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Oil & Gas Stock Roundup: Chevron's 2020 Capex, Transocean's Contract Win & More

Nilanjan Choudhury

It was a week where oil futures rallied to three-month highs but natural gas futures settled lower.

On the news front, U.S. energy major Chevron CVX set its investment budget for 2020 at $20 billion, same as its projected spending this year. Meanwhile, offshore driller Transocean Ltd. RIG announced it has been awarded a one-year contract worth $91 million.    

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures climbed 1.5% to close at $60.07 per barrel, natural gas prices fell 1.6% for the week to finish at 2.296 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Kinder Morgan's 2020 Plans, Chesapeake's Debt Financing & More)

The U.S. crude benchmark pushed through the coveted $60 mark after the United States and China agreed on a so-called phase one deal that is seen as a step to thawing of trade tensions. 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.

Meanwhile, natural gas prices dipped following a smaller-than-expected decrease in supplies.

Recap of the Week’s Most Important Stories

1. Chevron recently announced its capital and exploratory spending program for 2020. The budget for capital projects is reserved at $20 billion, in line with the company’s projected investment for 2019.

While maintaining its capital discipline, management projects an estimated $10-$11 billion write-down for the fourth quarter, majorly from the Appalachian natural gas assets due to the commodity’s price plunge. In fact, the integrated major is even contemplating the sale of certain natural gas-focused shale projects plus its Kitimat LNG development in Canada.

Chevron’s upstream spending in 2020 is expected to dip 2.9% from 2019 while downstream expenditure will likely increase 12% next year. Per the chairman and CEO Michael K. Wirth, the company intends to concentrate on high-return, low-risk projects, boosting its returns on capital and free cash flow.(Read more Where Will Chevron Spend the Bulk of Its 2020 Capex?)

2.   Transocean announced the receipt of a one-year contract off the coast of Trinidad and Tobago for its semisubmersible Development Driller III at an estimated dayrate of approximately $250,000. The contract will likely add $91 million to the company’s backlog. The amount excludes mobilization and reimbursable charges. Notably, as of Oct 28, the Zacks Rank #3 (Hold) company had a total backlog of $10.8 billion.

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

This Vanuatu-flagged Development Driller III is an ultra-deepwater semisubmersible unit, which can drill to a depth of 37,500 feet. Online since 2009, this drilling unit can operate up to 10,000 feet of water and has the capacity for up to 200 people.

The new contract, scheduled to start in the second quarter of next year, will help the company progress both in terms of backlog and cash flow. Per the company’s October fleet status report, Development Driller III is currently bound by contract to ExxonMobil’s offshore Equatorial Guinea until February 2020 at a dayrate of $192,000. (Read more Transocean's Driller III Contract Win to Add $91M to Backlog)

3.   Shares of Tullow Oil PLC TUWOY plunged to a 20-year low after it showed a drop in 2020 production and suspended its quarterly dividend. The stock dived more than 65% to close at 32 cents yesterday, a level last seen in 2000. Tullow also announced resignations of its CEO Paul McDade and exploration director Angus McCoss. The company is in search of a new CEO and until then, Dorothy Thompson will serve as a stopgap.

The Africa-focused oil and gas producer suffered from lower-than-expected results from the TEN and Jubilee fields in Ghana, two of the company’s main producing assets.

Tullow’s 2020 production guidance is anticipated in the range of 70,000-80,000 barrels of oil per day (bopd), lower than the current year’s expected figure of 87,000 bopd. For the three years following 2020, average production is projected to be 70,000 bopd. (Read more Tullow Tanks on Lower Production View, Dividend Suspension)

4.   Enbridge Inc. ENB recently received authorization from the board of directors to hike quarterly dividend for 2020. The new dividend of 81 Canadian cents (or C$3.24 annually) — expected to be paid on Mar 1, 2020 to stockholders of record as of Feb 14, 2020 — will reflect a sequential hike of 9.8%. The raise will lead to a dividend yield of 6.3%.

This move is indicative of the company’s commitment to create value for its shareholders and underlines Enbridge’s confidence in business growth. In fact, 2020 will be the 25th successive year of dividend increase by the leading midstream energy infrastructure provider.

In addition to the news of dividend increment, Enbridge announced that it expects earnings before interest, taxes, depreciation and amortization (EBITDA) of C$13.7 billion for 2020, marginally higher than 2019 expectation of C$13 billion. The increase can be supported by the Line 3 Replacement project, as the Canadian segment of the pipeline commenced service on Dec 1, 2019. It awaits more clarity on the regulatory processes before the project’s U.S. segment comes online. (Read more Enbridge Hikes 2020 Dividend, Expects Y/Y Higher EBITDA, DCF)

5.   Antero Midstream Corporation AM recently struck a share repurchase deal with its affiliate Antero Resources Corporation AR. Per the deal, Antero Midstream will buy back $100 million worth of its shares from Antero Resources. Moreover, the midstream company agreed to a growth incentive fee program, enabling better use of its resources. Following the news, shares of Antero Midstream jumped 14.5% and that of Antero Resources gained 17.4%.

This move, together with $25-million share repurchase in the last reported quarter, is expected to save more than $25 million per annum in total dividend payments for the energy infrastructure provider. The company targets to deliver dividends of $1.23 per share in 2020. Notably, it currently has $175 million remaining under the share buyback program.

The program will enable Antero Midstream to provide its affiliate a reduction in fees on low pressure gathering, starting from 2020 till 2023-end. This move is expected to drive Antero Resources’ throughput growth, which in turn will boost Antero Midstream's other businesses like gathering, processing, compression, fractionation and fresh water delivery system. Notably, fees for other services provided by the company remained unchanged.(Read more Antero Midstream Aids Affiliate Amid Low Gas Price Scenario)

Price Performance

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

Company

Last Week

Last 6 Months

XOM

-0.4%

-6.8%

CVX

0%

-1.7%

COP

+1.2%

+6.5%

OXY

-1.3%

-23.1%

SLB

+5.7%

+7.5%

RIG

+8.2%

+8.1%

VLO

+0.2%

+23.7%

MPC

-2.6%

+24.7%

 

The Energy Select Sector SPDR – a popular way to track energy companies – was up 1% last week. The best performer was offshore driller Transocean whose stock jumped 8.2%.

But longer-term, over six months, the sector tracker is down a marginal 0.6%. Houston-based oil and gas producer Occidental Petroleum OXY was the major loser during this period, experiencing a 23.1% price plunge.

What’s Next in the Energy World?

As usual, 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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Antero Midstrm (AM) : Free Stock Analysis Report
 
Tullow Oil PLC (TUWOY) : Free Stock Analysis Report
 
Chevron Corporation (CVX) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
Enbridge Inc (ENB) : Free Stock Analysis Report
 
Antero Resources Corporation (AR) : Free Stock Analysis Report
 
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
 
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