Oil & Gas Stock Roundup: Chevron, Shell Outlines Strategy Update

Crude prices edged back under $100 during the past week on downbeat Chinese economic reports and a bearish supply data, while natural gas declined amid expectations of milder temperatures with the imminent arrival of spring.

Among the newsmakers, energy majors Chevron Corp. (CVX) and Royal Dutch Shell Plc (RDS.A) provided a glimpse of their future business strategies.

Crude Oil:

Crude prices edged down last week amid concerns about an economic slowdown in China – the second largest oil consumer in the world, and an unexpected jump in Iraq’s February production. Sentiments were further dampened by the Energy Information Administration (EIA) report that showed a significantly higher-than-expected increase in oil inventories.

However, to some extent the bears were offset by recent geopolitical tensions between Russia and the West over the fate of a referendum in the Ukrainian region of Crimea. A military standoff may threaten oil supplies in the region. Prices also got a boost from International Energy Agency’s (:IEA) increased global oil demand forecast.

As a result of these factors, by close of trade on Friday, West Texas Intermediate (WTI) oil settled at around $98.9 per barrel, losing 3.8% for the week.

Natural Gas:

Natural gas fell last week to their lowest level in almost 2 months on the back of tepid decrease in supplies and the imminent arrival of soft spring temperature.

The EIA's weekly inventory release showed that natural gas stockpiles held in underground storage in the lower 48 states fell by 195 billion cubic feet (Bcf) for the week ended Mar 7, failing to top the guided range (of 193–197 Bcf drawdown).

To make things worse, milder spring weather forecasts – in bulk of the country over the next few days – are likely to limit natural gas’ demand for heating.

Influenced by these factors, natural gas prices ended Friday at $4.43 per million Btu (MMBtu), down 4.2% over the week.

Energy Week That Was:

The week’s energy coverage was dominated by the following news:

Chevron Lowers '17 Production Guidance

At a meeting with financial analysts in New York, U.S. energy behemoth Chevron Corp. unveiled its business strategy. The super major sees overall 2017 production of about 3.1 million oil-equivalent barrels per day (MMBOE/d), as against 3.3 MMBOE/d stated earlier, primarily due to an expected slowdown in the natural gas price, higher costs and project delays.

The Asia-Pacific region is expected to be the major contributor to this 2017 output, pushing North America to the second place. Chevron also confirmed that its 2014-16 divestment plan involves sale of assets worth about $10 billion. The company added that over 90% of the 2014-16 upstream capital budget would focus on oil-linked assets, with international oil comprising 42%.

Shell to Cut Outlay in the Americas

At its annual strategy update, energy major Royal Dutch Shell plc unveiled its business policy. In particular, the company outlined plans to slash its 2014 capital investment in upstream activities in the Americas. Shell is expected to lower the spending by 20% from the amount invested in 2013, as the company has been incurring losses in the North American shale resource plays. Moreover, Europe’s largest oil company is planning to divide its downstream portfolio into distinctive performance segments and allocate capital accordingly to maximize profits.

Energy XXI Buying EPL to Create GoM Giant

Domestic oil and gas explorer Energy XXI (Bermuda) Ltd. (EXXI) has agreed to acquire smaller rival EPL Oil & Gas Inc. (EPL) for about $2.3 billion in stock, cash and debt. Following the announcement, shares of EPL surged 30%, while those of Energy XXI fell about 6%.

Both companies, based in Houston, are upstream players engaged in the exploration and development of crude oil and natural gas resources in the U.S. Gulf of Mexico (GoM) shelf. The deal will create the largest publicly-owned independent oil producer in the region’s shallow water, with 10 oilfields, daily production of approximately 65,000 barrels of oil equivalent and an enterprise value of $6 billion.

National Oilwell Revamps Segments

Global large-cap energy equipment maker National Oilwell Varco Inc. (NOV) intends to restructure its reporting segments. The new segments – Rig Systems, Rig Aftermarket, Completion & Production Solutions, and Wellbore Technologies – will come to effect from Apr 1. Previously, the company organized its operations in three segments: Rig Technology, Petroleum Services and Supplies and Distribution and Transmission.

US Lifts Ban on BP GoM Ventures

Oil giant BP plc (BP) has reached an agreement with the U.S. Environmental Protection Agency (:EPA) that allows the former to once again bid on government contracts in the Gulf of Mexico region. The pact resolves all matters related to the suspension, debarment and statutory disqualification of BP following the Deepwater Horizon accident. The ban was imposed in 2012 after the agency concluded that BP had not completely rectified the issues that led to the well blowout in 2010.

Performance Chart of Some Major Companies:

The following table shows the price movement of the major oil and gas players over the past 5 days and during the last 6 months.

Other Headline News on Energy:

Petrobras Finds Oil, Prices Notes

Brazil's state-run energy giant Petrobras (PBR) reported the completion of drilling wildcat well 1-BRSA-1205-RNS (Pitu Well). Petrobras also revealed the new found existence of intermediate oil in the Potiguar Basin while drilling the well. Petrobras reached a depth of roughly 5,353 meters while drilling the well and discovered a hydrocarbon column of 188 meters. Earlier in the week, Petrobras announced the pricing of its dollar denominated notes – fixed and floating rate – that would fetch $8.5 billion.

SeaDrill to Fetch $797M from Drillship Sale

Offshore drilling firm SeaDrill Ltd. has inked a deal with subsidiary Seadrill Partners LLC to sell West Auriga, a dynamically positioned 6th generation drillship. Per the agreement, SeaDrill Ltd. is selling the rig for a consideration of roughly $797 million. Seadrill Partners is planning to offer 10.4 million common units to the public for financing the acquisition. To support the funding, SeaDrill Ltd. will buy a minimum of $50 million worth of common units at a price that will be offered to the public.

Pioneer Natural Amends Sale Agreement

Energy producer Pioneer Natural Resources Co. entered into an amendment to its sale agreement with Caelus Energy Alaska LLC. Per the deal, the company is divesting the full stake of its subsidiary – Pioneer Natural Resources Alaska – and will get $300 million in cash at closing, expected during the second quarter. Moreover, the company expects to recognize an additional non-cash loss of approximately $30 million, which will be recorded in the first quarter of 2014.

This Week’s Outlook:

Apart from the usual releases in this holiday shortened week – the U.S. government data on oil and natural gas – market participants will be closely tracking Wednesday’s monetary policy announcement by the Federal Reserve, together with reports on industrial production and housing data. Energy traders will also be focusing on developments in Ukraine.

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