Oil & Gas Stock Roundup: RDS.A Buys EV Charging Network, CVX Cancels Australia Drilling Plan

It was a week where both oil and gas prices logged handsome gains.

On the news front, global energy provider Royal Dutch Shell (LON:RDSa) plc RDS.A agreed to buy electric car charging network owner NewMotion, while American supermajor Chevron Corporation (NYSE:CVX) dumped plans to drill in the Great Australian Bight.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures jumped about 4.4% to close at $51.45 per barrel, while natural gas prices gained 4.8% to $3 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: CVX Starts Wheatstone Production, PSX Approves $3B Buyback.)

The U.S. oil benchmark registered its best close of the month after the U.S. Energy Department's inventory release showed that crude stockpiles fell unexpectedly as refinery throughput rose.

The bullish impact from the surprise crude inventory draw was supported by other developments including strong Chinese data, mounting tensions between Iraq and Kurdistan near an oil-rich region, President Trump’s decision not to certify Iran’s compliance with the nuclear deal, and a falling U.S. rig count.

Meanwhile, natural gas futures finished higher following an in-line increase in supplies. Current stocks, at 3.595 trillion cubic feet (Tcf), are now 8 Bcf (0.2%) under the five-year average, while dropping 153 Bcf (4.1%) below the year-ago figure.

Recap of the Week’s Most Important Stories

1. European oil giant Royal Dutch Shell plc recently inked a deal to acquire NewMotion, one of Europe's largest electric vehicles charging networks.

Per the deal, NewMotion will retain its brand and operate as a wholly owned subsidiary of Shell. NewMotion has around 30,000 private electric charge points in the Netherlands, Germany, France and UK. It also runs around 50,000 public charge points in various countries in Europe for over 100,000 customers.

With this deal, Shell wants to cash in on the wide acceptance of the electric cars and thereby increase its customer base and revenues. Shell believes that the deal will provide customers range of re-fueling choices in future and bring diversification to its asset portfolio.

By 2025, Shell aims to attain 20% of its global fuel station sales from electric vehicles recharging and alternative and low carbon fuels like biofuels, battery recharging and liquefied natural gas. The company will invest approximately $1 billion per year till 2020 in its New Energies division as it intends to shift its focus on cleaner and renewable energy sources. (Read more Shell Clinches Maiden EV Deal, Acquires NewMotion)

2. U.S. oil and gas biggie Chevron Corporation recently announced plans to discontinue the exploration drilling program in the Great Australian Bight (GAB). The company purchased two deepwater exploration permits in 2013 with the acreage spanning more than 32,000 square kilometers. Chevron intended to drill four wells but has decided not to proceed with the plans owing to weak oil price environment.

The supermajor’s decision to exit the region is not based on waning prospects or regulatory and environmental concerns but has been guided by commercial factors. Deepwater/ultra deepwater drilling — with its associated risks and steep costs — requires much higher oil prices than the current rates. Thus, with oil rates unable to stay above the psychologically-critical $50 threshold for a sustained period, the project did not seem to be a viable one.

The move underscores Chevron’s strategy of balancing its global portfolio with its long-term business priorities. It will help the company to slash costs and streamline business models. The company wants to focus on the development of offshore natural gas resources in Western Australia. It recently increased its North-West gas acreage by acquiring three exploration blocks spanning 23,170sqkm in the Northern Carnarvon Basin off Dampier. Chevron invested billions of dollars in Western Australia to commercialize its large gas resource base through its two mega projects — Gorgon and Wheatstone LNG project — in the region. (Read more Chevron Calls Off Great Australian Bight Drilling Program)

3. Cheniere Energy Partners, L.P. (NYSE:CQP) — a subsidiary of liquefied natural gas exporter Cheniere Energy, Inc. (NYSE:LNG) — recently announced the completion of its fourth liquefaction train at Louisiana facility.

