It was a week where both oil and natural gas finished higher.
On the news front, U.S. supermajor Chevron Corp. (CVX - Free Report) gave its go-ahead to the $5.1 billion second stage of its massive Gorgon LNG project in Western Australia, while oilfield service providers McDermott International, Inc. (MDR - Free Report) and National Oilwell Varco, Inc. (NOV - Free Report) provided first-quarter operational updates.
Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained around 8.6% to close at $67.39 per barrel, while natural gas prices rose 1.3% to $2.735 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: RDS.A & SM's Divestment Deals, KMI's Project Suspension & More)
The U.S. oil benchmark settled at a three-year high last week on renewed geopolitical tensions in the Middle East and reports of strong OPEC compliance with the supply pact.
Crude literally took off following news of U.S.-led military strike against Syria and gained further when Saudi Arabia claimed to have intercepted missiles fired by Yemeni rebels.
Apart from the geopolitical risk premium, the commodity was also supported by a bullish ‘Oil Market Report’ by energy consultative body IEA. The agency, in its April publication, said that OPEC and its allies have been largely successful in erasing the global oil stock surplus through their high compliance rates on production curbs.
Natural gas prices also moved northward last week following a larger-than-expected decrease in supplies. Investors were further encouraged by unseasonal winter-like weather that might lead to the fuel’s strong demand and push back the commencement of the injection season.
Recap of the Week’s Most Important Stories
1. Chevronfinally announced its intention to proceed with the second stage of its multibillion dollar Gorgon LNG project in Western Australia's north-west coast. While Chevron is the chief operator of Gorgon LNG project holding 47.3% stake, Exxon Mobil and Royal Dutch Shell own 25% interest each.
Gorgon LNG project is the largest single resource project in Australia, dealing with the delivery of natural gas to international and domestic customers. The $69 billion project is one of the costliest energy projects, employing more than 10,000 people to construct the processing facility at Barrow Island. The Gorgon LNG project has a shipment capacity of 15.6 million metric tons per year.
The second stage of the project involves a capital investment of around $5.1 billion. The investment in the second stage of the project would fit within Chevron’s planned annual investment of $18-$20 billion through 2020. Apart from leading to creation of jobs and boosting the local economy, the expansion of the project is likely to boost the domestic supply of gas from 200 terajoules (TJ) to about 300 TJ a day. (Read more Chevron Green Lights $5.1 Billion Gorgon Expansion Project)
2. McDermott International recently provided encouraging first-quarter 2018 operational update, while reaffirming its guidance for the whole year. The company thanked solid backlog conversation in its operational areas along with successful execution of its cost-saving plans for the positives. Following the news, the stock jumped 6.7%.
The company expects its top line for the Jan-Mar quarter to be in the range of $600-$610 million, much higher than the year-ago figure of $519.4 million. The Zacks Consensus Estimate shows revenues to be $590.8 million. Moreover, McDermott expects its EPS for the quarter to be in the range of 10-12 cents.
Per McDermott, cost saving efforts like the Fit2Grow initiative played crucial roles in this quarter. The Fit2Grow initiative alone helped the company in generating $15 million in savings. Moreover, McDermott expects its operating margin in the quarter to be in the range of 10-10.7%.
McDermott also reaffirmed its preliminary 2018 guidance, issued on Feb 21. The Houston, TX-based service provider expects its full-year revenues to be in the range of $3.1-$3.3 billion. Moreover, the company anticipates its EBITDA to be within the $340-$365 million range. Additionally, net income is anticipated to be approximately between $120 and $145 million. The company foresees its free cash flow to range within $195-$235 million. The EPS is estimated to lie between 42 cents and 52 cents. (Read more McDermott Provides Q1 Operational Update, Stock Jumps)
3. National Oilwell Varco slumped 7.2% yesterday after it warned investors that the company's first-quarter 2018 revenues are expected to miss expectations, which will be reported on Apr 26, after the market closes.
The company's revenue prediction of $1.8 billion for the January-March period reflects 3.4% year-over-year decline and is below the Zacks Consensus Estimate of $1.943 billion. Moreover, the Zacks Rank #3 (Hold) company expects all three of its segments to report lower sales sequentially. National Oilwell’s adjusted EBITDA is now anticipated to reach about $160 million. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company blamed new offshore rig construction's lowered progress as well as client-associated equipment deferrals for decline in its revenues. The delay from customers is expected to push the remaining revenues to later quarters. Moreover, the sequential shipments of subsea production equipment declined during the end of the quarter, hurting National Oilwell's top line in the period. (Read more National Oilwell Likely to Miss Estimates, Stock Loses 7%)
4. Vermilion Energy Inc. (VET - Free Report) , an oil and gas producing company, has agreed to acquire its rival Spartan Energy Corp. in a C$1.4 billion ($1.11 billion) deal. The transaction is expected to enable Vermilion Energy to boost its North American light oil production. Notably, annual production of Spartan Energy is expected around 23,000 barrels of oil equivalent per day (Boe/d) this year, of which 91% is oil.
Should the deal go through Calgary, Canada-based Vermilion Energy. Apart from increasing its hold in the region with 480,000 acres of light oil producing property, it will add low decline assets to Vermilion Energy's portfolio, which holds huge investment opportunities in the future. The additional production from the acquisition is expected to help Vermilion Energy reach its revised 2018 output guidance of 86,000-90,000 Boe/d. Moreover, proved and probable reserves of 113.5 million barrels will be added to Vermilion Energy's portfolio. The company increased its capital budget to C$430 million following the acquisition from C$325 million earlier.
Additionally, operational synergies from the deal are expected to benefit Vermilion Energy in a tough energy environment in Canada, where lack of infrastructure is currently leading to discounted, and volatile pricing for crude and gas. (Read more Vermilion Energy to Acquire Canadian Rival for C$1.4 Billion)
5. TOTAL S.A. (TOT - Free Report) made full utilization of its financial strength to acquire several assets in the Gulf of Mexico (GOM) region from the Cobalt International Energy’s bankruptcy auction sale. TOTAL made an offer of $300 million to acquire 20% interest in the North Platte discovery, 20% stake in Anchor discovery and operation rights in 13 offshore exploration blocks.
The U.S. Bankruptcy Court has approved the above transfer of rights to TOTAL on Apr 5, 2018. Thanks to this decision, TOTAL’s interest in the North Platte discovery moves up to 60%, making it the operator of the discovery, with Statoil ASA holding the remaining 40%. In the Anchor discovery, TOTAL increases its interest to 32.5%. This discovery is being operated by Chevron, holding 55% interest.
TOTAL’s U.S. exploration and production operation holds a very important position in its global combined liquids and gas production mix. TOTAL at present targets to increase its 2018 upstream production by 6% from 2017 levels, and higher production volumes from the United States will help the company meet its production targets. (Read more TOTAL Boosts Operation in GOM, Becomes North Platte Operator)
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
Reflecting the bullish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +6% return last week. The best performer was offshore drilling powerhouse Transocean Ltd. (RIG - Free Report) whose stock jumped 19.2%,
Longer-term, over six months, the sector tracker is up 5.6%. Independent refiner Valero Energy Corporation (VLO - Free Report) was the major gainer during this period, experiencing a 35.9% price apreciation.
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.
Finally, the 2018 Q1 earnings will remain under scrutiny this week, with the oil services companies, providers of technical products and services to drillers of oil and gas wells, kicking off what is expected to be another good earnings season for U.S. energy firms.
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