Oil & Gas Stock Roundup: CVX Sets $40B Capex, Legal Woes for APC - Analyst Blog

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Growing odds of an imminent Fed Taper, combined with whopping refined product builds weakened crude prices, while natural gas surged on frigid weather forecasts and stockpiles data.  

Among the newsmakers, Chevron Corp. ( CVX ) announced plans to spend a massive $40 billion next year, while Anadarko Petroleum Corp. ( APC ) found itself reeling from legal woes.   

Crude Oil:

Crude prices came under pressure last week, as a combination of encouraging economic reports and reduced fiscal overhang (following the two-year Congressional budget deal) once again intensified apprehensions that the Federal Reserve may announce a small cut in the $85 billion a month economic stimulus plan at its upcoming policy meeting scheduled this week.

Traders have voiced concerns that Fed's shift away from the bond buying policy may lead to dollar-denominated oil prices to increase in local-currency terms in emerging markets, thus slowing growth.

Sentiments were further weakened by the Energy Information Administration (EIA) report that showed a huge 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 10.59 million barrels for the week ending Dec 6 to 375.25 million barrels. However, storage at the Cushing terminal in Oklahoma - the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange - was up by 625,000 barrels to their highest level since Jul. Further weighing on the sentiments, gasoline and distillate supplies were both up significantly 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 $96.60 per barrel, losing 0.9% 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.

Despite these issues, natural gas rallied to a two-year high last week on the back of an in-line decrease in natural gas supplies and forecasts of freezing 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 81 billion cubic feet (Bcf) for the week ended Dec 6, at the midpoint of the guided range (of 79-81 Bcf drawdown). Moreover, the decrease was higher than both last year's withdrawal of 8 Bcf and the 5-year average reduction of 76 Bcf for the reported week.

Chilly weather forecasts - in the key U.S. consuming regions over the next few days - are likely to further spur the commodity's demand for heating.

Influenced by these factors, natural gas spot prices ended Friday at $4.35 per million Btu (MMBtu), up 5.8% over the week.

Energy Week That Was:

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

Chevron '14 Capex Plan Nears $40B

U.S.energy giant Chevron Corp. unveiled its 2014 capex budget of $39.8 billion. Of the total outlay, $4.8 billion will be invested by the company's affiliates, lowering Chevron's pocket pinch to $35 billion.

The 2014 projected capital expenditure is, however, approximately $2 billion less than that of the current year. Almost 90% of the 2014 budget - $35.8 billion - will be spent on the company's 'Upstream' segment. The 'Downstream' segment would receive only 8% or around $3.1 billion whereas the remaining $0.9 billion will be spent on corporate activities. 

Anadarko Tumbles on Cleanup Cost Liability

Shares of Anadarko Petroleum Corp. fell to a 10-month low following a court verdict that went against the company. U.S. bankruptcy judge Allan L. Gropper held that Anadarko could have to shell out anything within $5.2-$14.2 billion in environmental clean-up costs - much higher than initial estimates - associated with its 2006 acquisition of Kerr-McGee Corp.

MRO to Increase Output in U.S. Plays

Oil and natural gas explorer Marathon Oil Corp. ( MRO ) reported that it intends to ramp up its rig operations in U.S resource plays - Eagle Ford, Bakken and Oklahoma Woodford - in 2014, resulting in a 30% hike in production from the regions. Marathon Oil also projects its total output to increase 4% in the coming year.

Additionally, the Houston, TX-based upstream operator set its total capital, investment and exploration budget for 2014 at $5.9 billion. Further, Marathon Oil said that its board of directors has approved the expansion of the residual stock buyback program to roughly $2.5 billion.  

Encana Tanks on 2014 Spending Plans

Canadian natural gas producer Encana Corp. ( ECA ) said that it will lower its 2014 capital expenditures by about 10% even as it aims to increase liquids production by 30%. The Calgary-based energy giant has pegged its 2014 capital budget at C$2.4-2.5 billion. Of the total, roughly three-fourths will go toward five liquid-rich resource plays across North America.

However, the forecasts seem to have spooked investors, as Encana shares fell 6% on Wednesday to close at $18.11. Shareholders were disappointed that despite the greater focus on oil, price-stifled natural gas would still make up around 80% of the company's total output.

Cabot Shares Up on Marcellus Update

Shares of the independent oil and gas exploration firm Cabot Oil & Gas Corp. ( COG ) shot up 4.6% to $36.82 post the announcement of the company's success in the Marcellus shale. The 10-well pad, which the company successfully completed, will result in a 30-day average production of 168 million cubic feet (Mmcf) per day and has a peak production capacity of 201 Mmcf per day.

In particular, the two Upper Marcellus wells - with initial production (IP) of 32 Mmcf per day and 30-day production of 24 Mmcf per day - are expected to provide rates of return competing with those of the other unconventional resource plays. A key takeaway from the update is the success of the downspacing test that would provide a greater recoverable resource base for Cabot.

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

-0.36%

+4.15%

CVX

-1.95%

-1.09%

COP

-1.89%

+12.09%

OXY

-1.66%

-1.62%

SLB

-2.02%

+18.15%

RIG

-3.11%

-2.88%

VLO

-0.97%

+21.55%

TSO

-2.43%

-2.27%

Other Headline News on Energy:

QEP Resources Arm Pens $950M Deal

QEP Energy Co., a fully owned affiliate of domestic energy explorer QEP Resources Inc. ( QEP ), has entered into an agreement with an undisclosed seller to purchase Permian Basin-based oil and gas assets for roughly $950.0 million. The to-be-acquired properties span across roughly 26,519 net acres and generate 6,700 barrels of oil equivalent per day (68% oil). Moreover, the net proved reserve and the projected recoverable reserve of the Permian Basin oil and gas properties are 47 and 300 million barrels of oil equivalent, respectively.

Cameron Raises Share Buyback Approval

Oil drilling equipment maker, Cameron International Corp. ( CAM ) has announced plans to buy back $750 million of its common stock. This program is over and above the ongoing share repurchase scheme of $1.65 billion, which was approved by the Board of Directors in phases. Under the previous authorization, the company has already spent roughly $1.36 billion to buy back some 23.5 million shares of its common stock.

NFX Sees Higher Production in 2014

Newfield Exploration Co. recently announced production guidance for next year. The company expects net production from continuing operations to range 44-48 million barrels of oil equivalent (BOE) in 2014, or 10%-20% higher than the 2013 estimated volume of 40 million BOE.

In particular, domestic liquids production in 2014 is slated to increase 30% versus 2013. The Woodlands, TX-based energy explorer further informed that it plans to invest about $1.6 billion in capital expenditures during 2014, of which the major portion ($700 million) will be invested in the Anadarko Basin. 

This Week's Outlook:

Apart from the usual suspects - the U.S. government data on oil and natural gas - market participants will be closely tracking Fed's final policy meeting for the year. Scheduled for Dec 17-18, the outcome of this meeting is widely expected to determine the future of the stimulus program.   

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ANADARKO PETROL (APC): Free Stock Analysis Report

CAMERON INTL (CAM): Free Stock Analysis Report


CABOT OIL & GAS (COG): Free Stock Analysis Report

CHEVRON CORP (CVX): Free Stock Analysis Report

ENCANA CORP (ECA): Free Stock Analysis Report

MARATHON OIL CP (MRO): Free Stock Analysis Report

QEP RESOURCES (QEP): 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: APC , BOE , EIA , IP , WTI

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