Oil & Gas Stock Roundup: Devon Energy Unloads $1B In Assets, Schlumberger Buys Omron Unit

It was a week where oil prices fell from their multi-month highs but natural gas rocketed to levels not seen since early January.

On the news front, Devon Energy Corp. (NYSE:DVN) announced a non-core asset sale of $1 billion, while Schlumberger Ltd. (NYSE:SLB) acquired an automation technology company.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures fell 1.4% to close at $48.62 per barrel, natural gas prices jumped 10.5% to $2.398 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon Rejects Climate Change Proposals, Suncor Resumes Output Post Fire Shutdown.)

Oil snapped its three-week winning streak after a Baker Hughes report showed rise in the U.S. oil rig count for the first time in almost 3 months -- indicating a resurgence in shale drilling activities. Things were further hampered by a dismal May jobs data, underlining weak oil demand. The commodity was already under pressure from the uneventful OPEC summit that again failed to agree on a production freeze.

On the other hand, natural gas surged big time following a bullish inventory report and predictions of strong cooling demand with forecasts of warmer temperature across the country over the next few days.

Recap of the Week’s Most Important Stories

1. Independent energy producer Devon Energy Corp. has entered into agreements with undisclosed parties to sell upstream properties worth almost $1 billion.

The Oklahoma City-based oil and natural gas producer will offload non-core assets in East Texas for $525 million and Anadarko Basin’s Granite Wash area for $310 million. Additionally, Devon Energy will sell an overriding royalty interest in Northern Midland Basin for $139 million. Proceeds from the transactions – which are scheduled to close in the third quarter – will be used to further fortify the company’s investment-grade financial position.

Devon Energy and other companies have been hit hard by the two-year long oil price collapse forcing them to slash jobs, defer/cancel projects worth billions of dollars and renegotiate contracts with suppliers to help protect their balance sheets. In February, Devon Energy slashed its dividend by 75% and cut 2016 capital investment by similar proportions.

2. Oilfield services behemoth Schlumberger Ltd. announced the purchase of Omron Oilfield and Marine, Inc., in order to strengthen its control system capabilities for integrated well construction.

Houston, TX-based Omron Oilfield and Marine, Inc. is a subsidiary of Japanese company Omron Corp. The company designs, manufactures, sells as well as offers aftermarket services for automated drive and control systems, power houses, and drillers’ cabins. The company also provides software-based drilling technologies on a rental or subscription basis.

Schlumberger is set to benefit substantially from the transaction. The buyout should help the company enhance its expertise and global reach. The deal is also expected to open up new market opportunities for Schlumberger.

3. Energy equipment maker National Oilwell Varco Inc. (NYSE:NOV) has agreed to buy the completion tools operations of Trican Well Service. For the acquisition, National Oilwell will pay almost C$53.5 million that will include both cash and stock. The transaction is anticipated to close on or around Jun 30, 2016 but is awaiting approval from regulators.

The to-be-acquired completion tools business is engaged in designing a variety of innovative and patented downhole tools that are used for multi-stage fracturing and multi-zone completions. The equipments are sold in North American markets and also outside the continent. Most importantly, with this purchase, National Oilwell will significantly broaden the scope of its completion and production business and could offer better services to customers. (See More: National Oilwell to Buy Trican's Completion Tools Business.)

4. Offshore drilling giant Transocean Ltd. (NYSE:RIG) has outbid its competitors for an offshore development in India at a time when drillers are facing rig contract terminations. The contract primarily helped Transocean to surge almost 15% on the NYSE.

Transocean has entered into a 730-day contract with India’s Oil and Natural Gas Corporation Limited (‘ONGC’) for one semi-submersible rig that will likely be operating at a dayrate of $127,000. Though the dayrate being offered to Transocean is quite low but it’s still better than keeping the rig idle.

5. Hercules Offshore Inc. (NASDAQ:HERO) , along with some of its affiliates, has filed chapter 11 proceedings under the U.S. Bankruptcy Code for the District of Delaware after 99.7% of its first-lien lenders voted to endorse the prepackaged bankruptcy plan.

This is the second time that the Houston-based operator of drilling rigs and liftboats has filed for bankruptcy. Hercules Offshore emerged from bankruptcy protection just six months ago. The company had filed for Chapter 11 in Aug 2015, wherein it called upon bondholders to swap $1.2 billion in debt for control of the company.

Under the terms of the second bankruptcy plan, the company intends to shut down its business and sell all its assets to cover the payments to lenders. The remaining assets, if any, will be placed into a wind-down vehicle and would remain operational until sales are finalized.

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.

Over the course of last week, ‘The Energy Select Sector SPDR’ was down 0.43% on lingering supply concerns following the OPEC stalemate and the weak employment data. Consequently, investors witnessed selling in some large companies. The worst performer was U.S. energy major Chevron Corp. (NYSE:CVX) that lost 1.85% of its stock price.

Longer-term, over the last 6 months, the sector tracker is up 9.27%. The world’s largest publicly traded oil company Exxon Mobil Corp. (NYSE:XOM) was the main beneficiary during this period, experiencing a 16.33% price increase.

What’s Next in the Energy World?

As usual, market participants will be closely tracking the regular weekly releases i.e. the U.S. government data on oil and natural gas. Moreover, oil prices will again guide market proceedings to a significant extent.