It was a week wherein oil prices finished higher but natural gas futures logged a sharp decline.
On the news front, the District Court of The Hague ruled in favor of U.S. energy major Chevron CVX in an environmental dispute with Ecuador, while Italy’s Eni E made a new gas discovery offshore Egypt.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures gained 10.1% to close at $41.11 per barrel, natural gas prices decreased 9.7% for the week to finish at 2.048 per million Btu (MMBtu). In particular, the oil markets reversed their decline from the previous week when the commodity fell sharply.
Coming back to the week ended Aug 18, oil prices rose back to above $40 a barrel, after U.S. government data showed a crude stockpile draw more than twice above expectations and continued pledge by the OPEC+ group to curb supplies.
Meanwhile, natural gas suffered another heavy loss too after the U.S. Energy Department's weekly inventory release showed a larger-than-expected increase in supplies. The bearish injection, together with an unfavorable weather forecast, sparked a collapse.
Recap of the Week’s Most-Important Stories
1. The District Court of The Hague has backed Chevron on its long-standing legal fight with the Republic of Ecuador in relation to an unfavorable 2011 judgment that falsely implicated the company on alleged grounds of pollution. The court sentence involved land and water pollution claims by Texaco — acquired by Chevron in 2001— in Ecuador’s Lago Agrio region of the Amazon rain forest from 1964 to 1992.
This new ruling follows the verdicts of courts in Argentina, Brazil, Canada, Gibraltar and the United States, thereby disapproving the Ecuadorian judgment against Chevron. The ruling supports a 2018 arbitral award issued by an international tribunal administered by the Permanent Court of Arbitration that commanded Ecuador to stop the enforcement of the Chevron judgment and overruled the country’s effort to have the decision terminated.
Per the tribunal’s unanimous award, the judgment in the Ecuador court was a result of fabricated evidence and fraudulence. It further concluded that the presiding judge was bribed and the verdict ghost-written. (The Hague Court Ruling Favors Chevron in Ecuador Dispute)
2. Eni recently announced a natural gas discovery in the Great Nooros Area, located in the Abu Madi West Development Lease. The site is in the conventional waters of the Nile Delta, located offshore Egypt.
With the new discovery, the company expects more than 4 trillion cubic feet (Tcf) of natural gas in place in the Great Nooros Area. Eni, the operator of the block, is expected to look for development options for this gas discovery using the region’s existing infrastructures, which will in turn boost synergies from the same. Eni has a 75% interest in the Abu Madi West Development Lease. It has BP as a contract member in the lease, which holds the remaining 25% stake.
Through its subsidiary IEOC, Eni operates in Egypt. The Italy-based energy major is present in the country since 1954. At present, the company’s equity production from the country is around 300,000 barrels of oil equivalent per day. (Eni Boosts Gas Reserves With New Discovery Offshore Egypt)
3. BP plc BP has set a target of building 50 gigawatt (GW) of global renewable energy projects by 2030. To achieve this, the British energy giant is planning organic growth and infill acquisitions of early-stage projects, per Dev Sanyal, the company’s Executive VP of gas and low carbon energy.
As of 2019-end, the integrated energy major had 2.5 GW of energy generation capacity from renewables. The company has a development pipeline of roughly 20 GW of renewable projects, of which 83% will be solar energy, while the remaining 15% and 2% will be wind energy and biopower, respectively. Importantly, of the 20 GW of renewable projects that are in the pipeline, 9 GW will be in the United States, while 7 GW will be in Europe.
Sanyal added that majority of the power will be generated from solar energy since solar projects can be brought online with 18 to 24 months of planning. (BP Sets a Target for 50 GW of Renewable Projects by 2030)
4. Per a filing with the U.S. Securities and Exchange Commission, Cheniere Energy, Inc.’s LNG 5.05% share has been purchased by the state-owned Abu Dhabi Investment Authority (ADIA).
With the purchase of worth 12.7 million shares of Zacks Rank #3 (Hold) Cheniere Energy valued at about $615 million, the sovereign wealth fund now becomes this Houston-based energy player's fourth-largest shareholder. As stated by the Sovereign Wealth Fund Institute, Abu Dhabi Investment Authority is the world’s third-largest sovereign wealth fund with assets worth $597.6 billion.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Apart from Abu Dhabi, other Middle Eastern state-owned companies showed interest in holding equity in U.S. LNG export facilities. In January, Saudi Arabian Oil Company also known as Aramco, entered into an Interim Participation Project Agreement (IPPA) with southern California-based Sempra Energy. The deal involves making a final investment decision on the proposed Port Arthur LNG export project in Texas. (Cheniere Energy Sells Its 5.05% Stake to State-Owned ADIA)
5. Occidental Petroleum OXY and Western Midstream Partners, LP WES have entered into an agreement to maximize the value of their shareholders and unitholders.
Per the agreement, the firm will exchange 98% interest in the $260 million 6.50% fixed-rate note receivable due 2038 from Occidental for 27.855 million Western Midstream common units owned by the former. The units will be canceled following the exchange.
This deal will be beneficial for both the entities. Further, the deal will aid Occidental in achieving its debt-reduction goal, strengthening the balance sheet and lowering annual interest expenses by $16.9 million. Also, this transaction will increase the firm’s per-annum free cash flow after distributions by nearly $18.1 million, based on current per-unit annualized distributions. (Occidental Notes Exchanged for Western Midstream Units)
The following table shows the price movement of some the major oil and gas players over past week and during the last six months.
Company Last Week Last 6 Months
XOM +0.8% +13.6%
CVX +0.7% +31.7%
COP +8.3% +33.6%
OXY +14.1% +13.9%
SLB +4.8% +31.2%
RIG +7.1% +1.9%
VLO +5% +26%
MPC +3.3% +70.4%
The Energy Select Sector SPDR — a popular way to track energy companies — gained 3% last week. The best performer was Houston-based oil and gas producer Occidental Petroleum whose stock jumped 14.1%.
For the longer term, over six months, the sector tracker is up 30%. Downstream operator Marathon Petroleum MPC was the top gainer during the period, experiencing a 70.4% price appreciation.
What’s Next in the Energy World?
As global oil consumption gradually ticks up from the depths of coronavirus, market participants will be closely tracking the regular releases to watch for signs that could further validate a rebound. In this context, the U.S. government’s statistics on oil and natural gas — one of the few solid indicators that comes out regularly — will be on energy traders' radar. Data on rig count from energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is also closely followed.
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Chevron Corporation (CVX): Free Stock Analysis Report
Eni SpA (E): Free Stock Analysis Report
BP p.l.c. (BP): Free Stock Analysis Report
Occidental Petroleum Corporation (OXY): Free Stock Analysis Report
Cheniere Energy, Inc. (LNG): Free Stock Analysis Report
Western Gas Equity Partners, LP (WES): Free Stock Analysis Report
Marathon Petroleum Corporation (MPC): Free Stock Analysis Report
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