Heading into the New Year, both oil and natural gas futures experienced noticeable upticks on healthy storage draws.
On the news front, energy explorer SandRidge Energy, Inc. called off its merger with peer Bonanza Creek Energy, Inc. (BCEI - Free Report) following criticism from some of its largest shareholders, while oilfield services player McDermott International, Inc. (MDR - Free Report) announced the receipt of a contract in the Danish sector of North Sea.
Overall, the sector ended 2017 on a bullish note. West Texas Intermediate (WTI) crude futures gained about 3.3% to close at $60.42 per barrel, while natural gas prices surged 11% to $2.9530 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Shell Boosts Power Market Presence, Cabot Sells Eagle Ford Assets)
Posting its second annual gain in a row, oil prices closed 2017 up more than 12%. The last week of the year saw U.S. oil benchmark attain its highest closing since June 2015. The major catalyst was the Energy Department's inventory release, which revealed that crude stockpiles recorded another higher-than-expected weekly draw. On a further bullish note, domestic oil production snapped its steadily rising trend and fell for the first time since October. Data showing the number of U.S. oil rigs not rising for a third straight week helped cement those gains.
Oil stockpiles have shrunk in 30 of the last 38 weeks and are down more than 100 million barrels since April. The gradual fall has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 431.9 million barrels, current crude supplies are 11.1% below the year-ago period and the lowest since 2015.
Meanwhile, natural gas was one of 2017’s worst-performing commodities, losing 21% during the period. However, the fuel gained substantial ground during the past week following a larger-than-average decrease in supplies. Favorable weather forecasts (translating into robust heating gas demand) added to the positive sentiment.
Recap of the Week’s Most Important Stories
1. Oil and natural gas company, SandRidge Energy recently announced that it has dropped its plan to acquire Colorado-based Bonanza Creek Energy, following intense opposition from its shareholders. SandRidge has agreed to reimburse Bonanza Creek with up to $3.7 million for terminating the agreement.
Earlier, SandRidge had announcedits plan to acquire Bonanza Creek Energy for a total consideration of $746 million including cash and stock. The plan was primarily opposed by New York-based Fir Tree Partners and activist Carl Icahn, the two largest shareholders of SandRidge. While Icahn holds 13.5% of Zacks Rank #2 (Buy) SandRidge shares, Fir Tree holds owns 8.3%. Following the decision, both the companies mutually dismissed the acquisition plan. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Although SandRidge – which emerged out of bankruptcy in 2016 – initially believed that the acquisition will help it to increase its DJ Basin hold and raise oil production, the majority of its shareholders felt it should better focus on the proportion of management compensation and company size and scale. The shareholders expect the company with a market cap of $654.184 million to mend its internal disparities before increasing its asset holdings. (Read more SandRidge Cancels Plan to Acquire Bonanza Creek: Here's Why)
2. Energy-focused engineering and construction company McDermott International (MDR - Free Report) recently announced that it has landed an engineering, procurement, construction and commissioning (EPCC) services contract from Maersk Oil for the latter's Tyra Redevelopment project. It is located in the Danish sector of North Sea.
The contract value is expected to be in the range of $500-$700 million. With this contract, McDermott is returning to the North Sea. It also aligns with the company's growth strategy. Per McDermott, Maersk Oil will be provided with the full suite of EPCC services for seven topside structures, six connecting bridges and six jacket extensions. McDermott has plans to carry out the project as part of two separate work packages. One of the packages will assume Tyra East G platform’s gas processing topside of around 18,188 tons, which will include two 100 meters connecting bridges weighing 468 tons and 771 tons. A 137-meter long flare is also included in this package.
McDermott, which is set to merge with Chicago Bridge & Iron, expects to start working on the project from early 2018. It expects to complete the two work packages by Feb 1, 2020 and Feb 1, 2021, respectively. The contract will be reflected in the company's backlog for the fourth quarter of 2017. (Read more McDermott Gets EPCC Contract From Maersk Oil in North Sea)
3. Transocean Ltd. (RIG - Free Report) recently reported that its harsh environment semisubmersible, Transocean Spitsbergen has received a 22-well contract from Norwegian integrated major Statoil ASA (STO) in the Norwegian North Sea. The duration of the contract is 33 months and it includes two one-well options. Since the news of the contract, the stock has gained 9.5%.
The Aker H-6e type Transocean Spitsbergen was built in 2009. It has been deployed earlier this year on Statoil’s UK drilling campaign, completing which the semisubmersible will move to the Norwegian North Sea. The latest deal further strengthens the relationship of the two companies.
Per Transocean, the contract, which is expected to begin in the third quarter of 2019, is valued at around $286 million (excluding performance incentive opportunities) or $289,000 per day. Notably, as of Feb 21, 2017, Transocean, a leader in the offshore drilling industry, has a total backlog of more than $14 billion. (Read more Transocean Receives $286M Worth Contract From Statoil)
4. Ultra Petroleum Corp. (UPL - Free Report) has recently announced the divestment of Marcellus properties, in line with its intention of redirecting focus toward more profitable resources. Alta Marcellus Development LLC is the buyer of the asset and the transaction is valued at $115 million.
The upstream energy player’s Marcellus asset comprises of roughly 50% stake in 72,000 acres spreading across Centre, Lycoming and Clinton counties. The properties sold by Ultra Petroleum recently generated an output of roughly 30 million cubic feet of natural gas regularly. Investors should know that the proceeds are likely to be utilized by the company to lower debt load and for the development of natural gas rich Pinedale resources. (Read more: Ultra Petroleum Focuses on Pinedale With Marcellus Sale)
5. TechnipFMC plc (FTI - Free Report) recently won a Engineering, Procurement & Construction contract for Snorre Field Expansion Project. The contract was awarded by Statoil which owns a 33.3% stake in the Snorre field. Other partners in the field include Petoro AS, ExxonMobil, Idemitsu Petroleum Norge AS, DEA Norge AS and Point Resources AS, holding a 30%, a 17.4%, a 9.6%, an 8.6% and a 1.1% stake, respectively.
Discovered in 1979, the Snorre field started production in 1992. The field is located at the Tampen area in the northern part of the North Sea, 300-380 meters below sea level. So far, the Snorre field has produced 1.4-billion barrels of oil.
The Snorre Expansion contract covers the delivery of subsea production systems and includes 6 subsea templates and subsea production equipment. TechnipFMC has delivered subsea equipment to Snorre since the field started production. (Read more: TechnipFMC Wins Snorre-Expansion Contract From Statoil)
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.
Last 6 Months
In line with the week’s bullish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +0.6% return last week. The best performer was Transocean whose stock jumped 4.9%.
Longer-term, over 6 months, the sector tracker is up 11.3%. Downstream operator Valero Energy Corporation (VLO - Free Report) was the major gainer during this period, experiencing a 36.2% price appreciation.
What’s Next in the Energy World?
In this holiday-shortened week, 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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