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Oil & Gas Stock Roundup: CVX Starts Wheatstone Production, PSX Approves $3B Buyback

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It was a week where both oil and gas prices turned lower.

On the news front, U.S. supermajor Chevron Corporation (CVX - Free Report) started production at its giant Wheatstone LNG project in Western Australia, while energy pipeline and logistics provider Phillips 66 (PSX - Free Report) announced a new $3 billion stock repurchase program.

Overall, it was a dismal week for the sector. West Texas Intermediate (WTI) crude futures lost about 4.6% to close at $49.29 per barrel, while natural gas prices declined 4.8% to $2.863 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: XOM Loses #1 Energy Spot, CVX Names New CEO.)

The U.S. oil benchmark registered its first decline in five weeks on renewed oversupply concerns. Market observers fretted over soaring U.S. exports that rose to a record – of nearly 2 million barrels per day – in the wake of widening Brent premium to WTI.

A discount in U.S. oil prices to the global benchmark Brent (or a larger spread) makes domestic crude attractive in overseas markets. Worryingly, higher exports are expected to encourage shale players to ramp up production, which is already at its highest level since July 2015.

The news of production resumption at Libya’s largest oil field and slipping compliance to OPEC’s output cut deal further dented the commodity.

Meanwhile, natural gas futures finished lower despite a smaller-than-expected increase in supplies. Unfavorable weather forecasts and strength in the commodity’s production, led to the nearly 5% drop in prices.

Recap of the Week’s Most Important Stories

1.    Energy behemoth Chevron recently commenced production at its Wheatstone LNG project in Western Australia. This is a major milestone for the company as the first cargo is on track to set sail in the coming weeks. Chevron is the chief operator of the Wheatstone project owning a 64.14% stake.

The project is located 7.5 miles west of Onslow and is to process gas from Wheatstone and Iago fields, both of which are operated by Chevron. The company holds an 80.2 % interest in the offshore licenses containing the Wheatstone and Iago fields. The Wheatstone fields are estimated to contain over 4.5 trillion cubic feet of gas deposits.

The Wheatstone project consists of two liquefaction trains with a shipment capacity of 8.9 million metric tons per year of LNG. While the first liquefaction train has already started production, the second one is expected to become operational in another six months. The project provides Chevron and its partners an opportunity to serve the fast-growing economies of China and India along with other Asian countries. (Read more Chevron's LNG Project Comes Online, Achieves New Milestone)

2.    Midstream energy player Phillips 66 has received consent for a new share repurchase program of $3 billion from its board of directors. Since the third quarter of 2012, the company’s total authorization for share repurchases has increased to $12 billion.

Phillips 66’s board of directors has also declared a regular quarterly dividend of 70 cents per common stock. The dividend is payable on Dec 1, 2017 to its shareholders of record as of the close of business on Nov 17, 2017.

These announcements are in sync with the Zacks Rank #2 (Buy) company’s strategy to enhance shareholder value. Phillips 66 has increased quarterly dividend rate seven times.

Since 2012, it has returned over $15 billion to its shareholders in the form of dividends, share repurchases and share exchanges. Phillips 66 has repurchased and exchanged over 20% of outstanding shares since its formation. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

These actions increase the positivity that currently surrounds Phillips 66’s stock price. The company’s shares have been touching new highs. Phillips 66 is believed to have an association with the biggest North American travel center operator, Pilot Flying-J, wherein Warren Buffett's Berkshire Hathatway Inc has a stake of 38.6%. Berkshire Hathatway aims to have the majority ownership by 2023 in Pilot Flying-J. (Read more Phillips 66 Announces Share Repurchase Program Worth $3B)

3.    European oil giant Royal Dutch Shell plc (RDS.A - Free Report) has decided not to proceed with the $900 million deal to offload stake in an offshore Thailand Gas Field to a unit of Kuwait Petroleum Corporation. Shell had signed the deal in January. Per the deal, KUFPEC — a subsidiary of Kuwait Foreign Petroleum Exploration Co. — was to acquire two subsidiaries of Shell.

The deal was set for closure by the end of the first quarter of 2017, subject to satisfactory conditions. However, the deal was called off as Shell and Thailand’s government could not come to terms regarding matters of share sales within the stipulated time.

The divestment was part of the company’s move to lower debt, arising from the $50 billion mega-acquisition of BG Group. It was part of its portfolio optimization strategy and the $30 billion global divestment program for 2016-2018. However, with Shell already closing more than $25 billion divestment deals, it remains on track to meet its target by 2018.

Notably, Thailand represents a promising part of Shell’s world class portfolio. With the scrapping of the deal, the company remains keen on investing in viable exploration projects in the country. With the Bongkot concession expiring in 2023, Shell is set to participate in the upcoming auction for the next phase of the project. (Read more Shell Calls Off Thailand Gas Field Divestment Deal)

4.    Oil giant ExxonMobil Corporation (XOM - Free Report) has announced the discovery of oil deposits offshore Guyana. Turbot-1 well represents the fifth oil discovery in the region.

On Aug 14, ExxonMobil’s affiliate Esso Exploration and Production Guyana Ltd started drilling the Turbot-1 well. The company discovered a reservoir of 75 feet (23 meters) of superior, oil-bearing sandstone in the main objective. On Sept 29, the well was drilled to reach a depth of 18,445 feet (5,622 meters) in 5,912 feet (1,802 meters) of water.

Located in the southeastern portion of the Stabroek Block, the Turbot-1 well is located about 30 miles (50 kilometers) to the southeast of the Liza phase one project. In fact, ExxonMobil’s Stabroek Block spans across acreage of 6.6 million (26,800 square kilometers). While the company holds 45% in the Stabroek Block, the other partners include Hess Corporation and CNOOC Ltd. holding 30% and 25% interest, respectively.

Markedly, ExxonMobil’s presence in Guyana dates back to 2008 when it initiated oil and gas exploration activities. The company, however, drilled its first exploration in 2015. (Read more ExxonMobil Strengthens Foothold in Guyana With Fifth Find)

5.    Oil and natural gas driller Ensco plc (ESV - Free Report) completed the acquisition of Atwood Oceanics, Inc. in an all-stock deal worth $839 million.

The combined company will have a fleet of 63 rigs comprising ultra-deepwater drillships, versatile deep- and mid-water semisubmersibles and shallow-water jackups, along with a diverse customer base of 27 national oil companies, supermajors and independents.

Owing to the complementary nature of the companies’ products, Ensco will be able to provide a complete range of offshore drilling equipment for the production of oil and gas post-merger completion.

Management expects this acquisition to drive Ensco's earnings and cash flow per share through cost synergies of approximately $45 million next year and $60 million in 2019. The combined entity will have a broader customer base, greater exposure to the deepwater drilling business and a wider array of products. (Read more Ensco Acquires Atwood Oceanics, Broadens Customer Base)

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

-0.6%

-0.9%

CVX

-0.5%

+8.1%

COP

-2.3%

-1.3%

OXY

-1.6%

+1.6%

SLB

-1.2%

-12.8%

RIG

-2.6%

-15.4%

VLO

+0.6%

+17.6%

ANDV

+3.4%

+33%

The Energy Select Sector SPDR – a popular way to track energy companies –  generated a -0.6% return last week. The worst performer was offshore drilling rig operator Transocean Ltd. (RIG - Free Report) whose stock fell by 2.6%.

Longer-term, over the last 6 months, the sector tracker is down 3.1%. It was again Transocean that was the major laggard during this period, experiencing a 15.4% price decline.

What’s Next in the Energy World?

As usual, market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas - one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count.

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