It was a week when oil prices moved up while natural gas futures registered a third decrease on the trot.
On the news front, American energy behemoth
ExxonMobil
XOM
issued an update on its upcoming Q2 earnings, while upstream operator
Earthstone Energy
ESTE
agreed to buy oil and gas assets in New Mexico for $627 million. Developments associated with
Imperial Oil
IMO
,
Equinor
EQNR
and
Cheniere Energy
LNG
also made it to the headlines.
Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures edged up 0.8% to close at $108.43 per barrel but natural gas prices lost around 8.8% to end at $5.73 per million British thermal units (MMBtu). In particular, the oil market reversed its course after falling for
two weeks
in a row.
Coming back to the week ended Jul 1, the oil price action returned to the positive zone after lingering supply worries offset concerns about slowing economic growth (and by extension, crude demand).
Meanwhile, natural gas finished down following a larger-than-anticipated increase in supplies and the possibility of protracted downtime associated with the fire breakout at the Freeport LNG export plant in Texas.
Recap of the Week’s Most-Important Stories
1.
ExxonMobil
indicated that the escalating margins in fuel and crude sales could contribute record profits to its first-quarter 2022 earnings. The integrated energy giant expects its upstream business to generate a maximum of $3.3 billion in additional earnings in the second quarter sequentially. ExxonMobil expects operating profits from oil and gas operations of up to $11 billion, the highest for any quarter since 2017.
The company expects high oil and gas prices to boost the earnings of its production business. It expects second-quarter operating results of the oil and liquid businesses to reflect an improvement of $1-$1.4 billion from that reported in the March-end quarter of 2022. The improvement in natural gas prices is likely to have contributed $1.5-$1.9 billion to the upstream business’ profits.
ExxonMobil stated that the rising refining margins could result in $4.4-$4.6 billion of sequential improvement in earnings in the quarter. Moreover, the value of unsettled derivatives may have contributed an additional $700-$900 million. The margins in the company’s chemical and specialty product units are expected to have remained flat in the second quarter compared with the first quarter. (
ExxonMobil Projects $11B Upstream Earnings for Q2
)
2.
Earthstone Energy
, a hydrocarbons producer targeting the Midland Basin of west Texas and the Eagle Ford trend of south Texas, announced an accord to purchase the New Mexico assets of Titus Oil & Gas Production. The low-cost high-margin assets are situated in the prolific northern Delaware Basin.
The acquisition price is approximately $627 million. Earthstone Energy said that for acquiring the assets, it would employ cash of $575 million along with its 3.9 million shares Class A common stock. It expects the deal to close in the third quarter of 2022.
The assets to be purchased by ESTE are spread across 7,900 net acres in the core of Delaware Basin – a sub-basin of broader Permian, the most prolific basin in the United States – in Lea and Eddy Counties, NM. The to-be-acquired properties had average net production of roughly 31,800 barrels of oil equivalent per day (BoE/d) in June from 37 net operated wells. (
Earthstone to Acquire $627M Northern Delaware Asset
)
3
Imperial Oil
, together with ExxonMobil, recently announced the plan to sell XTO Energy Canada, which is jointly owned by the two companies, for a cash consideration worth C$1.9 billion to the Canadian public oil company – Whitecap Resources.
Per Imperial, C$940 million is its share of the proceeds from the sale. The sale marks an end to the marketing effort declared in January 2022 and is aligned with the Canadian integrated oil company’s model to focus upstream resources on crucial oil sands assets and the firm’s commitment to providing long-term value for stakeholders.
Both IMO and XOM are equal partners in XTO Energy, with assets comprising 567,000 net acres in the Montney shale, 72,000 net acres in the Duvernay shale and further acreage in other regions of the Canadian province of Alberta. Moreover, the net output from these assets is roughly 140 million cubic feet of natural gas per day and approximately 9,000 barrels of crude, condensate and natural gas liquids per day. (
Imperial, XOM to Sell Canadian Shale Assets for C$1.9B
)
4 Stavanger, Norway-headquartered integrated major
Equinor
announced its decision to divest 51% of its stake in the North Platte deep water development to European peer Shell plc. In the project, located in the U.S. Gulf of Mexico, Equinor will retain a 49% stake, while the new operator of the development will be Shell.
It has been agreed by both Equinor and Shell that the development will be renamed Sparta. The Sparta project is situated in four blocks of the Garden Banks area, which is located 171 miles offshore Louisiana at a water depth of roughly 1,300 meters.
As the front-end engineering and design (FEED) work for the project has matured, Equinor and Shell will review the developments made so far and will update the program. (
Equinor to Divest a 51% Stake in North Platte Project
)
5. Natural gas exporter and a Zacks Rank #1 (Strong Buy) stock,
Cheniere Energy
recently announced that it has entered into a long-term liquefied natural gas (“LNG”) sale and purchase agreement with supermajor Chevron via two of its subsidiaries – Sabine Pass Liquefaction, LLC and Cheniere Marketing, LLC.
You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Per the contract, CVX will purchase approximately 2.0 million tons per annum (mtpa) of LNG from Houston, TX-based Cheniere, subject to certain conditions. Per the first agreement, Chevron will buy about 1.0 mtpa of LNG from Sabine Pass Liquefaction on a free-on-board basis. Further, the supply will commence in 2026 and reach the complete 1.0 mtpa target in 2027 and carry on until mid-2042.
As part of the second sale and purchase agreement, the oil major agreed to purchase roughly 1.0 mtpa of LNG from Cheniere Marketing on a free-on-hold basis, with deliveries starting in 2027 and continuing for another 15 years. (
Cheniere & Chevron Pen LNG Sale and Purchase Contract
)
Price Performance
The following table shows the price movement of some major oil and gas players over the past week and during the last six months.
Company Last Week Last 6 Months
XOM +0.7% +27.1%
CVX +1.2% +16.7%
COP +0.9% +11.9%
OXY +5.1% +85.8%
SLB +1.7% +0.2%
RIG -4.6% +0.6%
VLO +3.9% +32.5%
MPC -1.4% +19.8%
With oil being in green for the week, most stocks were up too. In fact, the Energy Select Sector SPDR — a popular way to track energy companies — rose 1.4% last week. Over the past six months, the sector tracker has increased 15.2%.
What’s Next in the Energy World?
Following last week’s mixed fortunes for oil and gas, market participants will closely track the regular releases to look for further guidance on the direction of prices. In this context, the U.S. government’s statistics on oil and natural gas — one of the few solid indicators that come out regularly — will be on energy traders’ radar.
Data on rig count from the oilfield service firm Baker Hughes, which is a pointer to the trends in U.S. crude/natural gas production, is closely followed too. News related to the ongoing Russia-Ukraine geopolitical conflict and the potential demand loss from fresh coronavirus curbs in China will be the other factors that will dictate the near-term price movement of the commodities.
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