It was a week where both oil and gas prices tallied big losses.
On the news front, offshore driller Valaris plc VAL announced the addition of $285 million in contract backlog. Meanwhile, shares of Kosmos Energy KOS dived after the oil explorer came up with disappointing well results.
Overall, it was a pretty bad week for the sector. West Texas Intermediate (WTI) crude futures suffered a loss of 4.1% to close at $55.17 per barrel, while natural gas prices slumped 15.8% for the week to finish at 2.2810 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: ConocoPhillips' 10-Year Plan, HollyFrontier's Dividend Boost)
The U.S. crude benchmark finished sharply lower last week amid speculation that OPEC and its allies are deeply divided over Saudi Arabia’s push for deeper production cuts beyond the current 1.2 million barrels per day. Ahead of a gathering in Vienna, it appears that most OPEC+ coalition partners are reluctant to lose additional market share.
Meanwhile, natural gas prices plunged following a substantially smaller-than-expected decrease in supplies. Expectations of milder temperatures over the next few days that could hamper power sector demand for the heating fuel amid overwhelming production, also weighed on the commodity.
Recap of the Week’s Most Important Stories
1. Valaris, formerly EnscoRowan, recently released its fleet status report comprising a number of developments. The company clinched new contracts and extensions of the existing deals for its drilling rigs leading to $285 million addition to its associated backlog. The new backlog estimate as of November-end exceeds $2.6 billion.
The Valaris JU-292 contract extension is attributable to the exercise of a six-well priced option with ConocoPhillips in the Norwegian Sea. The expansion is valid for a period of 300 days starting May 2020 through late February 2021. The contract’s dayrate is projected to be $185,000.
Built in 1982, the Valaris JU-87 jack-up rig secured a 21-well pact in the Gulf of Mexico. The receipt of this 295-day deal from ExxonMobil will be effective this month. Per the source, the dayrate is estimated at $50,000. (Read more Valaris' New Fleet Status Reports $285M Addition to Backlog)
2. Kosmos Energy recently announced completing drilling the Resolution exploration well in the U.S. Gulf of Mexico. The drilling activity of the Resolution well, jointly owned by Kosmos and BP plc. BP, unearthed reservoir quality sands. However, the primary exploration work led to a well holding water.
Resolution well was designed to examine an amplitude-supported sub-salt prospect in the underexplored western Garden Banks area. It is situated at nearly 1,968 feet under water and was drilled to a total depth of about 25,262 feet.
While the well will now be plugged and abandoned, Kosmos anticipates that drilling of the Resolution prospect will cost the company around $55 million in the fourth quarter. News of this unsuccessful drilling of the Resolution well induced its share price depreciation by 6.5%, thereby dampening investor confidence. (Read more Kosmos' Resolution Well Drilling Fails, Oldfield in Focus)
3. Valero Energy Corporation VLO recently entered into long-term accords to utilize three new refined product terminals in Mexico. The leading refining player – with a Zacks Rank #3 (Hold) – will be able to expand its product supply chain once the Guadalajara, Monterrey and Altamira terminals commence operations in 2021.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For the Guadalajara and Monterrey terminals, the company signed separate joint venture agreements. Precisely, Valero inked agreements with Grupo México and Silos-Tysa for the Guadalajara terminal — with expected storage capacity of 900,000 barrels. For the Monterrey terminal — likely to have a storage capacity of 425,000 barrels — the accord has been signed with Grupo México.
Investors should know that as part of the deals, Valero will not be funding the construction of the Guadalajara and Monterrey terminals. The terminals will be receiving refined products through trains and trucks, after which Valero will distribute the volumes to local and regional markets. (Read more Valero Inks Deals for New Refined Product Terminals in Mexico)
4. Ecopetrol S.A. EC recently agreed to acquire Chevron’s CVX stake in Chuchupa and Ballena fields located in La Guajira through its subsidiary, Hocol. These are two major gas fields in the Caribbean.
Ecopetrol currently owns a 57% interest in the fields. Hocol will receive Chevron’s 43% stake in the gas fields and is expected to become the operator. Notably, daily net natural gas output in 2018 was recorded at 82 million cubic feet. While the Chuchupa Field is 7 miles off the northern coast of Colombia, the Ballena Field is partially onshore.
The financial details of the deal, which awaits green signal from the Superintendence of Industry and Commerce of Colombia, are yet to be disclosed. (Read more Ecopetrol Acquires Chevron's Stake in Colombian Gas Fields)
5. Of late, Petrobras PBR entered into an agreement with PetroRio Jaguar Petróleo Ltda wherein the former will sell its 30% stake in Frade concession to the latter. The divestment also included the sale of the complete interest owned by Petrobras Frade Inversiones SA (PFISA), a unit of Petrobras, in the company Frade BV, which operates the offshore assets used in developing the Frade field production.
Proceeds from the sale will be received in part payments. Initially, a tranche of $7.5 million will be earned upon inking the deal. The remaining $92.5 million will be obtained on culminating the transaction, contingent upon certain adjustments due. Further, an amount of $20 million will be secured provided a prospective discovery is made in the field.
Petrobras is committed to investing in deepwater and ultra-deepwater assets, especially pre-salt, which is expected to generate highest pecuniary return. With the Frade field’s divestiture, the company will be able to concentrate more on its portfolio.(Read more Petrobras to Divest 30% Stake in Frade Field to PetroRio)
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.
Last 6 Months
The Energy Select Sector SPDR – a popular way to track energy companies – was down 1.6% last week. The worst performer was downstream operator Marathon Petroleum MPC whose stock lost 2.8%.
Longer-term, over six months, the sector tracker lost 1.1%. Offshore driller Transocean Ltd. RIG was the major loser during this period, experiencing a 21.9% 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, while outcome from the OPEC meeting in Vienna on Thursday and Friday will be of major interest.
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Kosmos Energy Ltd. (KOS) : Free Stock Analysis Report
Petroleo Brasileiro S.A.- Petrobras (PBR) : Free Stock Analysis Report
Valero Energy Corporation (VLO) : Free Stock Analysis Report
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
Ecopetrol S.A. (EC) : Free Stock Analysis Report
Chevron Corporation (CVX) : Free Stock Analysis Report
BP p.l.c. (BP) : Free Stock Analysis Report
Transocean Ltd. (RIG) : Free Stock Analysis Report
Ensco plc (VAL) : Free Stock Analysis Report
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