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Oil & Gas Stock Roundup: Shell's GoM Find, Cheniere's FID on Train 3 & More

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It was a week where oil prices slumped below $70-a-barrel. However, natural gas futures edged closer to the psychologically important $3 level.

On the news front, energy major Royal Dutch Shell plc (RDS.A - Free Report) made a significant discovery in the deepwater Gulf of Mexico, while natural gas exporter Cheniere Energy, Inc. (LNG - Free Report) took the final investment decision to construct a third liquefication unit at its Corpus Christi export terminal in Texas.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures lost about 4.9% to close at $67.88 per barrel, natural gas prices rose some 3.2% to $2.939 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: TOTAL's Oman MOU, Rex Energy's Bankruptcy & More)

The U.S. oil benchmark posted its first weekly loss in almost a month on fears of supply increase, bearish EIA inventory numbers, and soaring rig count.

Oil futures fell after reports emerged that Saudi Arabia and Russia were in discussion to step up output amid reduced supply from Iran and Venezuela.

The commodity was also spooked by the federal government’s EIA report that revealed crude stockpiles climbed by 5.8 million barrels, contrary to market expectations for 1.7 million barrels decline. On a further bearish note, the report revealed that U.S. output edged up 2,000 barrels per day last week to nearly 10.73 million barrels per day – the most since the EIA started maintaining weekly data in 1983.

Data showing the number of U.S. oil rigs climbing – this time by 15, the most in more than three months – brought further downside.

Meanwhile, natural gas prices moved northward last week. Apart from the weekly inventory release showing a smaller-than-expected increase in natural gas supplies, the commodity got a leg up from warm weather forecasts.

Recap of the Week’s Most Important Stories

1.    Royal Dutch Shell recently discovered a large deepwater well in the U.S. Gulf of Mexico (GoM), providing a breather to the offshore oil industry of the United States, which has been gasping for breath since the crude downturn. The Dover well — in the Norphlet geologic play in the U.S. GoM — marks the sixth oil and natural gas find that Shell has struck in the region.

The company has been focusing on exploration opportunities in the prolific Norphlet play, which will be moored by its multibillion-dollar offshore project Appomattox, production from which is expected to commence before 2019 end.

The Dover well, drilled in Mississippi Canyon about 170 miles offshore southeast of New Orleans, is located in 7,500 feet of water. It was drilled to a depth of 29,000 feet vertically. The prospect lies 13 miles from the Appomattox project that was completed and launched into GoM earlier this month. The new discovery is thus poised for further drilling and development through potential tiebacks to Appomattox rather than building new platforms, which will in turn result in cost savings for the company.

Notably, Appomattox is the first major deepwater project authorized by Shell since the oil slump. In fact, since then only two other projects — namely Mad Dog Phase 2 and Vito — have been going forward in the Gulf platforms. (Read more Offshore Industry Gets Respite from Shell's New GoM Find)

2.    Cheniere Energy recently gave its final approval regarding the construction of its third liquefaction unit or Train 3 at its Corpus Christi export terminal in Texas. The approval of the project marks the first final investment decision on the new LNG project in the United States since 2015. Building of the third train will be handed over to contractor Bechtel Oil, Gas and Chemicals, Inc., which had started with its initial construction in late 2017.

Notably, under the Corpus Christi LNG project, the company intends to develop three trains each having a nominal production capacity of 4.5 million metric tons per year of LNG. The first two trains are expected to come online next year.

However, the cost and timeline of the third train has not yet been disclosed and its construction is likely to take around four years. Cheniere’s wholly-owned subsidiary, Cheniere Corpus Christi Holdings has credit facilities worth $6.1 billion, which are likely to be utilized to finance a portion of the construction and operation of the trains.

