Oil Rises, Extending Gains on Concerns Over Middle Eastern Supply
SECTOR COMMENTARY:
Energy stocks are set to continue their strong start to 2024, as continued gains in oil prices and a jump in natural gas futures lend support. Meanwhile, the broader benchmarks, which surged in 2023, reman tenuous with another expected lower open.
In deal news, APA Corporation and Callon Petroleum Company have entered into a definitive agreement under which APA will acquire Callon in an all-stock transaction valued at approximately $4.5 billion, inclusive of Callon’s net debt. Under the terms of the transaction, each share of Callon common stock will be exchanged for a fixed ratio of 1.0425 shares of APA common stock.
Oil rose by about 1% on Thursday, extending gains on concerns over Middle Eastern supply after disruptions at an oilfield in Libya and heightened tensions relating to the Israel-Hamas war. Local protests forced a production shutdown on Wednesday at Libya's Sharara oilfield, which can produce up to 300,000 bpd. The field, one of Libya's largest, has been a frequent target for political protests. "A confluence of headlines around further tensions in the Red Sea and a full shutdown of Libya's Sharara oilfield from local protests have renewed concerns about global oil supply disruptions," said Yeap Jun Rong, market strategist at IG.
U.S. natural gas futures climbed about 4% to a one-month high on Thursday on a drop in daily output and forecasts for colder weather and higher heating demand over the next two weeks than previously expected.
BY SECTOR:
US INTEGRATEDS
No significant news.
INTERNATIONAL INTEGRATEDS
Several Saudi Arabian companies released regulatory filings late saying that state energy company Saudi Aramco's decision to raise feedstock and fuel prices for this year will raise production costs and lower earnings. Saudi Aramco notified the companies in the kingdom of the price hike this week, saying it will be effective from Jan. 1. Aramco increased retail diesel prices for 2024 by 53% to 1.15 riyals ($0.3067) per litre, its third increase since 2016. The companies have said the impact from the increase in prices could start to filter through in the first quarter, and that businesses are looking for ways to enhance their efficiencies to offset the rising costs.
Eni announced the introduction of gas into the Tango Floating Liquefied Natural Gas (FLNG) facility moored in Congolese waters. Gas introduction has been achieved in record time- only twelve months after the final investment decision. This is a key milestone for the Congo LNG project, which encompasses the adoption of new technologies and a strong synergy with existing producing assets. Following completion of the commissioning phase, Tango FLNG will produce its first LNG cargo by the first quarter of 2024, placing the Republic of Congo on the list of LNG-producing countries.
TotalEnergies completed the implementation of the agreements signed in March 2023 with Alimentation Couche-Tard. The transaction, based on an enterprise value of €3.1 billion (equivalent to more than 15 years of net cash flow on a post-tax basis), was finalized in two steps, on December 28th, 2023, with the transaction related to the network in Germany and on January 3rd, 2024, with the transactions related to the networks in the Netherlands, Luxembourg, and Belgium. TotalEnergies received a total cash consideration after adjustments and before tax of €3.4 billion (approximately $3.8 billion, including approximately $2.4 billion in December 2023).
CANADIAN INTEGRATEDS
No significant news.
U.S. E&PS
APA Corporation and Callon Petroleum Company have entered into a definitive agreement under which APA will acquire Callon in an all-stock transaction valued at approximately $4.5 billion, inclusive of Callon’s net debt. Under the terms of the transaction, each share of Callon common stock will be exchanged for a fixed ratio of 1.0425 shares of APA common stock. The transaction is expected to be accretive to all key financial metrics and add to APA’s inventory of high quality, short-cycle opportunities. Callon’s assets provide additional scale to APA’s operations across the Permian Basin, most notably in the Delaware Basin, where Callon has nearly 120,000 acres. On a pro forma basis, total company production exceeds 500,000 BOE per day and enterprise value increases to more than $21 billion.
California Resources Corporation updated select guidance ranges for the fourth quarter of 2023 in conjunction with its participation in various investor conferences later this month. CRC’s fourth quarter of 2023 free cash flow1 is expected to range between $40 to $60 million primarily due to higher margins earned from natural gas marketing activities and lower investments in carbon capture and storage (CCS) related subsurface land easements. This free cash flow1 update exceeds the previously announced fourth quarter 2023 guidance range of ($5) to $30 million. Total net production for the fourth quarter of 2023 is expected to range between 82 – 84 thousand barrels of oil equivalent per day (MBoe/d), which falls in line with previously issued guidance. Approximately 60% of total net production for this period is expected to be oil. Capital investments for the fourth quarter of 2023 are expected to be in the $65 to $75 million range from the previously announced guidance range of $65 to $81 million. Reduced capital spend in the fourth quarter of 2023 was primarily related to timing of key projects and continued efficiency gains.
According to Reuters, Murphy Oil announced that drilling has concluded at the OSO #1 exploration well in Atwater Valley 138 in the Gulf of Mexico. Exploration expense guidance for Q4 revised from $53 million to $83 million, including a net well cost of $64 million for OSO.
CANADIAN E&PS
No significant news.
OILFIELD SERVICES
Raymond James upgraded Chart Industries to Strong Buy from Outperform.
DRILLERS
No significant news.
REFINERS
On January 3, 2024, HF Sinclair entered into a Stock Purchase Agreement with REH Company, pursuant to which the Company agreed to repurchase from the Selling Stockholder 454,380 shares of the Company's outstanding common stock, par value $0.01 per share, in a privately negotiated transaction. The price per share to be paid by the Company under the Stock Purchase Agreement is $55.02 per share resulting in an aggregate purchase price of $24,999,988. The purchase price will be funded with cash on hand. The Stock Purchase Agreement contains customary representations, warranties and covenants of the parties. The shares to be repurchased under the Stock Purchase Agreement will be held as treasury stock by the Company. This share repurchase is the fourteenth privately negotiated transaction between the Company and the Selling Stockholder.
MLPS & PIPELINES
Williams announced that it has closed its acquisition of a portfolio of natural gas storage assets from an affiliate of Hartree Partners LP for $1.95 billion. The transaction includes six underground natural gas storage facilities located in Louisiana and Mississippi with total capacity of 115 billion cubic feet (Bcf), as well as 230 miles of gas transmission pipeline and 30 pipeline interconnects to attractive markets, including LNG markets, and connections to Transco, the nation’s largest natural gas transmission pipeline. The acquisition price represents an approximate 10x estimated 2024 EBITDA multiple.
MARKET COMMENTARY
U.S. stock index futures edged higher, while Apple shares dipped following a rating downgrade. Meanwhile, European shares gained, driven by strength in healthcare and energy stocks. In Asian equity markets, Chinese shares fell on macroeconomic worries, while Japanese shares slipped as the impact of a recent earthquake and an airline collision weighed on sentiment. The dollar fell as Fed minutes offered few clues on rate cuts, boosting gold 's appeal.
Nasdaq Advisory Services Energy Team is part of Nasdaq's Advisory Services – the most experienced team in the industry. The team delivers unmatched shareholder analysis, a comprehensive view of trading and investor activity, and insights into how best to manage investor relations outreach efforts. For questions, please contact Rich Pontillo.
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Nasdaq Advisory Services Energy Team is part of Nasdaq's Advisory Services. The team delivers unmatched shareholder analysis, a comprehensive view of trading and investor activity, and insights into how best to manage investor relations outreach efforts.
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