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Oil & Gas Stock Roundup: Diamondback's Acquisition Steals the Show


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It was a week where oil prices suffered another loss but natural gas futures ended flat.

On the news front, shale producer Diamondback Energy, Inc. FANG agreed to buy smaller rival Energen Corporation EGN in a $9.2 billion deal, while upstream biggie ConocoPhillips COP settled a $2 billion arbitration award with Venezuela's state-run PDVSA. 

Overall, it was another mixed week for the sector. While West Texas Intermediate (WTI) crude futures fell around 2.5% to close at $65.91 per barrel, natural gas prices stayed put at $2.946 per million Btu (MMBtu). (See the last 'Oil & Gas Stock Roundup' here: Occidental & Cheniere's Q2, Apache's Midstream Partnership & More )

The U.S. crude benchmark slipped for the sixth time in seven weeks after the Energy Department's inventory release showed that stockpiles recorded a shock weekly build despite strong refinery utilization. On a further bearish note, distillate inventories jumped, while domestic oil production continues to be robust.

Growing concerns about demand growth amid escalating trade conflict between the world's biggest oil consumers - the United States and China. also pressured oil futures. Signs of slowing growth in emerging market economies also played spoilsport, while the dollar strength made the greenback-priced crude dearer for investors holding foreign currency.

Meanwhile, natural gas prices were essentially unmoved last week The U.S. Energy Department's weekly inventory release showed a larger-than-expected increase in natural gas supplies. However, the injection was below the five-year average for the seventh week in a row and stockpiles remained at their lowest level in years.

Recap of the Week's Most Important Stories

1.    Diamondback Energy entered into an agreement to acquire Energen Corporation in a mega $9.2-billion deal, in a bid to bolster its Permian presence.

The deal is valued at $8.4 billion in equity, wherein Diamondback will exchange 0.6442 shares of its common stock for each share of Energen. Diamondback's bid represents around 19% premium to Energen's closing share price of $71.36 on Aug 13, thus valuing Energen at $84.95 a share. The deal assumes Energen's net debt estimated at $830 million, thus pushing the total value of the transaction to $9.2 billion.

The deal, which is set for closure by the end of October, will add around 25,493 net leasehold acres to Diamondback's portfolio. Now, with the latest Energen buyout deal, Diamondback is all set to become the third-largest Permian explorer. (Read more Diamondback Buys Energen for $9.2B in the Permian Frenzy )

2.    ConocoPhillips has inked a settlement agreement with Petroleos de Venezuela, S.A. (PDVSA) - the Venezuelan state-owned oil company. Per the terms, an amount of $2 billion will be recovered, which was awarded to ConocoPhillips by an arbitral tribunal constituted under the rules of the International Chamber of Commerce (ICC). PDVSA is also liable to pay interest during the payment period.

Per the agreement, PDVSA will pay an initial amount of about $500 million within a period of 90 days from the date of signing the agreement. The rest of the amount will be paid quarterly over the next four to five years.

Post the settlement, ConocoPhillips has decided to shelve legal enforcement actions of the ICC award, including the Dutch Caribbean. The company has guaranteed that the settlement meets all mandatory U.S. regulatory requirements, comprising any related sanctions imposed by the United States against Venezuela. Additional details of the agreement will not to be disclosed.

3.    Devon Energy Corporation DVN announced that it has entered into a definitive agreement to monetize its 9,600 net acres of non-core Delaware Basin acreage in Ward and Reeves County. The Zacks Rank #3 (Hold) company sells the non-core asset to Carrizo Oil and Gas for $215 million. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

The to-be-sold properties are 90% operated and 94% of these are held by production. As of now, the assets churn out around 2,500 barrels of oil equivalent per day (60% oil). 

Devon monetized nearly $4.4 billion worth of assets year to date. The company's divestiture target is set to reach $5 billion in 2018. Further, Devon expects to sell-off additional minor non-core assets such as oil recovery projects in the Midland Basin and Rockies along with Wise County acreage in the Barnett Shale by this year-end. (Read more Devon to Sell Non-Core Assets of Delaware Basin to Carrizo )

4.    A cloud of uncertainty seems to be hovering around TransCanada Corporation 's TRP Keystone XL pipeline project yet again. After facing delays for near about a decade, the pipeline finally received a regulatory approval from Nebraska commissioners late last year, albeit on an alternative route to the one proposed by the company. However, the pipeline has been hit by a fresh controversy again, as rerouting of the pipeline has subjected it to new legal investigation.

A U.S. federal judge, Brian Morris, issued a decree requiring the State Department to conduct a fresh environmental evaluation of the Keystone XL pipeline under the new alternative route. The judge believes that the alternative route proposed by the Nebraska Public Utilities Commission had not been properly assessed.

The recent ruling comes as a huge blow to the company, especially after the project had won a relatively positive nod from the U.S. State Department about a month ago on the ground that the pipeline would not lead to significant environmental concerns. (Read more TransCanada's Keystone XL Pipeline Faces Another Legal Snag )

5.    Williams Companies Inc. 's WMB Transco Expansion Project was recently green-lit by Federal Energy Regulatory Commission (FERC), bringing in pleasant news for the company, industry advocates and natural gas users. Notably, the firm had filed an application with the FERC last year, seeking approval for its Rivervale South to Market project, which incorporates expansion of the existing Transco pipeline project to meet the increasing natural gas demand.

The expansion of the project will entail uprating of 10.35 miles of existing Transco pipeline, along with upgrades and alterations to pipeline facilities in operation, all in New Jersey. Uprating a pipeline is basically a process used to boost the permissible operating pressure in a pipeline, per its design capability.

The project is expected to provide incremental service to natural gas consumers by generating 190,000 dekatherms per day of firm transportation capacity to the northeastern markets. On completion, the project will benefit northeastern consumers, mainly in New Jersey and New York, by catering to the growing demand for heating and power generation in more than 1 million homes. (Read more Williams Gets FERC Nod for Transco Expansion Project )

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

-1.5%

+5.2%

CVX

-3.6%

+8%

COP

-3%

+31.2%

OXY

-0.3%

+17.6%

SLB

-4.9%

-2.2%

RIG

-14.3%

+24.2%

VLO

-3.8%

+24.9%

MPC

-4.2%

+18.9%

The Energy Select Sector SPDR - a popular way to track energy companies - generated a -3.6% return last week. The worst performer was offshore drilling powerhouse Transocean Ltd. RIG whose stock slumped 14.3%.

But longer-term, over six months, the sector tracker is up 8.5%. Large independent producer ConocoPhillips is far and away the major gainer during this period, experiencing a 31.2% price appreciation.

What's Next in the Energy World?

As usual, market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas -- one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Energen Corporation (EGN): Free Stock Analysis Report

Transocean Ltd. (RIG): Free Stock Analysis Report

Williams Companies, Inc. (The) (WMB): Free Stock Analysis Report

TransCanada Corporation (TRP): Free Stock Analysis Report

Devon Energy Corporation (DVN): Free Stock Analysis Report

Diamondback Energy, Inc. (FANG): Free Stock Analysis Report

ConocoPhillips (COP): Free Stock Analysis Report

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Zacks Investment Research

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: EGN , RIG , WMB , TRP , DVN



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