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Oil & Gas Stock Roundup: CVX Spending Cut, PTEN Acquisition and More


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It was a week which saw oil prices dip back slightly from 2016-high levels, while natural gas futures continued their remarkable surge to a 2-year peak. 

On the news front, U.S. energy major Chevron Corp. CVX set its investment budget for 2017 at $19.8 billion, down 15% from this year. Meanwhile, land driller Patterson-UTI Energy Inc. PTEN signed a deal to buy smaller rival Seventy Seven Energy Inc. SVNT for $1.76 billion.  

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures edged down 0.4% to close at $51.50 per barrel, natural gas prices ended up 9% to $3.746 per million Btu (MMBtu). (See the last 'Oil & Gas Stock Roundup' here: OPEC Deal, Approvals for BP and Kinder Morgan Projects and More .)

Oil logged a modest weekly loss after the U.S. Energy Department's inventory release showed that strategic supplies at the Cushing, OK storage experienced the biggest weekly build in years. On a further bearish note, the report revealed that refined product inventories - gasoline and distillate - both increased handsomely from their previous week levels. 

Things further worsened with the Baker Hughes report revealing a big rise in the domestic oil rig count and pointing to the resurgence in shale drilling activities.

Oils-Energy Sector Price Index

Oils-Energy Sector Price Index

Meanwhile, natural gas turned sharply higher following the season's third withdrawal and forecasts of colder weather that translates into strong demand for the heating fuel.

Recap of the Week's Most Important Stories

1.    U.S. energy behemoth Chevron Corp. has pegged its 2017 capital budget at $19.8 billion - the fourth consecutive reduction in the budget. Of the total, roughly 87% has been allocated for oil and gas exploration projects worldwide, while 11% has been set aside for downstream businesses.

Chevron intends to focus on the completion of major projects that are currently under construction. Hence, by reducing its spending and concentrating on high return investments, Chevron expects to achieve its objective of becoming cash balanced in 2017.

Chevron is planning to spend $17.3 billion for the exploration, production and natural gas-related projects, in keeping with its successful and focused drilling results in recent years. In 2017, the company is likely to undertake major initiatives in the Permian Basin developments in Texas and New Mexico, as well as opportunities in the Tengiz field in Kazakhstan and completion of the Gorgon and Wheatstone LNG projects in Australia.

Capital spending in the downstream segment is expected to be $2.2 billion in 2017, primarily to improve refinery efficiency, maximize yield and produce cleaner fuels. (Read more: Chevron Provides 2017 Capex Budget Worth $19.8 Billion .)

2.    Onshore contract driller Patterson-UTI Energy Inc. and smaller rival Seventy Seven Energy Inc. reported that they have entered into a definitive merger agreement. Under this deal, Patterson-UTI will acquire the latter in an all-stock deal worth $1.76 billion, including debt.

Per the terms of the transaction - expected to close late in the first quarter of 2017 - Patterson-UTI will purchase all of the issued and outstanding shares of common stock of Seventy Seven Energy in exchange of approximately 49.6 million shares of common stock of Patterson-UTI. Shareholders of Seventy Seven Energy will receive 1.7725 shares of Patterson-UTI for each share held. Moreover, the arrangement includes approximately $336 million of Seventy Seven Energy's debt net of cash and warrant proceeds.

Following the closing of the transaction, Patterson-UTI will have more than 1.5 million hydraulic fracturing horsepower. Moreover, synergy of as much as $50 million is expected to be achieved from the deal, which will be substantially accretive to the company's cash flow. (Read more: Patterson-UTI to Purchase Seventy Seven Energy for $1.76B )

3.    China's state-controlled petroleum refiner Sinopec SNP agreed to divest 50% of its stake in the Sichuan-East China gas pipeline project. The company expects to generate proceeds of about 22.8 billion yuan ($3.3 billion) from the deal.

