Oil & Gas Stock Roundup: BP, Chevron Starts Production From Megaprojects

It was a week where oil prices sank to its lowest finish since October 2017, while natural gas futures hit more than four-year highs.

On the news front, integrated energy biggies BP plc (LON:BP) (NYSE:BP) and Chevron Corp. (NYSE:CVX) started up production at their Clair Ridge and Big Foot developments, respectively.

Overall, it was another mixed week for the sector. While West Texas Intermediate (WTI) crude futures lost 10.6% to close at $50.42 per barrel, natural gas prices edged up some 0.8% to $4.308 per million Btu (MMBtu).

The U.S. crude benchmark tumbled to its lowest settlement in more than a year, reflecting rising supply from major producers (Russia, Saudi Arabia and the United States) and fear that an economic slowdown will dampen the outlook for demand. Data showing domestic crude inventories increasing for a ninth straight week also contributed to the losses.

Meanwhile, natural gas prices reached their highest point since February 2014 as inventories remain significantly below their five-year average amid predictions of strong demand with the early onset of cold weather.

Recap of the Week’s Most Important Stories

1. BP plc commenced production at the Clair Ridge oil field in the U.K. North Sea. The field is considered as one of the country's biggest new oil developments in decades. The company anticipates production to peak at 120,000 barrels of oil per day.

Located 75 kilometers (47 miles) west of Shetlands, the Clair Ridge project represents the second phase of the Clair field. The first phase commenced production in 2005, while the third phase is under evaluation. Discovered in 1977, Clair is expected to produce for the next four decades. The project is estimated to hold recoverable volumes of 640 million barrels of oil.

The other partners in the field include Royal Dutch Shell (LON:RDSa) plc, Chevron and ConocoPhillips (NYSE:COP). The partners spent seven years and more than $5.8 billion to enhance the field’s output. In 2018, Clair Ridge is BP’s sixth major start-up subsequent to seven in 2017. These new projects are anticipated to boost the company’s production by 900,000 barrels of oil equivalent (boe) per day by 2021. (Read more BP's Clair Ridge Commences Production After Four Decades)

2. Chevron recently declared the commencement of production from its Big Foot deepwater project in the U.S. Gulf of Mexico (GoM). The field — first brought to light in 2006 — is expected to hold more than 200 million oil-equivalent barrels of recoverable resources. The production site, at a water depth of around 1,584 meters, is located 360 kilometers south of New Orleans. The Big Foot field has an estimated production life of 35 years.

The field has a production capacity of 25 million cubic feet of natural gas and 75,000 barrels of oil per day. Production from the site began on time, as expected by the company. This will likely enable Chevron to achieve its 2018 production growth target of 7%. The $4-billion deepwater project was sanctioned during 2010-end.

While Chevron, the operator, has 60% stake in the project, a subsidiary of Equinor ASA has 27.5% and Marubeni Oil & Gas holds 12.5%. (Read more Chevron Commences Production From Big Foot in GoM)

3. Differences in opinion between the Timor-Leste Government and Australia, regarding the development of Greater Sunrise project, have resulted in another leading company to exit the project. Recently, Royal Dutch Shell plc RDS.A inked a deal to divest its 26.56% interest in the Greater Sunrise natural gas fields, off the northern coast of Australia. The move will help the company upgrade and streamline its portfolio.

Notably, the Greater Sunrise LNG project — which is located about 150 kilometers south east of Timor-Leste and 450 kilometers north west of Darwin, Australia — had been shelved since long, owing to disputes between Australia and East Timor. Importantly, Woodside Petroleum is the operator of the project holding 33.4% share, while ConocoPhillips, Shell and Osaka gas possess 30%, 26.56% and 10%, respectively.

While the project partners had intended to have the gas back-piped to the Darwin facility for processing in Australia, the Timor-Lester government was determined to process the gas in its territory. Timor-Leste is keener for an onshore gas processing plant. rather than a floating plant and the project partners are not finding the option very viable. (Read more Shell to Sell Stakes in Greater Sunrise Project for $300M)

4. Eni SpA (NYSE:E) and Algerian state company Sonatrach have installed a 10-megawatt (MW) solar plant in Bir Rebaa North (BRN) in Algeria. Jointly managed by Eni and Sonatrach through the Groupement Sonatrach-Agip (GSA), the plant will supply green energy to the oil field. This will enable decarbonization of the Algerian energy system.

To further boost their partnership in the renewable energy sector, Eni – carrying a Zacks Rank #1 (Strong Buy) – and Sonatrach have inked an agreement to construct an advanced research and development laboratory at the BRN site. The facility will assess solar and hybrid technologies in a desert environment.

To enhance their scope of co-operation, the companies inked an agreement to create a new joint venture, which will be devoted to Algeria’s renewable energy sector. The partnership intends to install and operate solar power production units at the companies’ production sites as well as in other locations in Algeria.

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

Eni’s presence in Algeria dates back to 1981.Currently, it operates 32 mining permits in the country, with an equity production of 90,000 barrels of oil equivalent per day. This makes the company one of the country’s main international player. (Read more Eni, Sonatrach Install Solar Plant at BRN Site in Algeria)

5. TransMontaigne Partners L.P. (NYSE:TLP) recently entered into a merger agreement with ArcLight Energy Partners Fund VI, L.P.’s indirect subsidiary, TLP Finance Holdings, LLC. The deal is expected to enable TLP Finance to acquire all the outstanding units of TransMontaigne, which are not already owned by TLP Acquisition Holdings, LLC, for $41 per common unit. The aggregate value of the transaction is estimated at $536 million.

Notably, a similar offer of $38 per common outstanding units of TransMontaigne was made in July. Based on the stock price of $36.40 on Nov 23, the offered price translates into a 12.6% premium.

Per the deal, the unitholders of TransMontaigne will be receiving 80.5 cents of quarterly distribution per unit, until the deal closes. The transaction, which awaits some necessary approvals, is expected to close in first-quarter 2019. Headquartered in Denver, CO, the midstream firm’s common units will stop being publicly traded, upon transaction closure.

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 6 months.

Reflecting the week’s negative oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a -4.9% return last week. The worst performer was offshore drilling giant Transocean Ltd. (NYSE:RIG) whose stock slumped 7.4%.

Longer-term, over six months, the sector tracker is down 12.8%. Oil refiner and marketer Valero Energy Corp. (NYSE:VLO) was the major loser during this period, experiencing a 34.1% price decline.

What’s Next in the Energy World?

In this week, 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 weekend’s G-20 summit in Argentina – where talks between the United States and China on the ongoing trade war are expected – will be of some interest.

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