Yahoo Finance Oil & Gas Stock Roundup: Energy Companies Race to Consolidate
It was a week when oil prices moved up, but natural gas futures posted a loss.
The headlines revolved around Noble Corporation's NE acquisition of Diamond Offshore Drilling DO in the offshore drilling space and upstream operator Matador Resources’ MTDR deal to buy Permian Basin assets. Developments associated with NextDecade Corporation NEXT and Phillips 66 PSX also grabbed attention.
Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures rose around 3.9% to close at $78.45 per barrel, but natural gas prices fell 1.3% to end at $2.881 per million British thermal units (MMBtu).
The crude price action turned positive following three weeks of decline, primarily due to a bullish OPEC forecast regarding demand growth.
Meanwhile, natural gas settled with a loss following the U.S. Energy Department's inventory release that showed a higher-than-expected increase in supplies.
Recap of the Week’s Most Important Stories
1. Noble Corporation has signed a merger agreement to acquire a rival oilfield services provider, Diamond Offshore Drilling, in a cash and stock transaction valued at $1.59 billion. Following the acquisition, Noble — an offshore driller — is expected to operate a giant fleet of 41 rigs, including 28 floaters and 13 jack-ups. The combined backlog for Noble is likely to be worth $6.5 billion.
Upon the closure of the transaction, Diamond Offshore shareholders will receive 0.2316 shares of NE with a cash compensation of $5.65 per share of DO’s common stock. Diamond Offshore shareholders will own 14.5% of NE’s outstanding shares. Per the terms of the agreement, Noble’s board will expand to include one member from DO’s board of directors. To fund the cash portion of the deal, Noble has secured a $600 million committed bridge financing facility.
The acquisition should allow Noble to consolidate its existing fleet of 14 operational and 15 total dual BOP seventh-generation drillships, positioning the offshore driller as a leading provider of drillship services, boasting a top-tier fleet within the industry. (Noble to Acquire Diamond Offshore, Expand Drilling Fleet)
2. Matador Resources Company has unveiled a strategic acquisition aimed at expanding its footprint in the Delaware Basin. A wholly-owned subsidiary of the energy explorer has entered into a definitive agreement to acquire a subsidiary of Ameredev II Parent, LLC, encompassing oil and natural gas properties and undeveloped acreage in Lea County, NM, and Loving and Winkler Counties, TX. This acquisition will also include an approximate 19% stake in Pinon Midstream, LLC, with midstream assets in southern Lea County, NM. The transaction, valued at $1.905 billion in cash, is expected to close in late third-quarter 2024, with an effective date of Jun 1, 2024.
Matador's CEO, Joseph Wm. Foran, emphasized the strategic nature of this bolt-on acquisition, highlighting the high-quality reserves, strong production and significant cash flow potential of the Ameredev assets. Since a similar successful deal with EnCap Investments L.P. was made in April 2023, this imminent acquisition reinforces the Zacks Rank #1 (Strong Buy) company's strategy of measured, profitable growth.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Upon completion, Matador's pro forma holdings will exceed 190,000 net acres in the Delaware Basin, boosting production to more than 180,000 barrels of oil and natural gas equivalent (BOE) per day and increasing proved reserves to over 580 million BOE. According to the company, the deal is expected to generate forward one-year adjusted EBITDA of approximately $425-$475 million, offering a favorable purchase price multiple of 4.2 for the upstream assets. (Matador to Grow Delaware Basin Presence With $1.9B Deal)
3. U.S.-based LNG developer NextDecade and Saudi Aramco have inked a non-binding Heads of Agreement (HOA) for a 20-year sale and purchase deal. Per the terms of the HOA, Aramco will purchase 1.2 million tons per annum of LNG from Train 4 of NextDecade’s Rio Grande LNG project on a free-on-board basis. The price of the LNG is indexed to Henry Hub.
Both companies are actively engaged in negotiating a binding agreement. The deal is contingent upon NextDecade securing a final investment decision (FID) for Train 4 and proceeding with the project.
NEXT aims to secure an FID for Train 4 in the second half of 2024. The decision is contingent upon several conditions that include entering an engineering, procurement, and construction contract and obtaining the commercial support and sufficient financing needed for the construction of Train 4 and the associated infrastructure. (NextDecade and Saudi Aramco Sign 20-Year LNG Agreement)
4. Phillips 66, a leading integrated energy company, has announced the sale of its 25% non-operated equity interest in Rockies Express Pipeline to a subsidiary of Tallgrass Energy, LP. Tallgrass is the operator of the Rockies Express Pipeline and owns its remaining 75% stake. The deal, valued at $1.28 billion, is part of PSX’s commitment to deliver a value of more than $3 billion from asset divestitures.
The Rockies Express Pipeline is one of the largest natural gas pipelines in the United States, spanning 1,714 miles. It transports approximately 5 billion cubic feet per day (Bcf/d) of natural gas bi-directionally between the Rockies, Appalachia and the Northeast United States.
The sale of PSX’s 25% stake in the Rockies Express Pipeline provides the company with pre-tax proceeds totaling $685 million. This figure includes adjustments related to the allocation of the associated debt and preferred equity balances. The company has mentioned that it will use proceeds from the sale to support its priorities like increasing shareholder returns. (Phillips 66 Divests Rockies Express Pipeline Stake).
Price Performance
The following table shows the price movement of some major oil and gas players over the past week and during the last six months.
Company Last Week Last 6 Months
XOM -3.2% +7.6%
CVX -2.2% +2.4%
COP -2.3% -4.8%
OXY +1% +3.9%
SLB -3.5% -16.1%
RIG -4.3% -16.2%
VLO -2.8% +12.2%
MPC -2.9% +12.2%
Stocks had a mostly bearish week, indicative of the uncertain trading in oil and gas. The Energy Select Sector SPDR — a popular way to track energy companies — fell 2.2% last week. But over the past six months, the sector tracker has increased 4%.
What’s Next in the Energy World?
As usual, market participants will closely track the regular releases to look for guidance on the direction of the commodities. In this context, the U.S. government’s statistics on oil and natural gas — one of the few solid indicators that come out regularly — will be on energy traders' radar. As a matter of fact, fuel demand and the rate of stock drawdowns in the coming weeks will determine the trend in commodity prices. Data on rig count from the oilfield service firm Baker Hughes, which is a pointer to the trends in U.S. crude/natural gas production, is closely followed, too.
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Diamond Offshore Drilling, Inc. (DO) : Free Stock Analysis Report
Noble Corporation PLC (NE) : Free Stock Analysis Report
Phillips 66 (PSX) : Free Stock Analysis Report
Matador Resources Company (MTDR) : Free Stock Analysis Report
NextDecade Corporation (NEXT) : Free Stock Analysis Report
