Oil & Gas Stock Roundup: A Downbeat Start to 2014 - Analyst Blog

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Expectations of increased production from Libya pushed down crude prices by 6%. Natural gas also dipped slightly on bearish inventory data and predictions of a break in colder temperatures.

Among the newsmakers, Anglo-Dutch supermajor Royal Dutch Shell plc ( RDS.A ) closed the acquisition of Spanish oil group Repsol's liquefied natural gas assets, while legendary investor Warren Buffett's Berkshire Hathaway agreed to buy a subsidiary of Phillips 66 ( PSX ).  

Crude Oil:

Crude prices came under pressure last week, as markets braced for an imminent increase in Libyan oil exports to near-normal levels following months of political turmoil. The commodity was also hit by soft Chinese manufacturing data and dismal readings from a survey of purchasing managers in the manufacturing-heavy Midwest. 

Sentiments were further weakened by the Energy Information Administration (EIA) report that showed a build in fuel (gasoline and distillate) supplies, which outweighed a hefty drop in oil inventories.

As per the EIA's weekly 'Petroleum Status Report,' crude inventories dropped by a larger-than-expected 7.0 million barrels for the week ending Dec 27 to 360.57 million barrels. But worryingly, gasoline and distillate supplies were both up from the week-ago levels.

As a result of these factors, by close of trade on Friday, West Texas Intermediate (WTI) oil was in the red and settled at $93.96 per barrel, losing 6.0% for the week. 

Natural Gas:

Investors continue to focus on temperature patterns to understand the fuel's economic dynamics. As it is, natural gas fundamentals look uninspiring with supplies remaining ample in the face of underwhelming demand. In fact, it is expected to take many years for the commodity's demand to match supply in the face of newer projects.

Natural gas fell slightly last week, pulled down by a smaller-than-expected decrease in supplies and forecasts of a break in cold weather conditions.

The EIA's weekly inventory release showed that natural gas stockpiles held in underground storage in the lower 48 states fell by 97 billion cubic feet (Bcf) for the week ended Dec 27, lower than the guided range (of 116-120 Bcf drawdown).

Moreover, milder weather forecasts - in the central and eastern regions over the next few days - are likely to limit the commodity's demand for heating.

Influenced by these factors, natural gas spot prices ended Friday at $4.30 per million Btu (MMBtu), down 0.9% over the week.

Energy Week That Was:

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

Shell, Repsol Wrap Up LNG Asset Sale

Europe's oil giant Royal Dutch Shell plc closed the acquisition of liquefied natural gas assets of Repsol S.A. outside North America. The transaction was completed for a net cash purchase price of $3.8 billion, lower than the originally expected $4.4 billion that Shell agreed to pay in Feb 2013.

The reduced value could be traced back to the $200 million sale of the Basque power plant to BP plc by the Spanish oil and gas firm in Oct and the overall financial position of the company. The assets under consideration include liquefaction facilities in Trinidad & Tobago and Peru. 

Phillips 66 to Divest PSPI

Refiner Phillips 66 announced that it has entered into an agreement with Warren Buffett's Berkshire Hathaway Inc. to divest its wholly owned subsidiary Phillips Specialty Products Inc. ("PSPI"). Following regulatory review, the transaction is expected to close in the first half of 2014.

Per the agreement, Phillips 66 will exchange all of its common stock in PSPI for approximately 19 million shares of its shares owned by Berkshire Hathaway. The company expects PSPI's balance sheet at closing to include approximately $450 million of cash and cash equivalents.

Petrobras P-55 Starts Production

Brazilian state-run energy giant, Petroleo Brasileiro SA or Petrobras ( PBR ) brought online its P-55 platform. The semi-submersible platform started production from the Roncador field, at the Campos Basin, in Rio de Janeiro. The vessel set sail for its destination on Oct 6 from the Rio Grande Shipyard, after completion of necessary tests and certifications.

The platform has an expected production capacity of 180,000 barrels of oil and can treat 6 million cubic meters of gas per day. The 52,000 ton P-55 - the largest semi-submersible platform built in Brazil - will be connected to 11 oil producing wells in the basin.   

Statoil Hits Oil & Gas in Askja

Norwegian oil giant Statoil ASA ( STO ), along with its partners, has struck oil and gas in the Askja prospects in the North Sea. The mid-water semisubmersible rig Ocean Vanguard was used to drill two exploration wells - 30/11-9S and 30/11-9A - located between the Oseberg and Frigg fields and about 13 kilometer southeast of the Statoil-operated Krafla/Krafla West discoveries.

The main wellbore 30/11-9 S tested the Askja West prospect, where a net gas column of 295 feet (90 meters) in Late and Middle Jurassic rocks was proven. In the same geological formation, side-track 30/11-9 A tested the Askja East prospect and proved a net oil column of 131 feet (40 meters). The reservoir properties in both wells met expectations.

Valero Shares Hit 52-Week High

Shares of the largest domestic independent refiner Valero Energy Corp. ( VLO ) hit a 52-week high of $50.54 on Dec 31. The stock closed the session at $50.40, which reflects a solid return of 47.2% over the past six months.

The average trading volume for the last three months aggregated 6,407,968 shares. Among all the independent refiners, Valero offers the most diversified refinery base with a capacity of 3.0 million barrels per day in its 16 refineries throughout the U.S., Canada and the Caribbean. More importantly, Valero is best positioned to profit from increased refining margins mainly on account of its strategic refinery structure that enables it to use cheaper oil for over one-half of its needs.

Performance Chart of Some Major Companies:

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

Ticker

Last Week's Performance

6 month performance

XOM

-1.97%

+8.67%

CVX

-0.70%

+3.19%

COP

-0.61%

+12.28%

OXY

-1.40%

+2.96%

SLB

-1.72%

+19.25%

RIG

-0.39%

+1.84%

VLO

+1.40%

+45.79%

TSO

-0.40%

+11.43%

Other Headline News on Energy:

Eni Abandons Ca Ngu-1 Well in Vietnam

Eni SpA 's ( E ) joint venture partner KrisEnergy revealed that the Italian oil major has stopped work at a 15.2 meter hydrocarbon column in Ca Ngu-1 exploration well in Block 120, offshore Vietnam. Since the well did not come across any significant volume of hydrocarbons, the well has been plugged and abandoned. The well encountered oil and gas in the primary objective that confirmed the presence of petroleum system in the area.

FMC Tech, Statoil in $114M WOS Deal

Oil drilling equipment maker, FMC Technologies Inc. ( FTI ) was awarded a contract by the Norwegian oil major Statoil ASA, to manufacture and supply a Workover System (:WOS) for the Snorre B platform, located in the northern part of the Statoil-operated Snorre oil and gas field. The contract is valued at around $114 million in revenues.

This Week's Outlook:

Apart from the usual suspects - the U.S. government data on oil and natural gas - market participants await a number of top-tier economic reports that will shed further light on how well the economy has done in the fourth quarter. Of particular significance is Friday's non-farm payroll report for Dec.

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ENI SPA-ADR (E): Free Stock Analysis Report

FMC TECH INC (FTI): Free Stock Analysis Report

PETROBRAS-ADR C (PBR): Free Stock Analysis Report

PHILLIPS 66 (PSX): Free Stock Analysis Report

ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report

STATOIL ASA-ADR (STO): Free Stock Analysis Report

VALERO ENERGY (VLO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: E , EIA , FTI , PBR , WTI

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