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Oil & Gas Stock Roundup Headlined by Enbridge, Magellan & Occidental's Divestments

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·7-min read
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It was a week when both oil and natural stretched their streak of gains.

On the news front, midstream operators Enbridge ENB, Plains All American Pipeline PAA, Magellan Midstream Partners MMP and upstream firm Occidental Petroleum OXY announced acquisition deals. Meanwhile, U.S. energy major ExxonMobil XOM made an oil discovery offshore Guyana.

Overall, it was another good week for the sector. West Texas Intermediate (WTI) crude futures gained 1.9% to close at $70.91 per barrel and natural gas prices moved up 6.4% in the week to end at around $3.30 per million British thermal units (MMBtu). Both commodities managed to maintain their forward momentum from the previous two weeks.

Coming back to the week ended Jun 11, oil prices marked their highest settlement since October 2018 after U.S. government data showed a third successive weekly draw in crude. Prices have also been driven up by hopes of a faster demand recovery and the OPEC+ coalition’s gradual loosening of the output cuts, reflecting their confidence in the fuel’s usage.

Natural gas finished up too on the prospect of more weather-related consumption and a supply bottleneck due to logistical constraints in an Appalachia pipeline.

Recap of the Week’s Most-Important Stories

1.  Enbridge recently agreed to divest its non-operating minority stake in Noverco Inc. through a subsidiary to Trencap L.P. The divestment is expected to bring a whopping C$1.14 billion (around $943 million) in cash for Enbridge. Importantly, the transaction amount denotes a 29X valuation of GAAP earnings of $39 million in 2020.

The Calgary, Canada-based Zacks Rank #2 (Buy) company owns a 38.9% interest in Noverco, which is part of the gas and power distribution business, while the remaining is held by Trencap. The deal is expected to be closed in the beginning of next year, following which Trencap will be the sole owner of Noverco, which primarily operates in Quebec and Vermont.

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

Enbridge intends to use the cash proceeds from the sale to repay short-term debt. At the end of first-quarter 2021, the company reported a long-term debt of C$62,688 million, and cash and cash equivalents of only C$465 million. The current portion of long-term debt was C$4,014 million. (Enbridge to Divest Noverco Stake for C$1.14 Billion)

2.   Plains All American Pipeline announced that it has entered into a definite agreement to sell Pine Prairie and Southern Pines natural gas storage facilities for $850 million to a unit of Hartree Partners, LP.  

The assets included in the transaction consist of nearly 70 billion cubic feet of total working gas capacity across nine caverns along with associated base gas, header pipelines and compression facilities. Subject to necessary approvals, the acquisition is expected to close in third-quarter 2021.

This deal is in sync with the firm’s 2021 plan and deleveraging program. Closure of these natural gas facilities will allow it to exceed its 2021 asset sales target of $750 million. The proceeds from the sale of non-core assets were utilized by the firm to fund investment capital projects and buybacks as well as reduce debt levels. (Plains All American to Sell Gas Storage Assets for $850M)

3.  Occidental Petroleum announced that it has entered into a definitive agreement to sell non-core assets in the Permian Basin to a unit of Colgate Energy Partners III, LLC for $508 million.

The deal is expected to close in third-quarter 2021, subject to necessary approvals. Occidental intends to utilize the net proceeds to further lower outstanding debt and reduce capital servicing costs.

This deal will include 25,000 net acres in the Southern Delaware Basin in Texas, with production of nearly 10,000 barrels of oil equivalent per day from 360 active wells. However, this deal is not going to alter the total production level and its capital expenditure guidance for 2021. Occidental expects to invest $2.9 billion in 2021 and total production to be 1,140 thousand barrels of oil equivalent per day (Mboe/d). (Occidental to Divest Assets Worth $508M, Reduce Debt)

4.  Magellan Midstream Partners recently inked a deal to offload its independent terminals network, which includes 26 refined petroleum product terminals with a total storage capacity of nearly six million barrels, predominantly in the southeastern part of the United States. This Tulsa, OK-based firm will divest the network for $435 million to petroleum distributor company Buckeye Partners, L.P., which is headquartered in Houston.

Magellan Midstream CEO Michael Mears believes that the sale of the firm's independent terminals illustrates its continuous commitment toward maximizing the unitholder value by leveraging all available alternatives including asset portfolio optimization.

On behalf of Magellan Midstream, management expressed gratitude to all its dedicated personnel who have worked at these sites over the years for their earnest services and efforts. The transaction is subject to satisfactory closing conditions. The partnership plans to use the sale proceeds for its capital-allocation priorities. (Magellan to Divest Its Independent Terminals for $435M)

5.  ExxonMobil recently announced another significant hydrocarbon discovery at the Longtail-3 well, offshore Guyana. In the first quarter of this year, the company added two drillships in offshore Guyana looking for hydrocarbons, taking the total to six at present.

The Longtail-3 well is located in the famous Stabroek Block, wherein it has made numerous world-class oil discoveries so far. The new find adds to the previous estimate of gross recoverable resource of 9 billion barrels of oil equivalent. ExxonMobil discovered 230 feet of net oil pay at Longtail-3, which comprises high-quality hydrocarbon-bearing reservoirs.

ExxonMobil, with a 45% interest, is the operator of the Stabroek Block that covers 6.6 million acres. Partner Hess Corporation (HES Quick QuoteHES - Research Report) owns a 30% interest in the block. The remaining 25% stake is held by a wholly owned subsidiary of CNOOC Limited. (ExxonMobil Finds More Oil in Stabroek Offshore Guyana)

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 six months.

Company    Last Week    Last 6 Months

XOM                 +1.2%              +47.4%
CVX                  -0.5%               +24.1%
COP                 +0.2%              +45.7%
OXY                  -2.7%               +59.2%
SLB                  -4.2%               +48.5%
RIG                  -8.1%                +63%
VLO                 -2.3%                +44.6%
MPC                -0.8%                +55.9%

The Energy Select Sector SPDR — a popular way to track energy companies — edged down 0.7% last week. The worst performer was offshore driller Transocean Ltd. RIG whose stock fell 8.1%.

However, over the past six months, the sector tracker has surged 39.5%. On the other end of the spectrum this time, Transocean was a major gainer during the period, experiencing a 63% price appreciation.

What’s Next in the Energy World?

As global oil consumption outlook strengthens amid the OPEC+ led calibrated supply cuts and successful vaccine deployments, market participants will be closely tracking the regular releases to watch for signs that could further validate a rebound. 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. Data on rig count from the energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed too. News related to coronavirus vaccine approval/rollout/distribution will be of utmost importance.

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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
Plains All American Pipeline, L.P. (PAA) : Free Stock Analysis Report
 
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
 
Magellan Midstream Partners, L.P. (MMP) : Free Stock Analysis Report
 
Enbridge Inc (ENB) : Free Stock Analysis Report
 
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