Oil & Gas Stock Roundup: WPX Energy's Acquisition, Devon's Asset Sale & More
It
was a week when both oil and natural gas prices settled higher.
On
the news front, Permian and Bakken-focused energy explorer WPX Energy WPX
agreed to acquire Delaware Basin-based Felix Energy for $2.5 billion.
Meanwhile, Devon Energy DVN announced that it is selling its remaining Barnett
Shale gas assets for $770 million.
Overall,
it was a good week for the sector. West Texas Intermediate (WTI) crude futures
edged up 0.8% to close at $60.44 per barrel, while natural gas prices rose 1.4%
for the week to finish at 2.328 per million Btu (MMBtu). (See the last ‘Oil
& Gas Stock Roundup’ here: Chevron's 2020 Capex, Transocean's Contract Win
& More)
The
U.S. crude benchmark ended above the coveted $60 mark for the second
consecutive week on continued optimism over the recent agreement on a phase one
trade deal between China and the United States. The development – coming after
almost two-years of wrangling – is seen to prop up the demand outlook and
revive global economic growth. The OPEC+ group’s recent announcement – to cut
output by as much as 500,000 barrels per day from Jan 1 for three months – have
already boosted oil prices.
However,
a rise in the oil drilling rig count – an indicator of higher future output –
and the Energy Department’s bearish inventory release restricted the commodity
from rising higher.
Natural
gas prices moved northward too, benefiting from the U.S. Energy Department's
weekly inventory release showing a larger-than-expected decrease in supplies.
Recap
of the Week’s Most Important Stories
1. WPX Energy announced that it intends to
acquire Delaware Basin-based Felix Energy for $2.5 billion. The purchase
consideration comprises $900 million in cash and $1.6 billion in WPX Energy
shares. This acquisition is in sync with the company’s intention to further
increase oil production.
Felix
Energy has nearly 1,500 gross undeveloped locations in the eastern portion of
the basin, with expected production of around 60 thousand barrels of oil
equivalent per day. Out of the total production, 70% will be oil. The parties
anticipate closing the transaction early in second-quarter 2020.
Following
the closure, WPX Energy expects to further increase cash flow, earnings per
share, free cash flow, return on capital employed and cash margins. Management
will use this opportunity to increase the value of its shareholders through
share buybacks and maintaining the annual dividend. (Read more WPX Energy to
Buy Delaware Basin-Based Felix Energy for $2.5B)
2. Devon Energy announced that it has signed an
agreement with Banpu Kalnin Ventures to sell Barnett Shale gas assets for $770
million. This agreement in a way completes Zacks Rank #3 (Hold) Devon’s
transformation to an U.S. oil-focused company.
Earlier
this year, it sold the Canadian business to Canadian Natural Resources Limited
for $2.8 billion. Divestiture of Canadian and Barnett Shale gas assets
generated $3.6 billion in proceeds at accretive multiples. Devon decided to
divest non-core gas assets as these no longer support its long-term growth
objectives.
The
company’s board of directors authorized to repurchase an additional $1 billion
shares, bringing the total buyback authorization to $6 billion. The new program
expires on Dec 31, 2020 and $800 million of the $1-billion authorization is
conditioned upon the closing of the Barnett transaction. To date, Devon has
repurchased 144 million shares or nearly 30% outstanding shares at a total cost
of $4.8 billion. (Read more Devon to Exit Barnett, Transforms to US Oil-Focused
Company)
3. ExxonMobil XOM recently announced the
commencement of production from the deepwater Liza field, located offshore
Guyana in the Stabroek Block, well ahead of schedule. Following its first
discovery of oil and gas, the company brought the field online in less than
five years. Notably, around 1,700 people — marking more than 50% of its
workforce — working for the company’s Guyanese operations are localites.
In
the next few months, oil production from the field’s first phase is expected to
hit 120,000 barrels per day (BPD). It will take only a few weeks to sell the
company’s first cargo. Last August, an oil production vessel, Liza Destiny had
arrived at the Stabroek Block, marking Guyana’s first floating, production,
storage and offloading (FPSO) vessel. The FPSO vessel moored 190 kilometres off
the coast of Guyana and four subsea drill centers, which support production
from 17 wells, during the first stage of development.
The
company is planning on bringing a second FPSO vessel for the phase 2
development. The Liza Unity FPSO vessel, expected to have a 220,000 BPD
production capacity, is currently under construction. This May, ExxonMobil
authorized the $6-billion Liza Phase 2 project that is expected to commence
within mid-2022. (Read more ExxonMobil Commences Liza Field Production Offshore
Guyana)
4. Chevron CVX wholly-owned Australian
affiliate, signed a conditional share sale agreement to acquire Australia’s
Puma Energy Holdings Pty Ltd in an all-stock deal worth $288 million. The
transaction is expected to close by the second quarter of 2020 and is dependent
on pending approvals and customary conditions.
Chevron's
acquisition deal comes four years after it exited Australia's retail fuel
market by selling its stake in Caltex in a $4.62 billion transaction. The
transaction will help its Australian business to acquire a stable network of
petrol stations and fuel distribution ventures, together with storage and
import terminals in the country and provide a base for sustainable earnings
growth.
Chevron’s
executive vice president for Downstream & Chemicals, Mark Nelson, feels
that this deal will build on the company’s strong history of partnership in
Australia and its global experience in fuels and convenience marketing and
supply. (Read more Chevron Australia Inks Acquisition Deal With Puma Energy)
5. Royal Dutch Shell RDS.A recently provided an
update on its fourth-quarter guidance. Let’s delve into some key segmental
revisions. Further, Shell envisioned its post-tax impairment charges between
$1.7 billion and $2.3 billion for the fourth quarter. It expects its 2019 cash
capital expenditure at the lower end of its previous guided range of $24-29
billion.
The
upstream production is projected between 2,775 and 2,825 thousand barrels of
oil equivalent per day (boe/d). Compared with the prior-year quarter, the
company expects to incur additional $100-$200 million well write-offs for the
ongoing quarter due to weaker macro-economic outlook. Shell estimated its
fourth-quarter oil product sales in the band of 6,500-7,000 thousand barrels
per day. This indicates a 1.36% increase from the year-earlier reported number
assuming that the upper end of the estimate will be met.
The
company expects its fourth-quarter LNG liquefaction volumes to expand to
8.8-9.4 million tonnes from its previous year’s quarterly output of 8.78
million tonnes. Moreover, its segmental production is forecast in the 920-970
thousand boe/d band. In the year-earlier period, Shell produced 979 thousand
boe/d.(Read more Shell Renews Q4 Outlook, Awaits $1.7-$2.3B Write-Offs)
Price
Performance
The
Energy Select Sector SPDR – a popular way to track energy companies – was up
2.7% last week. The best performer was independent refiner Marathon Petroleum
MPC whose stock jumped 5.1%.
But
longer-term, over six months, the sector tracker is down 1.6%. Houston-based
oil and gas producer Occidental Petroleum OXY was the major loser during this
period, experiencing a 20.4% price plunge.
What’s
Next in the Energy World?
In
this holiday-shortened week, 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.
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