Further, Cheniere Energy intends to develop seven midscale liquefaction trains adjacent to the Corpus Christi project. The company has also initiated the regulatory approval process regarding the same. The total production capacities of these trains are expected to be approximately 9.5 million tons per annum. (Read more Cheniere Green Lights Train 3 of Corpus Christi Project)

3.    Halliburton Company (HAL - Free Report) recently inked the unconventional gas stimulation services three-year contract with Saudi Aramco, in a bid to unleash a natural gas revolution in Saudi Arabia. Per the deal, the oilfield services major will provide project management, hydraulic fracturing and well intervention services to meet Saudi Aramco’s production targets and improve the economics of its unconventional resources program. The program mainly covers three regions, namely Northern Kingdom, South Ghawar and Jafurah Basin.

Though Saudi Aramco is the world’s top exporter of oil, Saudi Arabia also has a huge natural gas potential, holding the world’s fifth-largest gas reserves. By 2026, the government aims to produce some 651 billion cubic meters of natural gas per day -- almost double its current output.

However, much of it is difficult to recover from shale rock and tight sand. Hence, the company intends to utilize Halliburton’s specialized technological services to tap into those resources.

The contract will boost Saudi Aramco’s efforts to spur natural gas production for meeting the domestic needs as well as shoring up its evolving chemical industry, by providing the essential raw materials. The state-run company also intends to reduce its practice of burning oil for domestic power, thus freeing up more barrels for exports. Notably, over the past year, Saudi Aramco has awarded $4.5 billion worth contracts to international oil service companies, for increasing the country’s gas output.

4.    Cimarex Energy Company (XEC - Free Report) has inked a purchase and sale agreement with Callon Petroleum Company to divest oil and gas properties located in Ward County, TX. The sale is expected to raise cash proceeds of about $570 million.

Production from these properties, majority of which has been derived from the Bone Spring formation, is about 6,831 barrels of oil equivalent per day (73% oil). Net Wolfcamp acreage of about 18,925 is undeveloped. The transaction is likely to close in the third quarter of 2018.

This sale reflects Cimarex Energy’s strategy to consistently upgrade and optimize its portfolio. Cimarex Energy was among the first horizontal operators in the Bone Spring formation in Ward County. The area has delivered good returns over the years. However, the remaining Wolfcamp prospects require more capital compared with other projects. (Read more Cimarex Energy to Divest Ward County Assets for $570M)

5.    Enterprise Products Partners L.P. (EPD - Free Report) has signed a natural gas liquids (NGL) transportation deal with Apache Corp. (APA - Free Report) .

Per the accord, the Shin Oak pipeline of Enterprise Products will likely be utilized by Apache for carrying NGL from the Alpine High project to the storage facility of the partnership in Mont Belvieu, TX.

In the Delaware Basin’s Alpine High discovery, Apache’s presence spreads over 336,000 net acres. The company is willing to transport all produced NGL from the resources through the Shin Oak pipeline. The partnership has committed to transport at least 205,000 barrels of NGL daily through the pipeline.

Investors should know that the Shin Oak pipeline, which is being built by Enterprise Products, will spread over roughly 658 miles to the NGL fractionation and storage unit in Mont Belvieu, TX, from Reeves County. The construction of the Shin Oak pipeline will likely close by the second quarter of 2019. Enterprise Products projects the initial daily liquid transportation capacity of the pipeline at 550,000 barrels.

The latest transportation commitment will likely provide Enterprise Products with steady fee-based revenues. Apache will also gain as the pipeline will help the company to persistently transport its growing production from the prospective Alpine High prospect.(Read more Enterprise Products, Apache Sign NGL Transportation Accord)

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

-3.2%

-4.3%

CVX

-4.4%

+4.3%

COP

-5.9%

+28.7%

OXY

-3.5%

+17.9%

SLB

-7.7%

+10.4%

RIG

-10.1%

+23.6%

VLO

-1.5%

+42.5%

MPC

-3.2%

+34.3%

Reflecting the week’s negative oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a -4.5% return last week. The worst performer was offshore drilling powerhouse Transocean Ltd. (RIG - Free Report) whose stock slumped 10.1%.

But longer-term, over six months, the sector tracker is up 9.5%. Independent refiner, Valero Energy Corporation is far and away the major gainer during this period, experiencing a 42.5% 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.

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