It was a week where oil prices climbed sharply, while natural gas finished lower.
On the news front, oilfield service biggie Schlumberger SLB announced restructuring initiatives that will help it save roughly $1.5 billion in costs annually, while Bakken-focused E&P player Continental Resources CLR said that it will gradually restore its production on improving fundamentals.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures surged 9.6% to close at $39.75 per barrel, natural gas prices fell 3.6% for the week to finish at 1.669 per million Btu (MMBtu). In particular, the oil markets reversed their loss from the previous week when the commodity recorded a sharp decline.
Coming back to the week ended Jun 19, the crude benchmark recorded a big gain after a OPEC+ monitoring meeting confirmed stepped-up compliance with the historic production cut deal. Further, U.S. government data revealing a drop in crude production and fuel inventories helped to keep the price elevated. Oil prices were also supported by the continued decline in rig count, which currently sits at its lowest since 2009.
Meanwhile, natural gas ended lower on weak LNG demand and continued oversupply.
Recap of the Week’s Most Important Stories
1. Schlumberger is planning to bear about $1.4-billion charges related to the ongoing restructuring and associated job cuts, said its CEO Olivier Le Peuch. Notably, the one-time charge will be in the range of $1.2 billion to $1.4 billion. Per the restructuring initiative, the company will divide its 17 product lines into four units. The oilfield services behemoth will also restructure its global organization across five major oil basins.
Peuch believes that more layoffs and the restructuring program will help the company survive the coronavirus-induced downturn in the oilfield service business. With the pandemic hurting global energy demand and keeping oil in the bearish territory, explorers have little incentive to award contracts to oilfield service players for upstream operations.
On the brighter side, the restructuring will help Schlumberger save roughly $1.5 billion in costs every year, added Peuch. The company is reportedly looking to augment the use of automation and digital technologies in its field activities, highlighting its focus on lowering costs and boosting the bottom line. (Here's How Schlumberger Will Cut $1.5B in Costs Every Year)
2. Continental Resources recently announced that the company is planning to gradually restore curtailed production volumes. The Bakken-focused E&P player provided a detailed update on voluntary output curtailments as crude prices are improving.
Continental Resources previously announced plans of curtailing 70% production volumes in May. Curtailments are expected to continue in June as well. While it expects to bring some deferred output back online in July, 50% of its operated crude production will still likely be under the cap.
For June, total output is expected in the range of 150,000-160,000 barrels of oil equivalent per day (Boe/d). For the second quarter, production is estimated in the range of 200,000-205,000 Boe/d. In July, production will likely rise from June to 225,000-250,000 Boe/d due to recovery in crude prices. This will in turn boost the company’s profit levels. (Continental to Gradually Revive Output as Oil Price Improves)
3. ExxonMobil XOM has restored crude oil production offshore Guyana to the range of 80,000-90,000 barrels per day (bpd), after clearing up the technical glitch with the gas reinjection equipment. The director of Guyana's Environmental Protection Agency, Vincent Adams, confirmed about the production resumption at the site.
Problems associated with the gas reinjection equipment, which is used to avoid excessive gas flaring, reduced production at the site by 65% to 27,500 bpd last week from early-May levels. After addressing the problem, the energy major – carrying a Zacks Rank #3 (Hold) - is now flaring less amount of natural gas and reinjecting more, which is resulting in higher production volumes from the deepwater Stabroek block, offshore Guyana.
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Two of its three gas handling systems are currently working, which is enabling it to use 85% of gas production from the reservoir. Once the third system comes online, the company is expected to reach the 120,000-bpd oil production mark. (ExxonMobil Fixes Compressor, Restores Offshore Guyana Output)
4. The Williams Companies WMB recently signed a tieback agreement with LLOG Exploration Offshore LLC to deliver offshore natural gas, and oil gathering and production-handling services for the Taggart development at its Devils Tower spar. The company will also oversee onshore gas treatment and processing services at its Devils Tower platform, located 140 miles southeast of New Orleans in the Mississippi Canyon area of the Gulf of Mexico to aid the Taggart development.
This Oklahoma-based energy infrastructure provider is expected to collect crude and natural gas produced at Taggart through its Mountaineer and Canyon Chief pipeline systems. The natural gas output will be shipped to Williams’ Mobile Bay processing plant, and at the same time, natural gas liquids will be fractionated and marketed at the Baton Rouge Fractionator in Louisiana. Taggart development is likely to be completed in the first half of 2022. The reserves contained in Taggart are estimated to produce approximately 27 million barrels through an eight-year time span.
Williams’ Gulf of Mexico portfolio includes a 3,500-mile long natural gas and oil gathering and transmission pipeline with a cryogenic processing capacity worth 1.8 billion cubic feet per day (Bcf/d) and 60,000 barrels per day of fractionation capacity. It also owns two floating production platforms, multiple fixed leg utility platforms and various other related facilities. (Williams Inks Tieback Deal With LLOG for Taggart Development)
5. In its weekly release, Baker Hughes Company BKR reported another drop in the U.S. rig count. Rigs engaged in the exploration and production of oil and natural gas in the United States fell to an all-time low of 266 in the week through Jun 19, compared with the prior-week count of 279. The current national rig count is well below the prior year’s 967.
Investors should know that with the recent all-time low mark, the tally has touched record-low levels for seven successive weeks, thanks to dented global energy demand owing to the coronavirus pandemic.
Oil rig count was 189 in the week through Jun 19, compared with 199 in the week ended Jun 12. Since crude prices are in the bearish territory, explorers are cutting their capital budget considerably. This led the weekly tally of oil rigs to fall for 14 consecutive weeks. (US Oil & Gas Rig Tally at Record Low for 7 Straight Weeks)
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 -2.5% -33.6%
CVX -1.9% -23.9%
COP -0.1% -32.6%
OXY +6.5% -49.9%
SLB +3.7% -51.4%
RIG -5% -67.9%
VLO -1% -34.2%
MPC +4.3% -36.4%
The Energy Select Sector SPDR – a popular way to track energy companies – was little changed last week. But longer-term, over six months, the sector tracker is down 36.7%. Offshore driller Transocean Ltd. RIG was the major loser during this period, experiencing a 67.9% price plunge.
What’s Next in the Energy World?
As global oil consumption gradually ticks up, 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 statistics on oil and natural gas - one of the few solid indicators that comes out regularly - will be on the energy traders' radar. Data on rig count from energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, will also be closely followed.
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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
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