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Oil & Gas Stock Roundup: Kinder Morgan's Milestone, Apache's Restructuring & More

It was a week when oil prices reached their highest levels in 11 months and natural gas prices ended on a positive note.

On the news front, energy infrastructure provider Kinder Morgan’s KMI Permian Highway Pipeline entered service, while upstream operator Apache Corporation APA announced the creation of a new holding-company structure.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained around 8% to close at $52.24 per barrel, while natural gas prices were up 6.3% in the week to end at $2.70 per million Btu (MMBtu).

Oil prices topped $50 for the first time since February, boosted by OPEC-kingpin Saudi Arabia’s surprise production cut move. To nearly everyone’s surprise, Riyadh pledged to reduce oil output by 1 million barrels per day in February and March, thereby pumping for two months at levels below the production limit fixed under the OPEC+ agreement. The commodity was also supported by a U.S. government data revealing a big weekly drop in domestic crude inventories.

Natural gas finished up too following favorable weather predictions and strong liquefied natural gas (“LNG”) feedgas deliveries.

Recap of the Week’s Most-Important Stories

1.  Kinder Morgan announced that its Permian Highway Pipeline (“PHP”) became fully operational on Jan 1, 2021. The $2-billion pipeline is owned by Kinder Morgan Texas Pipeline (“KMTP”), a subsidiary of Kinder Morgan, EagleClaw Midstream Ventures, LLC, and Altus Midstream Company ALTM, each holding an equity interest of 26.7%. The remaining stake is owned by an affiliate of an anchor shipper. Notably, the operator of the pipeline project is KMTP.

Notably, PHP is connected to various receipt points at Waha Hub, Western Texas, and delivers natural gas from the Permian Basin to growing retail locations across the Texas Gulf Coast. During the commissioning process, natural gas has been running through the pipeline for some weeks. Importantly, those flows raised prices at the Waha hub in the Permian basin in the past few months.

The 42-inch pipeline is designed to have a carrying capacity of up to 2.1 billion cubic feet of natural gas per day (Bcf/d) and contributes to reducing the Permian Basin natural gas flaring. Notably, the entire capacity of the PHP Project is fully subscribed under long-term agreements. (Kinder Morgan's Texas Pipeline Begins Commercial Services)

2.  Apache announces plans to form a new holding company — APA Corporation — following the approval of the company’s board of directors. The restructuring is expected to be completed by the first half of this year.

The new holding company will replace Apache (which trades on the Nasdaq stock exchange) as the public company once it is formed. Apache’s existing stake will get converted automatically on a one-for-one basis into shares of common stock of APA Corporation. Notably, it will maintain Apache’s ticker symbol and acquire the latter’s Suriname and Dominican Republic subsidiaries.

Apache will be a direct subsidiary of the new holding company and is likely to remain holding its current oil and gas assets in the United States, subsidiaries in Egypt and the U.K., where it carries out its activities in the Forties and Beryl areas of the central North Sea. Moreover, the oil and gas producer is expected to maintain its existing business interests in midstream operator Altus Midstream Company and Altus Midstream LP, which operates as a special purpose acquisition company. (Apache Plans to Form Holding Company by First Half of 2021)

3.  Whiting Petroleum WLL recently provided its capital budget and production guidance for 2021, expecting its capex to increase next year as it presumes commodity prices and demand to rise from the pandemic falls.

Whiting Petroleum, which recently emerged from bankruptcy, expects its overall net production for 2021 in the range of 82,000-88,000 barrels of oil equivalent per day (Boe/d) or 85,000 Boe/d at the midpoint. This projection is lower than 2020’s guided range of 98,000-99,000 Boe/d. The Zacks Rank #3 (Hold) company anticipates its 2021 oil production within the guided band of 48,000-52,000 barrels of oil per day (BPD).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

For next year, this exploration and production energy player’s total capex is envisioned at the midpoint ($240 million) of the $228-$252 million range, higher than last year’s projected band of $213-$218 million. It estimates spending in the range of $220-$245 billion for lease operations while its general and administrative cash expense is assumed in the $48-$52 million bracket. (Whiting Hikes 2021 CapEx View, Awaits FCF Generation)

4.  Oceaneering International OII registered quite a few multi-million-dollar deal wins in the fourth quarter of 2020 for its Integrity Management and Digital Solutions unit (IMDS). These contracts, valued at more than $250 million, are obtained from major clients and operators and are mostly for a period of three to five years. Nearly 55% of the total contracts represent the extension of the existing deals while the remaining 45% reflects the brand-new businesses.

Per the agreements, the terms of activity involve software, data services, monitoring and diagnostic services, integrity management and remote integrity engineering. It also engages in remote and onsite assessment services for both onshore and offshore brownfield and greenfield projects. These contracts will cover places like Qatar, Angola, Azerbaijan, the United States and Australia with the sites including vessels, LNG plants, LNG storage facilities, terminals and production facilities.

Various deals from this IMDS segment managed to win the trust of those contracted operators who understand the significance of running operations at reasonable costs that Oceaneering already lives up to. Notably, the IMDS platform mainly constitutes the company’s Asset Integrity unit along with its global data solutions business. (Oceaneering Wins Deals Worth $250M for IMDS Unit in Q4)

5.  Petrobras PBR recently announced that it churned out record oil and total output in 2020 with oil production of 2.28 million barrels per day (bpd) and overall production amounting to 2.84 million bpd. This surpassed the previous record that was achieved in 2015 when Petrobras produced 2.23 million barrels of oil per day and 2.79 million barrels of oil equivalent daily.

High-yielding asset portfolios aided the production record in 2020. Notably, pre-salt production in the period came in at 1.86 million barrels of oil equivalent per day, signifying 66% of the company’s total production.

Solid volumes are also attributable to remarkable production at the Buzios pre-salt field as a result of lower-than-anticipated production losses owing to strong maintenance and improved performance of reservoirs in the Tupi and Sapinhoa pre-salt fields. (Petrobras Draws Record Oil in 2020 Despite Coronavirus)

Price Performance

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               +10.3%             +9.8%
CVX               +7.9%                +7.5%
COP              +11.8%              +14.3%
OXY               +16%                 +20.2%
SLB               +13.8%              +40.5%
RIG                +20.3%              +47.9%
VLO               +2%                   +9.3%
MPC              +4.4%                +20.4%

The Energy Select Sector SPDR — a popular way to track energy companies — was up 9.3% last week. The best performer was offshore driller Transocean RIG whose stock surged 20.3%.

For the longer term, over six months, the sector tracker is up 18.4%. Transocean was the major gainer during the period too, experiencing a 47.9% 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. Finally, news related to coronavirus vaccination will be of utmost importance.

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Transocean Ltd. (RIG): Free Stock Analysis Report
 
Petroleo Brasileiro S.A. Petrobras (PBR): Free Stock Analysis Report
 
Apache Corporation (APA): Free Stock Analysis Report
 
Oceaneering International, Inc. (OII): Free Stock Analysis Report
 
Kinder Morgan, Inc. (KMI): Free Stock Analysis Report
 
Whiting Petroleum Corporation (WLL): Free Stock Analysis Report
 
Altus Midstream Company (ALTM): 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.

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