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Oil & Gas Stock Roundup: EOG Reports Strong Q3, Plains All American Buys Pipeline Stake

EOG Resources Inc.’s (EOG) third quarter earnings beat and Plains All American Pipeline L.P.’s (PAA) purchase of a Texas pipeline stake were the major headlines over the past week.

Overall, it was a mixed week for the sector. West Texas Intermediate (WTI) crude futures declined for the sixth consecutive week – this time by 2.4% – to close at $78.65 per barrel. However, natural gas prices jumped 13.9% to $4.41 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon, Chevron Beat Earnings Despite Collapsing Oil Prices.)

Oil prices further extended their weekly losses on plentiful supplies and lackluster demand expectations. Moreover, a stronger dollar has made the greenback-priced crude dearer for investors holding foreign currency. Oil traders got further spooked after Saudi Arabia cut its supply price to U.S. customers in the face of abundant North American output. The only silver lining came in the form of U.S. jobless rate that fell to a six-year low of 5.8%.

Natural gas, on the other hand, surged to the highest level in more than four months after digesting another above-average supply increase. The commodity was helped by expectations of strong heating demand in key U.S. markets with forecasts of chilly early winter weather.

Recap of the Week’s Most Important Stories

1. Independent energy explorer EOG Resources Inc. overcame lower oil prices to report solid third-quarter 2014 results on the back of improving production from its U.S. onshore assets. In the quarter, EOG’s total volume rose 16.7% from the year-earlier level to 56.5 million barrels of oil equivalent, primarily driven by significant contribution from the company’s South Texas Eagle Ford, along with North Dakota Bakken and Delaware Basin.

Importantly, EOG raised its full-year 2014 liquids production growth target to 31% from 29% and total production growth target to 16.5% from 14%, as it continues to increase well productivity in its key domestic crude oil plays. (See More: EOG Resources Q3 Output Drives Earnings & Revenue Beat.)

2. Pipeline operator Plains All American Pipeline L.P. announced that it has entered into a firm agreement to acquire the 50% interest that Occidental Petroleum Corp. (OXY) holds in BridgeTex Pipeline Company LLC (“BridgeTex”) for $1.075 billion. This is a well thought out strategic move from the partnership to further expand its pipeline services in the Permian Basin.

The BridgeTex Pipeline – a 300,000 barrel-per-day crude oil network – originates from Colorado City in West Texas. It complements the existing assets of Plains All American in the oil rich Permian basin that has seen volumes jump in recent times on the back of horizontal drilling technology. Importantly, this significant increase in production volumes will necessarily require pipeline services rendered by BridgeTex among others. (See More: Plains All American to Buy 50% of BridgeTex in Permian.)

3. U.S. energy firm Apache Corp. (APA) reported in-line third quarter earnings, reflecting strong North American liquids production, offset by lower oil prices and asset sales.

The production of oil and natural gas (excluding divested assets) averaged 562,087 oil-equivalent barrels per day (BOE/d) (61% liquids), up 6.3% year over year. However, the average realized crude oil price during the third quarter was $94.69 per barrel, representing a decrease of 12.5% from the year-ago realization of $108.27. (See More: Apache Q3 Earnings In Line, Profit Falls on Lower Oil Prices.)

4. Offshore drilling giant Transocean Ltd. (RIG) reported better-than-expected third-quarter 2014 adjusted earnings, helped by improved dayrates and lower expenses. Total average dayrates increased to $409,900 in the quarter under review from $392,400 in the year-earlier quarter. Meanwhile, total operating and maintenance expenses decreased about 5% year over year to $1,318 million.

However, the company executives made it clear that it might be forced to shut down or retire some more of its rigs, as plunging oil prices further threaten the industry that is already in a cyclical downturn. (See More: Transocean Beats Q3 Earnings on Improved Dayrates.)

5. European oil major Royal Dutch Shell plc (RDS.A) has estimated that its majority owned liquefied natural gas (LNG) plant in Canada’s Pacific coast may cost up to C$40 billion ($35.3 billion). The terminal – which will export natural gas from the province of British Columbia to Asia – is seeking environmental approval and awaits final investment decision by the promoters.

Initially, the plant will include two processing trains with a production capacity of 6 million tons of LNG annually. However, there will be an option to construct two more trains in the future.

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.

Company

Last Week

Last 6 Months

XOM

+1.86%

-5.82%

CVX

+1.99%

-5.84%

COP

+3.11%

-8.69%

OXY

+2.65%

-8.81%

SLB

+4.43%

-1.99%

RIG

+4.27%

-31.12%

VLO

-0.61%

-10.11%

TSO

-2.42%

+32.94%

Over the course of last week, most of the market heavyweights recouped earlier losses with the dominant gainer being Schlumberger Ltd. (SLB). The world's largest oilfield services provider rose 4.4% during the period, spurred by a positive analyst note that sees huge upside for the company’s shares.

Over the last 6 months, refiner Tesoro Corp. (TSO) was the leader of the pack with its shares advancing 32.9%. 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 31.1% 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, including those on wholesale inventories, initial claims and retail sales.

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