Oil & Gas Stock Roundup: Energy Transfer to Buy Williams, Shell Stops Arctic Drilling

It was a week where oil prices rose amid another decline in rig counts but natural gas prices tanked to their lowest levels since Apr 29 on hefty rise in supplies. On the news front, midstream giant Energy Transfer Equity L.P.ETE has agreed to take over competitor Williams Companies Inc.WMB for $38 billion, while Royal Dutch Shell plcRDS.A has decided to pull out of its Arctic exploration plans.

Overall, it was a mixed week for the sector. West Texas Intermediate (WTI) crude futures snapped a two-week losing streak and climbed around 2.3% to close at $45.70 per barrel, natural gas prices fell 1.6% to $2.56 per million Btu (MMBtu). (See the last 'Oil & Gas Stock Roundup' here: Crude Falls Post Fed Status Quo, Australia Questions Shell-BG Deal .)

Oil bulls were encouraged by the Baker Hughes report that showed another drop in oil-directed rigs - down 60% from the peak last October - indicating a break in shale drilling activities. Things were further helped by comments from Fed Chairwoman Janet Yellen that indicates the lift-off option is very much on the table later this year. Markets see a rate hike as a sign of the Fed's confidence in the economic outlook.

Natural gas though fared badly after the U.S. Energy Department's weekly inventory release showed a larger-than-expected increase in supplies. Predictions of waning heating requirement with the imminent arrival of colder autumn temperatures added to the pessimism.

Recap of the Week's Most Important Stories

1. Shares of Williams Companies Inc. plummeted over 12% following the announcement that it has agreed to be acquired by Energy Transfer Equity L.P. Investors did not favor the buyer either. Units of ETE plunged nearly 13%. The agreement is valued at about $37.7 billion and includes assumption of debt and other liabilities. The deal amount, however, is much lower than the $48 billion offered by ETE in June, which Williams had rejected.

The combined entity to be formed with the WMB-ETE merger would become the third-largest energy franchise in North America. The company will also rank among the top five energy companies worldwide.

However, Williams' shareholders were spooked by the reduced value of the deal that lost them money, while Energy Transfer Equity unitholders' concern possibly lies in the firm's announcement of changing its corporate structure to C-corp from the MLP structure.

2. Royal Dutch Shell plc has finally decided to quit its Arctic drilling program for the foreseeable period of time. The decision is unfortunate as the integrated energy major has already spent as much as $7 billion on Arctic drilling over more than eight years.

Shell made up its mind to walk away from the project after disappointing drilling results from the Burger J well in the Chukchi Sea. In details, Shell drilled down the well to roughly 6,800 feet with the hope of considerable petroleum content. But the company got a rude shock of insignificant oil and gas and decided to abandon the Arctic drilling program.

By quitting the project, Shell joins a long queue of leading energy firms, like Exxon Mobil Corp., BP plc and Chevron Corp., which have already closed the Arctic program.

3. Oilfield service providers Halliburton Co.HAL and Baker Hughes Inc.BHI announced plans to sell additional businesses to comply with the terms of their earlier-announced merger agreement. The sale follows the U.S. Department of Justice's (DOJ) order that the companies have to sell some of their overlapping business units as a prerequisite for the $36 billion mega-merger deal.

The companies announced that the businesses available for sale would include Halliburton's expandable liner hangers business, which is part of its Completion & Production Division. Baker Hughes would sell its core completions business, sand control business in the Gulf of Mexico and offshore cementing businesses in Australia, Brazil, the Gulf of Mexico, Norway and the United Kingdom.

4. Offshore drilling giant Transocean Ltd.RIG provided a monthly fleet status report for the period from Aug 19, 2015.

New contracts have now become almost a distant memory for Transocean. The company has been surviving on contract extensions for the past few months as is indicated by its fleet updates. The latest update is even worse with neither new contracts nor contract extensions.

Additionally, Transocean announced that the sixth generation semi-submersible Transocean Barents, third generation semi-submersible GSF Rig 140 and the jackup GSF Galaxy II are currently idle. Transocean also disclosed that the expected out-of-service time for 2015 has increased by 26 days, while the same has declined by five days for 2016. (See More: Transocean Disappoints Again with Latest Fleet Update .)

5. Oilfield services giant Schlumberger Ltd.SLB announced that it will not pursue a $1.7 billion deal to purchase a minority stake in Russia's largest driller - Eurasia Drilling Company Limited - after the deal expires on Sep 30, 2015. The agreement had been deferred due to a lack of regulatory approvals. Schlumberger now intends to focus on other merger and acquisition opportunities instead.

Per the initial phase of the deal agreed upon in January, Eurasia founder Alexander Djaparidze and other core investors intended to repurchase the company's shares from its minority investors for $22 each. Subsequently, that 46.45% stake in Eurasia would have been sold by the Djaparidze-led group to Schlumberger, which would then have had an option to purchase the rest after three years. However, the oil price plunge changed Schlumberger's view regarding ownership of the stake. (See More: Schlumberger Scraps Plan to Pursue Eurasia Extension Deal .)

Price Performance

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

Company Last Week Last 6 Months
XOM +0.18% -15.22%
CVX -2.49% -29.12%
COP -5.85% -28.36%
OXY -3.24% -13.98%
SLB -3.68% -17.89%
RIG -15.16% -18.49%
VLO -2.10% -9.22%
TSO +5.71% +7.93%

Over the course of last week, the best performer was downstream operator Tesoro Corp. that added 5.7% to its stock price, while the biggest loser was offshore driller Transocean Ltd. which dived 15.2% during the period.

Over the last 6 months, Tesoro was again the chief beneficiary on the bourses with its shares advancing 7.9% even amid the dismal oil price scenario. On the other hand, U.S. supermajor Chevron Corp. was the laggard, as it witnessed a 29.1% price decline over the same time frame.

What's Next in the Energy World?

Apart from the usual releases in this week - the U.S. government data on oil and natural gas - market participants will be closely tracking a series of crucial economic reports, including those on factory sector ISM survey and the September non-farm payroll.

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WILLIAMS COS (WMB): Free Stock Analysis Report

BAKER-HUGHES (BHI): Free Stock Analysis Report

SCHLUMBERGER LT (SLB): Free Stock Analysis Report

HALLIBURTON CO (HAL): Free Stock Analysis Report

ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report

TRANSOCEAN LTD (RIG): Free Stock Analysis Report

ENERGY TRAN EQT (ETE): 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.

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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