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Oil & Gas Stock Roundup: Kinder Morgan's 2020 Plans, Chesapeake's Debt Financing & More

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It was a week where oil futures rose sharply as OPEC and its allies promised deeper production cuts next month. Natural gas also got a slight nudge higher.

On the news front, midstream operator Kinder Morgan Inc. (KMI - Free Report) set its investment budget for 2020 at $2.4 billion, down 23% from its projected spending this year. Meanwhile, shares of Chesapeake Energy Corp. (CHK - Free Report) surged after the energy explorer came up with debt financing deals to boost its financial flexibility.    

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures climbed 7.3% to close at $59.20 per barrel, while natural gas prices rose 2.3% for the week to finish at 2.334 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Valaris, Kosmos Energy in the News as Market Waits on OPEC)

The U.S. crude benchmark marked the highest settlement since September after the OPEC+ group announced cutting output by as much as 500,000 barrels per day from Jan 1 for three months. This is in addition to the existing production curbs of 1.2 million barrels per day by OPEC, Russia and other non-member oil producers. A data report showing a much bigger-than-expected drawdown in domestic oil inventories, ending several consecutive weeks of builds, also helped oil prices.

Meanwhile, natural gas prices were boosted by expectations of colder weather over the Midwest and east during the next few days that could buoy power sector demand for the heating fuel.

Recap of the Week’s Most Important Stories

1. Kinder Morgan recently provided a glimpse of its financial expectations for 2020. The midstream energy player projects distributable cash flow (DCF) for 2020 at $5.1 billion, roughly 3% higher than its 2019 DCF forecast. The company expects higher contributions from existing projects, expansion developments, increased tariffs and lower interest rates to back growth in DCF — a key metric for any midstream infrastructure provider.

Kinder Morgan also reaffirmed its plan to raise annual dividend for 2020 to $1.25 per share, suggesting a year-over-year increment of 25%. The company added that it will be able to fully finance the dividend payments with internally-generated cashflow.

Moreover, the company announced its 2020 capital budget for growth projects and joint venture contributions. Kinder Morgan is planning to spend $2.4 billion in 2020, suggesting a decline from $3.1 billion budget in 2019. (Read more Kinder Morgan Unveils 2020 Guidance: A Detailed Analysis)

2.   Chesapeake Energy surged more than 16% on Dec 4, after the struggling upstream energy player announced the securement of debt financing to boost its financial flexibility.

Last month, the company warned investors in its 10-Q statement that it doubts its ability to continue as a going concern. Chesapeake added in the statement that it could be difficult to conform to the leverage ratio covenant in the coming 12 months if the pricing scenario of crude oil and natural gas continues to be unfavorable.

Investors cheered Chesapeake’s recent debt financing initiatives owing to which the stock jumped roughly 32% from the 25-year low closing price of 56 cents on Nov 19. Chesapeake announced the engagement of several banks, including JPMorgan Chase & Co, for arranging a $1.5-billion term loan facility. Notably, the term of the secured first lien loan is 4.5 years. (Read more Chesapeake Jumps 16% on $1.5B Term-Loan Facility Securement)

3.   BP plc (BP - Free Report) announced its decision to raise its stake in Lightsource BP. With a 7% additional stake, the Zacks Rank #3 (Hold) British integrated energy giant has boosted its ownership interest in the European solar developer to 50% from the prior 43%.

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

Notably, Lightsource was rebranded to Lightsource BP after BP had taken over a 43% stake in December 2017. Thus, with the purchase of the business’ newly-issued equity, BP has become a joint venture partner. However, no financial details relating to the transaction have been provided by either company.

The recent move reflects BP’s intention of boosting capital spending on renewable power business as most oil companies in Europe have decided to combat climate change by reducing greenhouse gas and carbon emissions and focusing on clean energy. (Read more BP Beefs Up Stake in Lightsource BP, Clean Energy in View)

4.   Suncor Energy (SU - Free Report) recently released its capital budget along with production guidance for 2020. For next year, it will concentrate more on investing in projects with higher yields that are immune to volatile commodity prices and pipeline constraints. It will emphasize to a greater extent on value than volume. Further, the company’s capital expenditure program is set to primarily focus on projects that will drive its $2-billion incremental free funds flow target by 2023.

Suncor expects its overall net production for 2020 in the range of 800,000-840,000 barrels of oil equivalent per day (Boe/d). This indicates a 5% increase from the mid-point of the company’s 2019 guided range for overall net production.

For 2020, this Alberta-based integrated player’s total capex is envisioned in the range of C$5.4-C$6 billion. It estimates to disburse in the range of C$4.55-C$4.95 billion for the upstream segment. Moreover, the company has plans to spend C$700-C$800 million on its downstream operations in 2019 while the corporate spending is assumed in the C$150-C$250 million bracket. (Read more Suncor Energy Announces 2020 CapEx & Production Plan)

5.   In a bid to bounce back from the controlled spending by oil and gas producers due to weak prices, Halliburton Company (HAL - Free Report) is slashing headcount by nearly 800 at its El Reno operation in Oklahoma. Further, it is set to close its office in the suburbs of the same city. Haliburton also plans to lay off nearly 70 workers from its Bakersfield plant in California, attributable to the slowdown in oil and gas drilling activity.

These strategic moves come within two months of the company’s announcement of retrenching 650 employees across four states, namely New Mexico, Wyoming, North Dakota and Colorado. This Houston-based oilfield service provider realized that in order to enhance its operating efficiency despite challenging market conditions, it has to lower costs substantially.

Halliburton previously noted that for operators in North America where oil production hit record levels, it’s more about returns now and not growth. The volatility in commodity price convinced explorers and producers to adopt a relatively conservative approach to capital expenditure programs. This shift in customer strategy is likely to induce subdued demand for oilfield services and equipment, putting much pressure on the pricing.(Read more Halliburton Cuts 800 Jobs as Producers Tighten Up Expenses)

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%

-7%

CVX

+0.8%

-4.1%

COP

+3.4%

+4.3%

OXY

+1.1%

-22.1%

SLB

+3.3%

+4.8%

RIG

+13.1%

-4.2%

VLO

-2%

+22%

MPC

-0.7%

+22.6%

 

The Energy Select Sector SPDR – a popular way to track energy companies – was up 1.4% last week on the OPEC+ cuts. The best performer was offshore driller Transocean Ltd. (RIG - Free Report) whose stock jumped 13.1%.

But longer-term, over six months, the sector tracker lost 2.9%. Houston-based oil and gas producer Occidental Petroleum (OXY - Free Report) was the major loser during this period, experiencing a 22.1% price plunge.

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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