oils-Energy Sector Price Index

Oils-Energy Sector Price Index

Natural gas booked another weekly loss following a higher-than-expected build. The downward movement could also be attributed to predictions of tepid cooling demand with forecasts of milder temperature across the country over the next few days.

Recap of the Week’s Most Important Stories

1.    The world’s largest publicly traded oil company Exxon Mobil Corp. has placed a bid for Canada’s InterOil Corp. to enhance its liquefied natural gas position in Papua New Guinea (‘PNG’).

Per Oil Search Ltd. – Exxon’s local partner in PNG – the U.S. supermajor’s offer of about $2.2 billion for PNG-focused InterOil Corp. has outbid that of Oil Search, which is backed by French energy giant Total SA with an agreement to buy part of InterOil's stake in the potentially lucrative Elk-Antelope gas field. According to reports, Exxon Mobil has found favor with InterOil.

Exxon Mobil has offered $45 worth of its own shares for each InterOil share along with a payment of $0.90 per million cubic feet equivalent (Mcfe) for resources of over 6.2 trillion cubic feet in the Elk-Antelope gas field.

Oil Search, on the other hand, has offered 8.05 of its own shares for every InterOil share, and has valued InterOil's shares at $42.66 at the end of the trading session as of July 15. Also, the company has offered $0.77 per Mcfe for resources of over 6.2 Tcfe at Elk-Antelope. (See More: Exxon Mobil Bids for InterOil, Trumps Oil Search Offer.)

2.    Oil giant BP plc announced that it can now estimate its remaining material liabilities in connection with the catastrophic 2010 Deepwater Horizon spill.

The company expects an after-tax non-operating charge of around $2.5 billion, which will be reported in its second-quarter 2016 results. With this, BP is estimated to incur a total cumulative pre-tax charge relating to the incident of $61.6 billion or $44.0 billion after tax. This includes an additional pre-tax non-operating charge of $5.2 billion relating to the spill.

The company mentioned that any additional outstanding claims related to the incident, which have not been covered within the aforesaid charge, will not have a substantial impact on its financial performance. The company intends to manage the remaining claims in the ordinary course of business.

In sync with the financial framework laid out in the previous quarters, BP plans to continue using funds generated from divestments to fulfill the commitments pertaining to Deepwater Horizon. (See More:  BP to Incur $62 Billion Charge for Deepwater Horizon Oil Spill.)

3.    Leading upstream energy player Marathon Oil Corp. (MRO - Free Report) declared the production of first gas from its new Alba B3 compression platform, located off the coast of Equatorial Guinea.

This offshore platform will likely help the company to convert 130 million barrels of oil equivalent of undeveloped proved reserves. Marathon Oil declared that this compression development will maintain a steady flow of production over the coming two years without accelerating the base production decline. This will help the company to extend the life of the field by up to eight years.

It is to be noted that Heerema Fabrication Group has been serving as a general contractor of the project. In the Alba field, Marathon E.G. Production Limited – the affiliate of Marathon Oil and also the operator of the field – has a 65% working interest. The remaining 35% is owned by Noble Energy Inc. (See More: Marathon Oil Develops First Gas from Alba Offshore Platform.)

4.    Independent energy producer Devon Energy Corp. (DVN - Free Report) announced that it has entered into a definitive agreement with Wolf Midstream Inc. to sell the 50% ownership interest it has in Access Pipeline. The deal is valued at $1.1 billion (CAD $1.4 billion).

Apart from the 50% stake in the Access Pipeline, the sale agreement can potentially go up by $120 million (CAD $150 million) upon the sanctioning and development of a new thermal-oil project on Devon’s Pike lease in Alberta, Canada.

Under the terms of the sale agreement, Devon’s thermal-oil acreage is dedicated to the Access Pipeline for an initial term of 25 years. As a market-based toll will be applied to production from the company’s three Jackfish projects, it will see an increase in lease operating expense at the complex by nearly $100 million on an annualized basis. (See More: Devon's Divestiture Goal Reached with Access Pipeline Sale.)

5.    Houston-based energy major ConocoPhillips (COP - Free Report) announced that it has entered into an agreement to sell its 35% interest in three exploration blocks offshore Senegal. The blocks – Rufisque Offshore, Sangomar Offshore and Sangomar Deep Offshore – had a net carrying value of approximately $250 million as of May 31, 2016. The transaction is anticipated to close by year-end 2016.

The total value of the agreement, which will be conducted through the subsidiaries of ConocoPhillips and Australia's Woodside Petroleum Ltd., is for $350 million plus net customary adjustments of approximately $80 million. The transaction is subject to the approval of the Government of Senegal and co-venturer preemption rights. (See More: ConocoPhillips to Divest Senegal Assets to Woodside.)

Price Performance

The following table shows the price movement of the major oil and gas players over the past week and during the last 6 months.

Company

Last Week

Last 6 Months

XOM

+2.09%

+24.11%

CVX

+1.84%

+30.16%

COP

+0.52%

+17.34%

OXY

+1.01%

+24.91%

SLB

+1.24%

+26.87%

RIG

+1.24%

+31.97%

VLO

+5.44%

-24.21%

TSO

+5.02%

-14.26%

Over the course of last week, ‘The Energy Select Sector SPDR’ was up 2.49% on bullish economic data. Consequently, investors witnessed buying in most market heavyweights. The best performer was downstream operator Valero Energy Corp. (VLO - Free Report) that added 5.44% to its stock price.

Longer-term, over the last 6 months, the sector tracker has jumped 30.22%. Offshore drilling giant Transocean Ltd. (RIG - Free Report) was the main beneficiary during this period, experiencing a 31.97% price increase.

What’s Next in the Energy World?

As usual, market participants will be closely tracking the regular weekly releases i.e. the U.S. government data on oil and natural gas. Energy traders will also be focusing on the Baker Hughes data on rig count.

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