Sinopec has farmed out 50% of its stake in the Sichuan-East China gas pipeline project to two state-owned companies - China Life Insurance and State Development and Investment Corp. While the former paid 20 billion yuan for a stake of 43.86%, the transportation unit of the latter shelled out 2.8 billion yuan for a stake of 6.14%.

Sinopec's decision to sell the stake sale - four months after it announced plans to divest half its share of the pipeline - underlines its attempt to raise capital to fund its growing natural gas business. The move was also driven by the government's reform to enhance efficiency and boost infrastructure investment in cleaner fuels. (Read more: Sinopec Agrees to Divest 50% Stake in Pipeline Project .)

4.    Calgary, Alberta-based energy explorer Canadian Natural Resources Ltd. CNQ announced its decision to monetize its non-core ownership interest of in the Cold Lake Pipeline to Inter Pipeline Ltd. for total value of approximately $527.5 million.

The to-be-divested properties cover Canadian Natural's 15% stake of Cold Lake Pipeline Ltd. and its 14.7% ownership interest in the Cold Lake Ltd. Partnership. The transaction, which is expected to complete in 2016, is estimated to generate gross proceeds of $350 million in cash.

In addition to this, Canadian Natural will receive 6,417,740 common shares of Inter Pipeline at a predetermined value of $177.5 million. The company expects to generate an after-tax gain of approximately $200 million, post the disposition.

As a result of this disposition, Canadian Natural has secured firm pipeline transportation capacity with Inter Pipeline for the Kirby North production volumes. The company targets first production by the first quarter of 2020. After completion of the sale, Canadian Natural will retain access to the Cold Lake Pipeline system for portions of its crude oil volumes. (Read more: Canadian Natural to Divest Stake in the Cold Lake Pipeline .)

5.    Canada's largest energy firm Suncor Energy Inc. SU recently declared that it has resolved a $1.3 billion tax dispute with the Canada Revenue Agency ("CRA") without new charges or penalties. Suncor Energy currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

In early 2013, CRA had challenged Suncor's statement of certain losses incurred in 2007 due to the settlement of certain derivative contracts. However, last week, the Tax Court of Canada ruled in the favor of Suncor. Hence, Suncor is no longer liable for any new taxes, interest or penalties and all taxation matters related to the issue are now closed.

Moreover, Suncor is to have the security amount of $657 million returned, The company had posted this amount to the CRA and the provinces of Quebec and Ontario as potential taxes ahead of the final decision. (Read more: Suncor Resolves $1.3 Billion Tax Dispute with CRA .)

Price Performance

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

Company

Last Week

Last 6 Months

XOM

+1.71%

+0.43%

CVX

+2.86%

+14.74%

COP

+3.58%

+17.09%

OXY

-2.62%

-5.13%

SLB

+0.59%

+9.49%

RIG

+18.85%

+41.66%

VLO

+9.93%

+30.97%

TSO

+10.85%

+21.73%

Over the course of last week, 'The Energy Select Sector SPDR' was up 1.66%. Consequently, investors witnessed buying in most market heavyweights. The best performer was rig supplier Transocean Ltd. RIG whose stock price soared 18.85%.

Longer-term, over the last 6 months, the sector tracker has gained 14.57%. Again, Transocean was one of the major beneficiaries during this period, experiencing a 41.66% price increase.

What's Next in the Energy World?

As usual, market participants will be closely tracking the regular weekly releases i.e. the U.S. government data on oil and natural gas. Energy traders will also be focusing on the Baker Hughes data on rig count.

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CHINA PETRO&CHM (SNP): Free Stock Analysis Report

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CHEVRON CORP (CVX): Free Stock Analysis Report

PATTERSON-UTI (PTEN): Free Stock Analysis Report

TRANSOCEAN LTD (RIG): 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 Nasdaq, Inc.



This article appears in: Investing , Business , Stocks
Referenced Symbols: SNP , CNQ , SU , CVX



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