Oil & Gas Stock Roundup: Exxon Strikes in Argentina, Shell Divests Norway Downstream Units - Analyst Blog

It was another week where crude prices witnessed a drop, falling to a new 5½ year low on oversupply fears. Apart from that, the top stories came from Exxon Mobil Corp.'s (XOM) new shale oil/gas discovery in southwestern Argentina and Royal Dutch Shell plc's (RDS.A) sale of parts of its Norwegian operations. 

Overall, it was a bearish week for the sector. West Texas Intermediate (WTI) crude futures fell 2.2% to close at $56.52 per barrel, while natural gas prices slumped almost 9% to $3.46 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup' here: Repsol to Buy Talisman in $13B Deal Amid Oil Tumble.)

Oil prices continued the slide and fell to their lowest level since May 2009. The commodity has been hammered since last month's decision by the OPEC oil cartel to maintain daily crude production level at the preset 30 million barrels, defying expectations of an output cut in response to the current supply glut.

Investors were further spooked by Saudi Arabia's price cut for buyers in U.S. and Asia, plus a reduction in global crude demand growth by major energy consultative bodies. Moreover, a stronger dollar has made the greenback-priced crude dearer for investors holding foreign currency.

Natural gas also fared badly, weighed down by expectations of modest heating demand across the Central and Eastern U.S. with forecasts of less icy temperatures.

Recap of the Week's Most Important Stories

1.    Exxon Mobil Corp.'s share price rose nearly 3% following its announcement of having successfully drilled its second oil and gas well in the Vaca Muerta shale deposit in Argentina this year.

Located in Neuquen province, atop Vaca Muerta, one of the world's largest shale resources, its Invernada X-3 well is about 20 kilometers from the first drill site where non-conventional deposits were found. The well produced a flow rate of 448 barrels of oil per day and 1 million cubic feet of gas per day in the first test. Exxon Mobil, the operator of the La Invernada and Bajo del Choique blocks, holds 85% ownership. (See More: Exxon Mobil Up on Drilling 2nd Argentine Well in Vaca Muerta.)

2.    Europe's largest oil company Royal Dutch Shell plc has entered into a deal with ST1 – an energy firm in Finland.

Per the deal, Shell will divest its Norway-based downstream businesses – which includes retail, commercial fuels, and supply and distribution logistics operations − for an undisclosed amount. The company added that it will share a 50:50 operation for its aviation business in that country with ST1. The divestment is dependent on approvals from regulators and will likely be closed in 2015. (See More: Shell to Divest Less Profitable Downstream Business in Norway.)

3.    Plummeting Crude prices for more than six months this year have compelled oil and natural gas exploration and production firm Marathon Oil Corp. (MRO) to reduce its 2015 capital spending in comparison with 2014. The company might invest between $4.3 and $4.5 billion next year, which is roughly 20% lower than the total expected spending for 2014.

Although the company has reduced its 2015 capital spending, the amount will be allocated mostly toward highly profitable projects in three U.S. shale plays. The capital program reflects lower expenditure on exploratory operations. Moreover, with the investment, Marathon Oil believes that it will achieve high single-digit production growth next year in spite of the low oil price projection for 2015 too. (See More: Marathon Oil Lowers Capex by 20% Year Over Year for 2015.)

4.    Canadian energy firm, Encana Corp. (ECA) has entered into an agreement with Calgary-based Veresen Midstream L.P. and private equity giant Kohlberg Kravis Roberts & Co. to sell certain pipeline and processing assets that it jointly owns with Cutbank Ridge Partnership. Encana would receive about C$412 million from the deal, in addition to actual costs accrued in 2015. The deal is likely to close in the first quarter of 2015.

The transaction involves sale of natural gas gathering and compression facilities located in Dawson British Columbia. The assets include pipelines spread across 500 kilometers and also have compression capacity of about 675 million cubic feet per day. Moreover, Veresen Midstream has agreed to provide gathering and compression services to Encana and Cutbank Ridge for a fee.

5.    New York-based Hess Corp.'s (HES) Australian subsidiary, Hess Exploration Australia Pty Ltd, has inked a non-binding Letter of Intent with the North West Shelf (NWS).

Hess aims to develop its natural gas discoveries in its deepwater permits offshore north-western Australia. Subject to execution of binding agreements, the company intends to toll the production through existing NWS processing and liquefaction facilities in Karratha, Australia. Subsequently, Hess will market liquefied natural gas to customers in Asia Pacific.

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.

Energy investors poured money back into the stocks following last week's heavy selling pressure. Of the lot, the biggest gainer was offshore driller Transocean Ltd. (RIG), which rose 17.4% during the period.

Over the last 6 months, refiner Tesoro Corp. (TSO) has been the leader of the pack with its shares advancing 16.2%. Investors have rewarded the company for its continued focus on shareholder returns. On the other hand, Transocean was the laggard, as it witnessed a 57.9% 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?

In this holiday-shortened week, market participants will be closely tracking a series of crucial economic reports, including the final look at Q3 GDP, the November Durable Goods and Personal Income & Outlays.

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