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Oil & Gas Stock Roundup: MDR-CBI Tie-Up, STO's Oilfield Stake Buy & More


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It was a week where oil prices remained essentially unchanged but natural gas futures sunk to multi-month lows.

On the news front, energy-focused construction and engineering companies McDermott International Inc. MDR and Chicago Bridge & Iron Company N.V. CBI agreed to merge in a $6 billion deal, while Norway's Statoil ASA STO bought a 25% interest in a large Brazilian oilfield from Petrobras PBR for up to $2.9 billion.

Overall, it was a dismal week for the sector. West Texas Intermediate (WTI) crude futures lost a marginal 0.1% to close at $57.30 per barrel, while natural gas prices slumped 5.8% to $2.612 per million Btu (MMBtu). (See the last 'Oil & Gas Stock Roundup' here: CVX's Spending Cut, HP & BBG's Acquisitions & More )

The U.S. oil benchmark recorded its third successive weekly decline. The major culprit was the steady trend of rising domestic oil production that continues to be the biggest headwind for the market. In fact, U.S. output rose by 73,000 barrels per day last week to 9.8 million barrels per day - the most since the EIA started maintaining weekly data in 1983. A massive build in gasoline supplies also played spoilsport.

The negative sentiment was partially offset by a survey showing OPEC output at a six-month low, pointing to the oil cartel and its allies' success in rebalancing the market. Investors also cheered a lower rig count as it pointed to the softening of shale drilling activities.

Meanwhile, natural gas futures sunk to their lowest intraday levels since February following a below-average decrease in supplies. Unfavorable weather forecasts (translating into weak heating gas demand) and strength in the commodity's production added to the bearish sentiment.

Recap of the Week's Most Important Stories

1.    In a bid to create a fully-vertically integrated company, McDermott International, Inc. is set to merge with Chicago Bridge & Iron Company N.V. in a $6 billion all-stock deal. Subject to satisfactory closing conditions, the transaction is set to complete in the second quarter of 2018. Upon the closure of the deal, McDermott will be owning 53% of the stake in the combined company, while Chicago Bridge & Iron will hold 47% interest.

McDermott's current CEO and president David Dickson will head the new entity which will be headquartered in Houston. McDermott's CFO and executive vice president will continue to hold office in the combined company. The new company's board of directors will comprise 11 members, including Dickson and five independent directors from McDermott along with five from Chicago Bridge & Iron.

Both companies provide infrastructure and other products for oil and gas industries. McDermott in particular, focuses on offshore operations whereas Chicago Bridge & Iron's strength lies in onshore projects. The combination of the two entities will lead to the creation of a fully-integrated onshore-offshore company offering engineering, procurement, and construction and installation services to the energy sector. (Read more: McDermott Inks $6B Merger Deal With Chicago Bridge & Iron )

2.    Statoil ASA recently announced an accord with Petrobras for acquiring a 25% stake in Roncador field, located off the coast of Brazil. The Norwegian energy giant is expected to pay $2.35 billion initially. The deal also includes a contingent payment of roughly $550 million. Although the company is yet to announce the transaction's closing date, the agreement awaits consent from the government. Even on completion of the deal, Petrobras will continue to be the operator of the field with a 75% stake.

Notably, Statoil expects the purchase of the Brazilian resources to boost its production in the country by nearly three times. The Zacks Rank #1 (Strong Buy) company added Roncador is the third largest resource in Petrobras' portfolio in terms of production - the output being roughly 10 billion barrels of oil equivalent (BoE). The companies will also work on driving recoverable volumes from the field. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

With the completion of the purchase of Roncador field stake, Statoil will further expand its presence in Brazil. The company has operatorship interest in the country's resources like Peregrino field, six blocks in Espírito Santo Basin and Carcará North block. (Read more Statoil to Expand in Brazil With Roncador Stake Buyout )

3.     Marathon Petroleum Corp. MPC entered into an agreement to exchange its general partner (GP) economic interests and incentive distribution rights (IDR) in its midstream subsidiary MPLX LP. The Oil refining and marketing giant will exchange its GP economic interests and IDRs for 275 million newly issued MPLX common units, valued at about $10.1 billion. Upon the closure of the transaction - expected on Feb 1, 2018 - Marathon Petroleum will own about 64% of the outstanding MPLX common units.

