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Oil & Gas Stock Roundup: Shell's Appomattox Start-Up, Rattler Midstream's IPO & More

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It was a week where oil prices hit their lowest in more than two months and natural gas futures tallied a small loss.

On the news front, Royal Dutch Shell plc (RDS.A - Free Report) started production at its Appomattox offshore platform in Gulf of Mexico. Meanwhile, Rattler Midstream Partners LP – the midstream subsidiary of Permian Basin operator Diamondback Energy (FANG - Free Report) – raised around $665 million in an IPO.

Overall, it was a dismal week for the sector. West Texas Intermediate (WTI) crude futures fell 6.8% to close at $58.63 per barrel, while natural gas prices moved down 1.3% for the week to finish at $2.598 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Equinor's GoM Boost, Schlumberger's Asset Sale & More)

The U.S. crude benchmark hit the lowest settlement level since May 13 following the U.S. Energy Department's latest inventory release. The report showed that crude stockpiles recorded another unexpected weekly build, ballooning to their highest since July 2017. In particular, analysts and industry watchers are worried over the tepid refinery runs at a time of year that typically see heightened demand for gasoline as the U.S. summer driving season takes off. On a further bearish note, the report revealed that refined product inventories – gasoline and distillate – both increased from their previous week levels.

There are also concerns that the worsening U.S.-China trade spat could lead to a major slowdown in global economy and translate into weak demand for the commodity.

Natural gas prices also suffered as mild weather continues to limit heating and air conditioning demand in the face of strong production.

Recap of the Week’s Most Important Stories

1.   Royal Dutch Shell recently commenced production at its Appomattox offshore platform in Gulf of Mexico (GoM) months ahead of the scheduled date. While Shell owns 79% of the project, CNOOC Limited (CEO - Free Report) owns the remaining 21%.

Appomattox is Shell’s biggest and most significant deepwater development projects, offering attractive long-term opportunities in the Gulf of Mexico. The company announced its final decision to invest in the project in July 2015. While many of the energy companies scrapped their offshore projects amid the crude downturn, Shell decided to go ahead with the Appomattox deepwater project in GoM Norphlet formation amid the challenging business scenario.

The average peak production from the multi-billion deepwater project is estimated to be 175,000 barrels of oil equivalent per day. The Appomattox development is also expected to act as a core long-term hub for Shell in deepwater Norphlet reservoir that can be tied back to numerous discovered fields as well as future discoveries. (Read more Shell Starts Appomattox Production Ahead of Schedule)

2.    Rattler Midstream Partners LP began trading on the NASDAQ Global Select Market on Thursday under the ticker symbol ‘RTLR.’ The firm raised $665 million, making it the biggest energy IPO of 2019 so far, ahead of Brigham Minerals and New Fortress Energy LLC. The midstream limited partnership priced its IPO at $17.50 per share, in the middle of its previously indicated range of $16 to $19 per unit. In total, 38 million units were released, upsized from originally proposed offering of 33.3 million units.

A subsidiary of Midland, TX-headquartered Permian Basin operator Diamondback Energy, Rattler Midstream is an oil and gas gathering and takeaway master limited partnership, whose operations are spread over the Permian’s Midland and Delaware basins. The firm earned ‎$63 million on revenues of $184 million in calendar 2018, up from $21 million on revenues of $39 million a year earlier.

Rattler Midstream was formed by Diamondback Energy to operate its Permian midstream assets. As of the end of first quarter, the partnership owned 781 miles of pipeline to carry about 232,000 barrels of crude, natural gas, and drilling and waste water daily. In 2018, Rattler Midstream drilled 176 new wells in those areas. (Read more Biggest Energy IPO of 2019: Rattler Midstream Raises $665M)

3.    Ensco Rowan plc recently announced that it has suspended regular quarterly cash dividend payout. This is the Zacks Rank #2 (Buy) company’s first update regarding dividends, since Ensco completed the acquisition of Rowan in April.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, prior to the merger, legacy Ensco shareholders were awarded with a regular quarterly dividend of a penny per share. On the contrary, legacy Rowan shareholders did not receive a regular quarterly cash dividend.

Skipping the quarterly dividend payout might help EnscoRowan to focus on reducing the debt burden and improving balance sheet. As of Mar 31, the company had only $298.4 million in cash and cash equivalents, while long-term debt was more than $5 billion. (Read more EnscoRowan to Discontinue Quarterly Cash Dividends)

4.    Pioneer Natural Resources Company (PXD - Free Report) recently laid off 25% of its workforce to reduce expenses and increase shareholder value in the long term. The company cut around 230 employees from corporate offices in Las Colinas and the Permian Basin, as well as another 300 personnel who took buyouts this April.

Pioneer laid off 70 workers in the Permian and 160 corporate employees. Notably, at the end of 2018, the upstream company had 3,177 workers, of which 1,006 were connected to field and plant operations and 618 were incorporated in related jobs. The laid-off workers will get financial packages and job searching services.

"Decisions like these are never easy. In this case, they were necessary to both align our cost structure with our business strategy and to create value for our shareholders over the long term," the company said. (Read more Pioneer Lays Off 25% of Workforce to Boost Shareholder Value)

5.     WPX Energy Inc. (WPX - Free Report) recently announced that its subsidiary and joint venture partner in Oryx II pipeline have completed the sale of the project. The agreement to sell its 25% in the pipeline was signed post Mar 31, 2019. The company intends to utilize the net proceeds of $350 million to lower dues in its credit facility.

The Oryx II transaction is WPX Energy’s second midstream monetization this year. The company has already closed the previously announced sale of its 20% equity interest in Whitewater Midstream’s Agua Blanca natural gas pipeline system.

WPX Energy is utilizing the proceeds from non-core asset sale to lower its outstanding debts and invest in new lucrative assets. The current debt to capital ratio of the company stands at 36.77%, which is better than its industry’s average of 37.91%. WPX Energy has been managing its debt levels quite efficiently and lowering the same. (Read more WPX Energy Sells Midstream Assets, to Lower Debts)

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

-2.4%

-8.6%

CVX

-1.5%

-1.5%

COP

-3.6%

-11.4%

OXY

+1.3%

-26.8%

SLB

-5.2%

-22.1%

RIG

-9%

-34.3%

VLO

-8.9%

-6%

MPC

-3.2%

-25%

 

Reflecting the weak market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – fell 3.3% last week. The worst performer was offshore driller Transocean Ltd. (RIG - Free Report) whose stock slumped 9%.

Longer-term, over six months, the sector tracker is down 9.1%. Transocean was again the major loser during this period, experiencing a 34.3% price decline.

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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