It was a week where oil prices suffered their first loss in a month though natural gas rallied on encouraging weather forecasts. On the news front, Chevron (NYSE:CVX) has decided to pull out of its shale gas operations in Romania, while Spain's Repsol (MADRID:REP) got shareholder approval from Canada’s Talisman Energy (TO:TLM)- to buy the latter for $13 billion.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures were down 4.6% to close at $50.34 per barrel, Natural Gas prices jumped around 5.2% to $2.95 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Transocean Slashes Dividend, Announces CEO Exit.)
Oil prices fell for the first time in 4 weeks, spooked by the U.S. Energy Department's latest inventory release. The federal government’s EIA report revealed that crude stockpiles recorded another massive build, the sixth in a row. At 425.64 million barrels, current crude supplies are up 17.5% from the year-ago period and is at the highest level during this time of the year in at least 80 years. Investors were further discouraged by the Baker Hughes (NYSE:BHI) report that showed a relatively modest drop in oil-directed rigs, indicating a brake in the rapidly declining shale drilling activities.
Meanwhile, natural gas fared much better on expectations of cranked up heating demand with forecasts of frigid weather across the key U.S. markets during the next few days.
Recap of the Week’s Most Important Stories
1. San Ramon, CA-based energy giant Chevron Corp (NYSE:CVX). said that it is getting out of the shale gas business in Romania, citing poor exploration economics and environmental issues. As part of the exit decision, the American behemoth has also relinquished its three other concessions in Romania.
With this, Chevron has ended its European shale gas quest and will instead turn its focus to home soil. The company has already halted its shale gas exploration project in Poland following the abandonment of agreements in Lithuania and Ukraine.
2. Spanish oil producer Repsol S.A. has received approval from the shareholders of struggling Canadian energy explorer Talisman Energy Inc. to acquire the latter for about $13 billion. More than 99% of Talisman shareholders voted in favor of the transaction, which had already been approved by the boards of both the companies.
The transaction – agreed on late last year and likely to be completed in the second quarter – will result in a combined entity with production capacity of 680 thousand barrels of oil equivalent per day (MBOE/D) and refining capacity of 1 MBOE/D. The merger will create a global E&P company, which would be better positioned to fully exploit Talisman’s large, undeveloped resource base.
3. Independent energy explorer EOG Resources Inc (NYSE:EOG) fell prey to lower oil prices and reported weak fourth-quarter 2014 earnings, notwithstanding improving production from its U.S. onshore assets. In the quarter, EOG’s total volume rose 14.7% from the year-earlier level to 56.1 million barrels of oil equivalent, primarily driven by significant contribution from the company’s South Texas Eagle Ford, along with North Dakota Bakken and Delaware Basin.
Looking to stem the rot from plunging oil prices, EOG has pegged its 2015 capital budget at $4.9–$5.1 billion, down 40% from last year’s level. Further, the company plans to restrict its expenses to the highest return assets: the Eagle Ford, Delaware Basin and Bakken plays. (See More: EOG Resources' Q4 Earnings Miss Estimates, Revenues Beat.)
4. North American energy firm Williams Companies (NYSE:WMB) reported weak fourth-quarter 2014 adjusted earnings from continuing operations. A significant increase in operating and maintenance cost along with a weak performance by the company’s largest income generating business segment − Williams Partners – hampered the results.
Moreover, Williams Companies lowered its 2015 cash dividend guidance to $2.38 per share from the prior projection of $2.46. For 2015 through 2017, the company revised its dividend hike expectation down from 15% to 10%−15%. The assumption of weak oil and gas prices has weighed on management’s dividend growth guidance. (See More: Williams Misses Q4 Earnings, Guides Dividend Down.)
5. Marathon Oil Corp (NYSE:MRO) – a leading oil and natural gas exploration and production (E&P) firm – reported weak fourth-quarter 2014 earnings. Considerably low crude oil realizations and condensate prices along with higher exploration expenses hurt the results.
Marathon Oil projects capital spending of $3,521 million in 2015, a 20% reduction from the earlier guidance. The company further added that nearly 70% of the capex will be directed toward its three core U.S. resource plays. (See More: Marathon Oil Reports Q4 Loss on Low Prices, Cuts '15 Capex.)
Price Performance
The following table shows the price movement of the major oil and gas players over the past week and during the last 6 months.
Refiner Tesoro Corp (NYSE:TSO) was the week's best performer among the market heavyweights, adding 11.9% to its stock price. The widening spread between the U.S. and the global crude benchmarks is good news for domestic downstream players like Tesoro as it will improve their margins. On the other hand, the biggest loser was offshore driller Transocean Ltd (NYSE:RIG)., which fell 14.1% during the period after its latest fleet report showed two more idled rigs.
Over the last 6 months, Tesoro was again the chief beneficiary on the bourses with its shares advancing 41.2%. Investors have rewarded the company for its continued focus on shareholder returns. Similarly, Transocean was the laggard, as it witnessed a 56.6% price decline over the same time frame on the back of rig oversupply that has led the industry into a cyclical downturn.
What’s Next in the Energy World?
Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking a series of crucial economic reports, including those on housing, consumer confidence, durable orders and inflation with the crucial GDP report rounding off the list.