The transaction will help simplifying the corporate structure and poise MPLX with an attractive cost of capital. The transaction is expected to be accretive to the distribution cash flow (DCF) attributable to common unitholders. The elimination of IDRs will free up enough cash flows which wont get distributed to the general partner, thereby giving the limited partners more exposure to future growth.

Upon the closure of this transaction, Marathon Petroleum will also complete its $8.1-billion dropdown deal with MPLX on the same day. The cash and equity dropdown deal is expected to boost the financials, dividend growth and share repurchase programs of Marathon Corp. It will also add immediate accretion to MPLX's cash flow, supporting the partnership's overall growth. (Read more (Read more Marathon Petroleum to Swap GP Stake & IDRs With MPLX Units )

4.     Oasis Petroleum Inc. OAS recently agreed to buy Delaware Basin assets spanning 20,300 net acres from Forge Energy, LLC in a cash and stock deal worth around $946 million. Following the news of the strategic acquisition, the independent exploration and production company's stock declined 17.2% as investors were not pleased with the decision to overlook cash flow and opt for new acquisitions. Strengthening the balance sheet is currently more important to them.

The transaction will include around $483 million cash and 46 million shares of Oasis Petroleum worth $463 million. The deal, expected to be completed by February 2018, will open the gateway for Oasis Petroleum in the Permian's Basin -- the most lucrative area for oil explorers now due to its low production cost.

The acquisition includes 601 gross operated locations. The acquired acreage is expected to complement the company's existing assets in the region, which will enable long lateral development of around 8,000 feet median lateral length. (Read more Oasis Petroleum to Buy Delaware Basin Assets for $946M )

5.     Oil States International, Inc. OIS is set to acquire private-backed GEODynamics, Inc. in a cash-and-equity transaction worth $525 million. Oil States will pay $300 million in cash and $200 million by issuing 8.66 million shares. Subject to satisfactory closing conditions and regulatory approvals, the deal is expected to complete during the first quarter of 2018.

With locations around the world, Oil States is a leading manufacturer of products for deepwater production facilities and subsea pipelines, and a leading supplier of a broad range of services to the oil and gas industry. Meanwhile, GEODynamics, also in the oilfield service space, is a provider of technical products and services - from locating hydrocarbons to optimizing production through the life of the field - to companies drilling oil and gas wells.

The acquisition of complementary assets will boost the revenues and expand the current customer base of Oil States. In particular, it gives Oil States the exposure to the valuable and growing downhole consumables market.

The company expects to gain from the operational, commercial and financial synergies. Oil States is set to benefit from increased cost efficiencies by providing a broader set of product offerings through its combined global infrastructure and supply chain optimization. (Read more Oil States to Acquire GEODynamics for $525 Million )

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

+0.6%

-0.7%

CVX

+0.1%

+10.5%

COP

+3.2%

+12.5%

OXY

+1.7%

+14.8%

SLB

-

-7.3%

RIG

-6.1%

+10.2%

VLO

+3%

+35.1%

ANDV

+2.4%

+21.1%



In line with the week's slightly bearish oil market sentiment, the Energy Select Sector SPDR - a popular way to track energy companies - generated a marginal +0.1% return last week. The best performer was independent oil biggie ConocoPhillips COP whose stock jumped 3.2%.

Longer-term, over 6 months, the sector tracker is up 4.5%. Downstream operator Valero Energy Corp. VLO was the major gainer during this period, experiencing a 35.1% 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.

Zacks Editor-in-Chief Goes "All In" on This Stock

Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.

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: PBR , MDR , OIS , MPC


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