It was a week where oil prices surged above $70, while natural gas futures crept ever closer to the psychologically important $3 level.
On the news front, French oil and gas company TOTAL S.A. (TOT - Free Report) acquired electric vehicle charging solutions provider G2mobility, while gas exporter Cheniere Energy, Inc. (LNG - Free Report) signed a 15-year pact to sell the fuel to commodity trader Vitol.
Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures rose 2.6% to close at $70.78 per barrel, while natural gas prices soared 7.6% to $2.977 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Diamondback's Permian JV, HollyFrontier's Buyback & More)
The U.S. crude benchmark gained for the fourth time in five weeks after the Energy Department's inventory release showed that stockpiles recorded another large draw. Worries that Washington’s looming sanctions against Iran will significantly tighten supplies also contributed to the gains.
Meanwhile, natural gas logged the biggest weekly gain since Jan 26 as a hefty storage deficit ahead of the upcoming winter pointed to tightening fundamentals and spurred the fuel’s price.
Recap of the Week’s Most Important Stories
1. TOTAL S.A. announced that it has entered into an agreement to acquire G2mobility, a French leading provider of electric vehicle charging solutions. The deal will expand the company’s footprint in electric vehicle (EV) charging businesses, ranging from designing smart charging stations to optimizing energy usage management and selling integrated services.
A host of factors such as pollution issues, government sops, cost advantages, technical superiority and increasing adulation from both automakers and customers have turned the fortune in favor of EVs. Stricter fuel-efficiency standards are being imposed by countries across the world which seems to be in favor of EVs.
European nations such as France and UK have already specified future plans of completely banning diesel and gasoline cars sale. China, the largest car market in the world, has also decided to totally switch to EVs at an unspecified date, has sent a clarion call to automakers as well as the energy industry.
Therefore, it makes sense for the energy companies to re-orient and re-strategize to adapt to the changing times and invest in alternative fuels. Many oil majors like TOTAL, Chevron, Shell and ExxonMobil have already started making efforts to de-carbonize the energy system with gradual shift into alternative fuels. TOTAL, in order to expand its operation in natural gas-driven vehicle business, acquired Dutch company PitPoint B.V. in 2017 and 25% stake in Clean Energy Fuels Corp. this year. (Read more TOTAL Buys G2mobility, Expands Vehicle Charging Businesses)
2. A subsidiary of Cheniere Energy, Cheniere Marketing, LLC, has inked a 15-year sale and purchase agreement (“SPA”) with Vitol Inc. Per the agreement, Vitol will purchase about 0.7 million tons per annum of liquefied natural gas (“LNG”) from Cheniere Marketing on a free-on-board basis starting in 2018. The purchase price for LNG is indexed to the monthly Henry Hub price, which includes a fee.
This agreement represents the second major long-term LNG deal with one of the biggest oil and commodity trading houses in 2018. Earlier this year, Cheniere Energy and another major commodity trader, Trafigura, struck an LNG SPA.
Per the deal, Trafigura agreed to purchase about 1 million tons a year of LNG from Zacks Rank #3 (Hold) Cheniere Energy on a free-on-board basis for 15 years starting in 2019, with the purchase price for LNG indexed to the monthly Henry Hub price, plus a fee. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cheniere Energy foresees the fundamentals of LNG to be favorable in the long run, considering the secular shift to the cleaner burning fuel for power generation worldwide and in the Asia-Pacific region in particular. With domestic prices remaining constrained on the back of abundant supplies, the company sees a big opportunity in selling U.S. natural gas production at higher prices overseas. (Read more Cheniere Energy Inks Sale and Purchase Agreement with Vitol)
3. Wildhorse Resource Development Corp. (WRD - Free Report) recently inked two separate acquisition deals, in a bid to expand its footprint in the Eagle Ford Shale. The Houston-based upstream player, which is one of the largest operators in the Northeast Eagle Ford Play, is set to buy 20,305 net acres. The said acreage will be located in Eagle Ford, Austin Chalk and other leases in Burleson, Brazos, Lee and Washington counties.
Production constitutes 39 barrels of oil equivalent per day across the counties. The terms of the transaction have been still kept under wraps. The selling parties have not been disclosed as well.
Earlier this year, Wildhorse had leased around 10,700 net acres of Eagle Ford and Austin Chalk regions. Hence with the latest move, the company acquired a total of 31,005 net acres in the Eagle Ford for a total consideration of approximately $43 million in 2018. Notably, Wildhorse holds a total of 418,000 net acres in the Eagle Ford.
Importantly, the company is committed to sharpen its focus on the Eagle Ford and Austin Chalk. In this regard, it jettisoned its North Louisiana assets holdings for $217 million in February. Given this, the company has become a pure play Eagle Ford operator with a 70% oil-weighted portfolio. Notably, its sharp focus on the prolific Eagle ford shale skyrocketed output growth of the company by 107% year over year in the second quarter of 2018. (Read more Wildhorse Expands Eagle Ford Foothold, Buys 20,305 Net Acres)
4. Bringing in pleasant news for TransCanada Corporation (TRP - Free Report) , the U.S. State Department has finally green-lighted the company’s controversial Keystone XL project.
Just a month back, a U.S. federal judge, Brian Morris, issued a decree requiring the State Department to conduct a fresh environmental evaluation of the Keystone XL pipeline under the new alternative route. The judge believed that the alternative route proposed by the Nebraska Public Utilities Commission had not been properly assessed.
However, after careful review, the State Department claimed that the emerging environmental risks from the pipeline are minimal and not likely to have any major impact on the groundwater along the route, even in case of leaks and spills. (Read more TransCanada's Keystone XL Gets Nod From U.S. State Department)
5. CNOOC Limited (CEO - Free Report) recently announced that the company has started production at its Penglai 19-3 oilfield 1/3/8/9 comprehensive adjustment project, one of the biggest offshore oilfields in China. The project is located 80 kilometers southeast from Penglai city and 216 kilometers northwest from Tanggu, in the south-central part of Bohai Sea.
Average water depth at the site is in the range of 27-33 meters. The existing facilities of the company in the oilfield are being fully employed for the project. A central processing platform along with two wellhead platforms is being used for the purpose of production. CNOOC estimates peak crude output capacity from the project at around 58,700 barrels per day, which will likely be reached in 2020.
The commencement of production at the Penglai 19-3 comprehensive adjustment project assumes significance as CNOOC saw its oil production from the Bohai Bay decline 2.3% year over year for the first six months of 2018. Considering that approximately 35% of CNOOC’s total production comes from the Bohai Bay, the Penglai 19-3 Comprehensive Adjustment Project start-up should contribute to the company's mid-to-long term volume growth.
Moreover, the development is also expected to aid the company in its bid to stabilize yearly output from the region at 30 million tons over the next decade. (Read more CNOOC Starts Production at Penglai Oilfield Offshore China)
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 week’s positive oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +1.8% return last week. The best performer was offshore drilling powerhouse Transocean Ltd. (RIG - Free Report) whose stock jumped 15.2.
Longer-term, over six months, the sector tracker is up 12.1%. Transocean was again the major gainer during this period, experiencing a 37% 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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