It was a week where oil ended lower but natural gas futures extended gains.
On the news front, upstream player Marathon Oil Corp. (MRO - Free Report) sold its assets in Libya for $450 million, while offshore driller SeaDrill Ltd. (SDRL - Free Report) announced a new restructuring plan. Meanwhile, energy biggie Canadian Natural Resources Ltd. (CNQ - Free Report) came out with strong fourth-quarter results.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures lost 3.6% to close at $61.25 per barrel, natural gas prices rose 1.4% to $2.695 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Concho & Devon's Q4, EQT's Spin-Off & More)
The U.S. oil benchmark declined for the fourth time in seven weeks. The major culprit was the Energy Department's inventory release, which revealed that crude stockpiles recorded a higher-than-expected weekly build.
The commodity was further pressured by soaring U.S. production, wherein output rose to 10.3 million barrels per day -- the most since the EIA started maintaining weekly data in 1983.
The Trump administration’s planned tariffs on imported steel and aluminum also adversely impacted oil prices on fears that the move will make pipelines, refineries and petrochemical plants costlier.
Meanwhile, natural gas prices moved higher last week after exports hit an all-time high Investors were also encouraged by forecasts of cooler weather, leading to the heating fuel’s strong demand.
Recap of the Week’s Most Important Stories
1. In a bid to deepen its focus on U.S. shale plays, Marathon Oil offloaded its oil acreage in Libya to France-based supermajor TOTAL S.A. (TOT - Free Report) . The $450 million deal marks the exit of Marathon Oil from Libya.
Per the deal, Marathon Oil divested 16.3% interest in the Waha acreage in Libya. Other partners in Waha concessions include Libya’s national oil company with 60% stake, along with ConocoPhillips and Hess Corp. with 16.3% and 8.2% stake, respectively. At the end of 2017, Marathon Oil held 199 million barrels of oil equivalent (boe) of proved reserves in Libya.
The transaction is just another move by the company to further streamline its portfolio. Over the last two years, Marathon Oil has successfully positioned itself into the Delaware Basin and low cost-high margin STACK/SCOOP resource plays while exiting non-core property assets with limited upside. (Read more Marathon Oil Vends Libyan Assets to Streamline Portfolio)
2. After several delays and months of negotiations, SeaDrill Ltd. recently announced final restructuring agreement.
Being one of the worst sufferers of the downturn and burdened with massive debt, the company had filed for Chapter 11 bankruptcy protection on Sep 12 to restructure its balance sheet amid volatile oil prices.
The prior restructuring agreement of Seadrill (on Sep 12) had received support from 97% secured bank lenders and 40% of bondholders, with the company planning to raise $1.06 billion of fresh capital.
However, after reaching a global settlement in the Chapter 11 proceedings recently, the restructuring agreement now has the support of 99% secured bank lenders and 70% bondholders. The international offshore drilling company will now witness capital injection of $1.08 billion, which would comprise $880 million of secured loans and $200 million equity. Existing shareholders will receive 1.9% stake in the post-restructuring equity. (Read more: SeaDrill Reaches Global Settlement to Execute Restructuring)
3. Oil and gas finder Canadian Natural Resources reported robust fourth-quarter results, buoyed by higher liquids prices and production. Earnings per share – excluding one-time and non-cash items – came in at U.S.$444.9, blazing the Zacks Consensus Estimate of 32 U.S. cents and the fourth-quarter 2016 profit of 29 U.S. cents).
The Zacks Rank #1 (Strong Buy) company’s fourth-quarter operational funds flow – a key metrics to gauge its capability to fund new projects and drilling – amounted to C$2,307 million, which was 37.6% higher than that achieved in the fourth quarter of 2016. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Oil and natural gas liquids (NGLs) output (accounting for 73% of total volumes) increased 27.2% to 744,100 barrels per day (Bbl/d). The average realized liquids price (before hedging) was C$53.42 per barrel during the fourth quarter, representing an increase of 18.7% from the corresponding period of the previous year.
Management is guiding toward production of 821,000-869,000 Bbl/d of liquids and 1,600-1,650 MMcf/d of natural gas during the first quarter of 2018. For 2018, Canadian Natural expects oil and NGLs production to be 815,000-885,000 Bbl/d, while natural gas volumes for the year are likely to be 1,650-1,710 MMcf/d. Capital spending for this year is budgeted at C$4,300 million, 13.5% below the 2017 spend of C$4,972 million.(Read more Canadian Natural Q4 Earnings Beat on Liquids Strength)
4. Independent upstream operator Southwestern Energy Co. (SWN - Free Report) delivered fourth-quarter 2017 adjusted earnings of 12 cents per share, which beat the Zacks Consensus Estimate of 10 cents. The bottom line also improved from 8 cents in the year-ago quarter. The surge in production and increase in commodity price realizations primarily contributed to the strong fourth-quarter results.
During the fourth quarter, the company’s total production increased 18.3% year over year to 239 billion cubic feet equivalent (Bcfe). Northeast Appalachia contributed the most to its total production. The company’s average realized gas price in the quarter, including hedges, rose to $2.12 per thousand cubic feet (Mcf) from $2.07 per Mcf in the year-ago quarter.
The company’s total capital expenditure through 2017 was approximately $1.3 billion. As of Dec 31, the company’s long-term debt was $4.4 billion, which represents a debt-to-capitalization ratio of 44.2%.
The company’s total proved reserves, as of Dec 31, was recorded at 14,775 Bcfe, significantly higher than 5,253 Bcfe in the year-earlier period. (Read more Southwestern Energy Q4 Earnings Beat, Reserves Grow)
5. Independent energy explorer QEP Resources, Inc. (QEP - Free Report) recently reported fourth-quarter 2017 earnings per share – excluding special items – of $1.13, abundantly beating the Zacks Consensus Estimate of a loss of 4 cents. The outperformance was primarily driven by benefits from the U.S. tax reform and increased overall net realized price.
QEP Resources announced some strategic initiatives for 2018 that are expected to make the company a Permian Basin-focused one. QEP Resources wants to start the selling process of the assets in Williston and Uinta basin in the first half of 2018, while the rest will be scheduled to commence in the second half of the year.
For 2018, QEP Resources expects oil and natural gas prices to be $55 per barrel and $3 per million British Thermal Units (MMBtu). Total oil-equivalent production is expected to be in the range of 47.7-51.5 million barrels of oil equivalent. Total capital investment is expected to be around $1.075 billion. Notably, 65% of the capital investment is expected to be channeled toward the Permian Basin.
The company has also authorized a share buyback program worth $1.25 billion, which is expected to be paid using proceeds from the divestments. (Read more QEP Resources Reports Surprise Q4 Earnings, Sales Beat)
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 negative oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a -0.6% return last week. The worst performer was Houston-based energy explorer Occidental Petroleum Corp. (OXY - Free Report) whose stock fell 3.4%.
But longer-term, over six months, the sector tracker is up 5.8%. Independent refiner Valero Energy was the major gainer during this period, experiencing a 34.9% price appreciation.
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.
Additionally, investors will keep an eye on the ongoing 37th CERAWeek in Houston – an annual energy conference by IHS Markit – to get insights on the industry.
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