It was a week where oil ended slightly higher but natural gas futures settled down.
On the news front, European supermajor Royal Dutch Shell plc (RDS.A - Free Report) decided to end its association in New Zealand by selling its business to Austria's OMV for $578 million, while Norway-based Statoil ASA announced plans to change its name to Equinor.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures edged up about 0.5% to close at $62.34 per barrel, natural gas prices decreased 1.6% to $2.688 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon & Chevron's Strategy Updates, Hess' Buyback Plan & More)
The U.S. oil benchmark eked out marginal gains in U.S. trading over the week, supported by the International Energy Agency's (IEA) upward revision of its crude demand estimates. The energy consultative body, in its closely watched monthly oil-market report, said that global demand is likely to grow by 1.5 million barrels a day this year to average 99.3 million barrels a day. This projection is 90,000 barrels a day above last month's estimate.
However, the Energy Department's inventory release – revealing a massive weekly build in crude stockpiles on the back of record domestic oil production – together with a rising rig count, kept the commodity’s price gains in check.
Meanwhile, natural gas prices moved lower last week following a smaller-than-expected decrease in supplies. The 93 billion cubic feet (Bcf) withdrawal was also below the five-year average net shrinkage of 97 Bcf for the reported week. A bearish weather outlook and ample production also played spoilsport.
Recap of the Week’s Most Important Stories
1. Royal Dutch Shell plc is set to offload its remaining portfolio of energy assets in New Zealand to Austria-based OMV AG in a $578 million deal, moving ahead with its divestment goals. The move marks the Zacks Rank #2 (Buy) European oil giant’s exit from the country after having operated there for more than a century. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Per the deal, Shell will sell its 84% interest in the Maui gas field located off the Taranaki coast. The company will also jettison its 48% stake in the Pohokuru field along with Tank Farms. Additionally, it will divest its 61% interest in the Great South Basin venture located off the coast of Otago and Southland, which also includes a drilling commitment of around $50 million.
OMV AG already holds 10% and 26% stakes in Maui and Pohokuru, respectively. After completion of the deal, the employees of Shell in its New Zealand’s business will be transferred to OMV AG. Subject to satisfactory closing conditions and regulatory approvals, the deal is set for closure by the fourth quarter of 2018.
Shell had announced a strategic review of its operations in New Zealand in 2015. In fact, last April, the supermajor had entered into a deal with Todd Energy to vend 50% interest in the onshore Kapuni oil and gas field in the Taranaki region of New Zealand.
The Anglo-Dutch energy giant had been contemplating selling the remaining stakes in the country since then, in order to further streamline its portfolio. (Read more: Shell to Sell New Zealand Holdings to OMV AG in a $578M Deal)
2. Statoil ASA wants to rebrand itself as Equinor. The board of directors of the Norwegian energy major wants to take out the "oil" from the name, expecting the move to reflect the company's growing interest and reach beyond petroleum.
The first part of the name, "Equi", stands for equal, equality and equilibrium, while "nor" indicates its Norwegian origin. As the company is trying to be at the front of the energy transition movement from oil and gas to greener sources, it wants to plough in 15-20% of its total spending in renewable energy by 2030, profoundly improving from 5% in 2017.
The company's strategy of developing a competitive portfolio, where low-carbon advantage takes a huge part, underpins the name change. Notably, in 2017, the company’s carbon emission reduction per barrel of oil equivalent increased more than 10% from the previous year. Moreover, in the last six months, the company has invested in offshore wind power and solar energy.
Statoil expects the rebranding and focusing more on renewables to not change the company's backbone, the Norwegian continental shelf. The fate of rebranding will be decided on May 15, 2018, when the name will be proposed at the Annual General Meeting of the company. (Read more Statoil to Remove 'Oil' From Name, Rebrand as Equinor)
3. Eni SpA (E - Free Report) has released its strategic plan for 2018-2021, signifying a usual progression of the same executed in the previous years and intends to continue boosting all business value. The company has undergone a successful transformation, resulting in a more integrated set-up, well positioned for further growth in the upstream sector. The mid-downstream businesses have also been reorganized, making them financially sounder and prepared to generate worth even in the low oil price scenarios.
The capital expenditure for this four-year plan is estimated at less than €32 billion. It will focus on high-value projects with quick returns. Of the total capex, over 80% will be allocated to the upstream, about €3.5 billion is apportioned for the repair and maintenance (R&M) while the chemicals business is anticipated to have about 10% return rate. Moreover, the amount will provide ample flexibility as more than 50% of the investments will not be committed by 2021.
Eni intends to increase the dividend for 2018 to €0.83 per share, up 3.75% from 2017, fully payable in cash. Based on Brent price of $60 per barrel, Eni is assumed to realize an operating cash flow of more than €11 billion in 2018, which might further appreciate above €2 billion in 2021 for the same scenario. (Read more Eni Releases Growth-Friendly Strategic Plan for 2018-2021)
4. Oilfield service providers McDermott International, Inc. and Baker Hughes, a GE company are set to team up to provide integrated energy services for the supermajor BP’s West African gas project, offshore Senegal and Mauritania.
McDermott and Baker Hughes will be required to conduct front-end engineering design (FEED) studies for BP’s Tortue/Ahmeyim gas field development. The initial phase of the project will require McDermott to handle the subsea umbilicals, risers and flowlines aspects. Meanwhile, Baker Hughes will concentrate on defining the scope for the subsea production system. The FEED studies are likely to be completed by this year.
Later, the partnership agreement between the McDermott and Baker Hughes will be converted to an engineering, procurement, construction and installation (EPCI) contract wherein both the companies will provide optimized and integrated solutions for BP’s project. The agreement marks the first EPCI contract for both McDermott and Baker Hughes in West Africa for BP. (Read more McDermott Collaborates with Baker Hughes for BP Contract)
5. Brazil's state-run energy giant Petrobras (PBR - Free Report) announced fourth-quarter earnings per ADR of 20 cents, beating the Zacks Consensus Estimate of 18 cents on the back of higher oil prices.
Petrobras’ free cash flows through 2017 increased almost 12% to $13,850 million, reflecting that the company has sufficient operating cashflow to support investment. During 2017, exports of oil and oil products rose 23%, while imports fell 18%. This helped the company maintain the position of net exporter with a positive balance of 361 thousand barrels per day.
During the year ended Dec 31, 2017, Petrobras’ capital investments and expenditures totaled $13,639 million, lower than $14,085 million incurred in the year-ago period. This allowed the world's most indebted oil company to record the lowest debt over the last six years. At the end of December 2017, the company had net debt of $84,871 million, reflecting a decline from $96,381 million as of Dec 31, 2016. (Read more Petrobras Q4 Earnings Beat, Revenues Miss Estimates)
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
Contrary to the week’s mildly positive oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a -2.4% return last week. The worst performer was oilfield service majors Schlumberger Ltd. (SLB - Free Report) , whose stock fell 4.8%.
Longer-term, over six months, the sector tracker is down 0.9%. Oil giant ExxonMobil Corporation (XOM - Free Report) was the major decliner during this period, experiencing a 7.9% price depreciation.
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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