Oil & Gas Stock Roundup: Approval for Kinder Morgan, Rejection for Keystone

It was a week where shareholders gave the go-ahead to Kinder Morgan Inc.’s (KMI) $70 billion mega-deal to consolidate its four related pipeline entities into one, while TransCanada Corp.'s (TRP) Keystone XL pipeline suffered another setback.

Overall, it was a bullish week for the sector. West Texas Intermediate (WTI) crude futures snapped a seven-week losing streak and inched up 0.9% to close at $76.51 per barrel, while natural gas prices gained 6.1% to $4.27 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Halliburton, Baker Hughes Merge to Create Oilfield Heavyweight.)

Oil prices finally halted their weekly losses and ended higher on Friday after China’s central bank and ECB’s efforts to stimulate their economies boosted investor hopes for increased global demand. Oil traders got further fillip from positive data out of Germany.

Natural gas also fared well following the first storage drawdown of the winter. The commodity was also buoyed by expectations of strong heating demand across the U.S. with forecasts of frigid weather.

Recap of the Week’s Most Important Stories

1. Houston, TX-based oil and gas pipeline company Kinder Morgan Inc. announced that it got shareholder approval for its $70 billion mega-deal to consolidate its four related pipeline entities into one. The intended acquisition, first announced by Kinder Morgan on Aug 10, 2014, also entails the purchase of all the outstanding equity securities of its three subsidiaries – Kinder Morgan Energy Partners L.P., Kinder Morgan Management LLC and El Paso Pipeline Partners L.P.

At special meetings held by the parent company and the three partnerships, unitholders and shareholders overwhelmingly approved all proposals related to the merger. In all the four special meetings, more than 95% of the votes cast were in favor of the merger transactions. (See More: Kinder Morgan Gets Shareholder Approval for Pipeline Merger.)

2. Pipeline operator TransCanada Corp.'s controversial Keystone XL pipeline witnessed another setback after the U.S. Senate narrowly rejected a bill to approve the network’s connection between Canadian oil sands and Gulf of Mexico.

The Keystone XL pipeline, if approved, would connect the oil sands of Alberta to the U.S. Gulf. It would run up to 1,179 miles and carry up to 830,000 barrels of oil per day. The first three phases of the $5.4 billion pipeline have been built already. But while the network started operating in 2010, the Keystone XL portion of the system – that runs 800 miles through Montana, South Dakota and Nebraska, and requires U.S. approval – is still nowhere near finalization even after 6 years of assessment amid oil-versus-environment debate.

3. U.S. energy firm Apache Corp. (APA) declared that it will divest its interest in some non-core oil and natural gas properties in southern Louisiana and Anadarko Basin for roughly $1.4 billion. The assets will be sold to undisclosed buyers in two separate transactions, expected to be completed by the end of this year. Apache has decided to use the proceeds from the assets sale for acquiring leases on prime growth plays.

The company also announced its intention to spend roughly $4 billion on onshore upstream operations in North American fields in 2015, almost 26% less than the previously declared amount of $5.4 billion. (See More: Apache Gains from Plan to Sell $1.4B Worth Non-Core Assets.)

4. An affiliate of Canadian energy explorer Talisman Energy Inc. (TLM) and the Columbian state-owned company Ecopetrol S.A. have discovered hydrocarbons in block CPO-9, Columbia. This is the second find in the block for the parties. Shares of Talisman gained over 3% following this announcement.

The discovery has been made through the exploratory well Nueva Esperanza-1. The well attained a depth of 12,056 feet on Sep 26, after being spudded on Jul 18. The company announced that the during an initial testing for eight days, the well yielded 910 barrels of daily flow rate, with 8° API. Both the parties plan to carry out long-term tests on the exploratory well. (See More: Talisman Shares Gain on 2nd Discovery in CPO-9, Columbia.)

5. Brazilian state-run energy giant Petrobras (PBR) announced that its Cidade de Ilhabela offshore platform, located at Sapinhoa oil field, has commenced operations. The Sapinhoa field is situated in the pre-salt Santos basin, off the coast of Brazil. Following the announcement, Petrobras ADR rose above 11% in the NYSE last Friday, two days after the company touched 52-week low of $8.80 per ADR.

The platform was set up by Petrobras at a water depth of roughly 2,140 meters. The company believes that the platform will produce roughly 150,000 barrels of oil every day and store roughly 1.6 million barrels of crude. The offshore platform will also compress natural gas at the rate of 6 million meters per day. (See More: Petrobras Rises as Cidade de Ilhabela Platform Comes Online.)

Price Performance

The following table shows the price movement of the major oil and gas players over the past week and during the last 6 months.

Refiner Tesoro Corp. (TSO) was the week's best performer among the market heavyweights, adding 5.2% to its stock price. With refiners being buyers of crude, depressed commodity price has triggered hopes for better margins. On the other hand, the biggest loser was offshore driller Transocean Ltd. (RIG), which fell 3.1% during the period after its latest fleet report showed a rise in the expected out-of-service time for 2014.

Over the last 6 months, Tesoro was again the leader of the pack with its shares advancing 43%. Investors have rewarded the company for its continued focus on shareholder returns. Similarly, Transocean was the laggard, as it witnessed a 41% price decline over the same time frame on the back of rig oversupply that has led the industry into a cyclical downturn.

What’s Next in the Energy World?

Market participants will be closely tracking several key economic reports lined up this week. This includes crucial GDP numbers, as well as data on consumer confidence, durable orders and the housing sector.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Read the Full Research Report on TSO
Read the Full Research Report on TLM
Read the Full Research Report on PBR
Read the Full Research Report on APA
Read the Full Research Report on RIG
Read the Full Research Report on KMI
Read the Full Research Report on TRP


Zacks Investment Research