Oil & Gas Stock Roundup: Chevron Strikes Oil in GoM, Shell Offloads Nigeria Assets

While earnings remained front and center in the week, the top stories were about Chevron Corp.’s (CVX) major oil find in deepwater Gulf of Mexico and Royal Dutch Shell plc’s (RDS.A) asset sales in Nigeria.

Overall, it was another bearish week for the sector. West Texas Intermediate (WTI) crude futures declined by 1.3% – the sixth decrease in 7 weeks – to close at $81.01 per barrel. Natural gas prices lost 3.8% to $3.62 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Chesapeake Sells Assets, QEP Resources Offloads Gas Pipelines.)

Oil prices fell to their lowest level since Jun 2012 on plentiful supplies and lackluster demand expectations. Moreover, a stronger dollar has made the greenback-priced crude dearer for investors holding foreign currency.

Natural gas also fared badly, slumping to an 11-month low, having to deal with another above-average supply increase. The commodity was also depressed by expectations of mild heating demand with forecasts of tepid early-winter weather.

Recap of the Week’s Most Important Stories

1. U.S. energy major Chevron Corp. – together with co-partners – announced that it has made yet another major find in the deepwaters of the Gulf of Mexico (GoM). The discovery, in Keathley Canyon Block 10’s Guadalupe prospect, is located 180 miles off the Louisiana coast and was drilled to a depth of 30,173 feet. Though evaluation of well results is still under progress, Chevron and its associates estimate significant oil potential from the find.

Chevron has a 42.5% operated interest in the prospect, with the other partners being British major BP plc (also with 42.5% stake) and Texas energy explorer Venari Resources LLC (15%). The discovery builds on the integrated energy giant’s leading position in the hydrocarbon-rich GoM region.

2. Europe’s largest oil company Royal Dutch Shell plc has entered into an agreement to sell four oil licenses and a pipeline in Nigeria’s Niger delta. The Anglo-Dutch major will offload its 30% stake in the four oil blocks, Oil Mining Licence (OML.V) 18, 24, 25 and 29, in addition to the Nembe Creek Trunk Line. Additionally, Shell will let go – together with Italy’s Eni and France’s Total – the 45% stake in Oil Mining Lease 18 to a group that includes Canadian oil and gas company Mart Resources.

Since the last few years, Shell has come under a string of attacks from Nigeria's main militant group, The Movement for the Emancipation of the Niger Delta (:MEND). Nigeria, one of the world’s largest oil producers and a top supplier of crude oil to the U.S., has struggled to control MEND's hostilities, which started attacking the country’s oil industry and kidnapping oil workers few years ago. Shell says that between 20,000 and 100,000 barrels of crude are stolen daily in Nigeria.

3. Energy pipeline operator ONEOK Partners, L.P. (OKS) announced that it will acquire certain natural gas liquids (NGL) pipelines and allied properties from the affiliates of Chevron Corp. for around $800 million. The to-be-bought assets consist of a 100% interest in the Mesquite Pipeline and an 80% interest in the West Texas LPG Pipeline Ltd. Partnership. The systems together covers around 2,600 mile NGL gathering pipelines that run from the Permian Basin in southeastern New Mexico to East Texas and Mont Belvieu, TX. The transaction – likely to be complete in the fourth quarter of 2014 – is seen to bolster ONEOK’s production by nearly 40% to about 800,000 barrels a day.

4. Domestic oil and gas finder Occidental Petroleum Corp. (OXY) reported third-quarter 2014 earnings of $1.58 per share, lagging the Zacks Consensus Estimate of $1.67 by 5.4%. Quarterly earnings were also down 18.9% from the prior-year figure, primarily due to lower contribution from its domestic oil and gas segments. The softer performance in the domestic oil and gas segment was due to lower crude oil realized prices, higher operating costs and DD&A expenses.

In the quarter under review, Occidental Petroleum's average daily oil and gas production volumes were 755 thousand barrels of oil equivalents. A 1.6% year-over-year decline was primarily due to the absence of Hugoton production. The company sold its Hugoton assets in the first half of 2014. (See More: Occidental Petroleum's Q3 Earnings Hit by Lower Oil Prices.)

5. U.S. energy explorer Cabot Oil & Gas Corp. (COG) reported weaker-than-expected third quarter results, hamstrung by falling gas prices (which make up the lion’s share of the company's output). The exploration and production firm reported adjusted earnings per share of 19 cents, underperforming the Zacks Consensus Estimate of 23 cents.

Operating revenues, at $512 million, also failed to surpass the Zacks Consensus Estimate of $516 million. However, Houston TX-based Cabot’s performance improved from the year-ago period amid rising production. (See More: Cabot Q3 Earnings Miss on Low Gas Prices, Production Jumps.)

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 Valero Energy Corp. (VLO) was the week's best performer among the market heavyweights, adding 3% to its stock price. With refiners being buyers of crude, falling commodity price has triggered hopes for better third quarter margins. On the other hand, the biggest loser was U.S. energy explorer Occidental Petroleum Corp., which fell 4.6% during the period in the face of plunging oil prices.

Over the last 6 months, downstream operator Tesoro Corp. (TSO) was the leader of the pack with its shares advancing 17.9%. Investors have rewarded the company for its continued focus on shareholder returns. On the other hand, offshore driller Transocean Ltd. was the laggard, as it witnessed a 33.3% 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?

Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking a series of crucial economic reports. This includes data on home sales and prices, consumer confidence, durable orders and personal income. The most important of these is the advance estimate for third quarter GDP numbers.

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