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Oil & Gas Stock Roundup: ConocoPhillips' $13.3B Asset Sale, Exxon's Guyana Oil Find and More

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It was a week where oil prices reclaimed the $50-a-barrel level, while natural gas futures climbed to a 2-month high. 

On the news front, one of the world's largest independent oil producer ConocoPhillips (COP - Free Report) agreed to sell most of its Canadian assets to Calgary-based Cenovus Energy Inc. (CVE - Free Report) in a $13.3 billion deal, while supermajor ExxonMobil Corp. (XOM - Free Report) confirmed its third oil discovery off the coast of Guyana.

Overall, the sector ended the first quarter on a positive note. West Texas Intermediate (WTI) crude futures added 5.5% to close at $50.60 per barrel, while natural gas prices rose 1.2% to $3.19 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: TransCanada's Keystone Approval, Chevron's Asset Sale and More.)

Scoring its second gain in 3 weeks, oil prices rallied to their highest level since early March. The commodity was supported by U.S. government data that showed larger-then-anticipated declines in petroleum-product inventories and an uptick in refinery activity – a proxy for stronger crude demand. Prices were further supported by increasing prospects of the OPEC-led cartel extending its production cut agreement by six months.

Oils-Energy Sector 5YR % Return

 

Oils-Energy Sector 5YR % Return

Meanwhile, natural gas also turned higher following an in-line decrease in weekly supplies and predictions of strong demand on the back of a late-winter cold blast.

Recap of the Week’s Most Important Stories

1.    Upstream energy company ConocoPhillips recently announced its decision to divest a huge chunk of its Canadian properties to Calgary, Alberta-based Cenovus Energy Inc.for around $13.3 billion. The transaction is anticipated to close by second-quarter 2017.

Under the accord, the company would divest its 50% non-operated stake in the Foster Creek Christina Lake oil sands partnership and also the bulk of its western Canada Deep Basin gas properties. The company primarily aims to lower exposure to those assets as the cost of operation in these properties is high.

This apart, ConocoPhillips plans use the sale proceeds to reduce its debt burden to $20 billion. Also, it intends to return money to investors by repurchasing shares. It is to be noted that ConocoPhillips is likely to buy back $3 billion shares in 2017. Another $3 billion stock repurchase would be executed through 2018 and 2019. (Read more: Here's Why ConocoPhillips Will Sell $13.3B Canadian Assets.)

2.    World’s largest publicly listed energy producer ExxonMobil Corp. announced a promising deepwater oil find on the prolific Stabroek Block at Snoek well, located offshore Guyana. This marks the company’s third such discovery on the Stabroek Block, after Liza and Payara discoveries.

The 82 feet, high quality oil bearing sandstone reservoir – Snoek well – was drilled by ExxonMobil affiliate Esso Exploration and Production Guyana Ltd using Stena Carron drillship. Post the completion of the drilling of Snoek well, Stena Carron drillship has resumed boring the Liza-4 well.

Esso Exploration and Production is responsible for all ExxonMobil’s drilling projects in the Guyanese waters, including its previous discoveries at Liza and Payara. Esso Exploration and Production Guyana is the chief operator of the Stabroek Block owning 45% of the stake. Hess Guyana Exploration Ltd. and CNOOC Nexen Petroleum Guyana Ltd. hold 30% and 25% interests respectively. (Read more: ExxonMobil Announces Major Oil Discovery Offshore Guyana.)

3.    Global exploration & production company Hess Corp. (HES - Free Report) recently made its Houston pipeline unit, Hess Midstream Partners L.P., public by launching an initial public offering (‘IPO’) of 12,500,000 units. Hess plans to raise $250 million in the IPO through the sale of 12.5 million units at a price of $19 to $21.

Hess Midstream is a master limited partnership formed in 2014 by Hess and private equity firm Global Infrastructure Partners to own pipeline and storage assets in the Bakken Shale. The partnership would be listed in the New York Stock Exchange under the ticker HESM.

About 22.5% of the ownership stake is being sold in the IPO and the figure would reach 25.8% if the underwriters purchase the extra 1.87 million units. The rest of the pipeline and storage business will be managed by Hess Infrastructure Partners, which is a joint venture between Hess and Global Infrastructure investment funds. (Read more: Hess Pipeline Unit Goes Public by IPO Worth $250M.)

4.    Cyprus-based offshore drilling contractor Ocean Rig UDW LLC’s stock plunged more than 68% to 23 cents on Mar 28 after the company filed for chapter 15 bankruptcy protection in a U.S. court. Chapter 15 of the U.S. bankruptcy code will protect the company’s restructuring deal from distressed debt investors and enable it to pursue its debt-for-equity swap with the lenders. Ocean Rig currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ocean Rig has reached a financial restructuring agreement with a group of lenders which would convert $3.7 billion of debt of the company to new equity, along with $288 million in cash payment and $450 million in new secured debt. The company stated that existing shareholders will be diluted to an insignificant amount of post-restructuring equity of the company. 

The company had been contemplating restructuring under bankruptcy since 2016 owing to the oil and gas industry’s downturn. Due to the decline in oil prices since 2014, many energy firms have slashed rig hires which in turn have left vessels unutilized. Notably, even though more than half of the drilling units of Ocean Rig are inactive, the company needs to repay its debts. (Read more: Ocean Rig Files for Bankruptcy Protection, Stock Plunges.)

5.    Chinese energy giant PetroChina Co. Ltd. announced 2016 earnings of RMB 7,900 million or RMB 0.04 per diluted share – the lowest on record – compared with RMB 35,653 million or RMB 0.19 per diluted share a year earlier.

The negative comparisons can be primarily attributable to the multi-year collapse in oil prices, which pummeled PetroChina's biggest unit – exploration and production – to a meagre profit.

Despite the poor showing, PetroChina has decided to follow its state-owned rivals in boosting 2017 capital expenditure. The group pegged its 2017 capital budget at RMB 191.3 billion, up 11% from what it invested in 2016 as it focuses to cash in on the recovery in crude prices. PetroChina also expects oil production to fall around 4.5% this year. (Read more: PetroChina Wraps Up 2016 with Record Low Earnings.)

Price Performance

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

Company

Last Week

Last 6 Months

XOM

-0.11%

-4.85%

CVX

-0.74%

+6.45%

COP

+9.32%

+15.35%

OXY

+1.47%

-12.26%

SLB

-0.64%

-1.07%

RIG

+1.47%

+30.88%

VLO

-4.46%

+23.45%

TSO

-0.86%

+0.32%

Over the course of last week, ‘The Energy Select Sector SPDR’ rose by 0.94%. Consequently, investors witnessed buying in most market heavyweights. The best performer was Houston, TX-based energy explorer ConocoPhillips whose stock price jumped 9.32%.

Longer-term, over the last 6 months, the sector tracker is down 0.09%. Houston-based energy explorer Occidental Petroleum Corp. (OXY - Free Report) was one of the major laggards during this period, experiencing a 12.26% price decline.

What’s Next in the Energy World?

In this week, market participants will be closely tracking the regular 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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