Construction of the Train 4 of the Sabine Pass liquefaction project was completed by the contractor Bechtel Oil, Gas and Chemicals, Inc. On completion, Bechtel handed over custody of the train to Cheniere Energy Partners which is ready to operate. Train 4 is set for first commercial delivery in March 2018 under a 20-year sale and purchase contract with GAIL (India) Limited. With the completion of Train 4, revenues of the partnership are likely to benefit from increased LNG sales.

Cheniere Energy Partners intends to construct six liquefaction trains at Sabine Pass. Each train has an estimated nominal production capacity of 4.5 million tons per annum of liquefied natural gas. Construction of the Trains 1, 2 and 3 had been completed in March. First commercial delivery for Train 3 took place in June under a 20-year supply contract with Korea Gas Corporation.

The partnership’s request for regulatory approvals in March to commence commissioning activities at Train 4 has been granted. With the completion of the Train 4 on Oct 9, the total capacity at the export terminal has risen from 13.5 million tons per annum (Mtpa) to 18 Mtpa. Train 5 is under construction and is expected to begin exporting in the second half of 2019. Train 6 is being commercialized and has secured the necessary regulatory approvals. (Read more Cheniere Energy's Sabine Pass Train 4 Comes Online)

4. A cloud of uncertainty looms over Brazilian energy giant Petrobras’ (NYSE:PBR) divestment agreement with France-based TOTAL S.A. The Brazilian federal court has put a partial hold on the $2.2-billion deal signed in March.

Per the deal, Petrobras was to sell some of its upstream and downstream assets to TOTAL. On the upstream front, TOTAL was to purchase stakes in the Lapa and Lara offshore prospects in the Santos Basin. The company was to acquire a 35% interest in the Lapa field and a 22.5% stake in Lara field. On the downstream end, TOTAL was to acquire a 50% interest in two thermal co-generation plants in the Bahia area and a re-gasification unit in the LNG terminal.

However, a federal court in Brazil has blocked the sale of Petrobras’ stakes in the Lapa and Lara oilfields. The judge granted a ruling in favor of members of a local oil workers union who raised anti-competitive concerns pertaining to the sale. The members of the union were of the opinion that the company should have opted for a public tender instead of a private negotiation.

Petrobras announced that it has not received any notice regarding the same. The company declared that it will take necessary legal steps to protect the interest of shareholders only after receiving an official statement from the court. (Read more Petrobras' $2.2B Asset Sale to TOTAL Shelved on Court Order)

5. London-based oil and gas producer Tullow Oil (LON:TLW) plc (OTC:TUWOY) recently declared that it has bought a 90% stake in Ivory Coast's four onshore blocks. These are located on the coastline to the west of Abidjan. The rest 10% of the onshore blocks are held by Petroci, the national oil company of the country.

The acquisition is in line with the company's strategy of focusing on value-enhancing growth. Tullow bought stakes in CI 518, CI519, CI301 and CI302 blocks spreading over 5,035 square kilometers. The Anglo-Irish firm has plans to start work in the blocks shortly so that a full tensor gradiometry survey process can begin by early 2018. The result from the survey will help the company to determine the potential of the acquired blocks. In addition, Tullow expects the cost of production from the blocks to be low and will enrich the company's existing exploration portfolio.

The company has a 20-year presence in Ivory Coast. We would like to remind investors that the company currently has non-operating stakes in Ivory Coast's offshore Espoir field, where Canadian Natural Resources Limited) is the major shareholder and operator. Tullow receives net production of 4,000 barrels of oil per day from Espoir. (Read more Tullow to Gain from Ivory Coast Onshore Block Acquisition)

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 six months.

Notwithstanding the bullish oil market sentiment, the Energy Select Sector SPDR, a popular way to track energy companies, failed to keep up and generated -0.7% returns last week. The worst performer was oilfield services behemoth Schlumberger Limited (NYSE:SLB) , the stock of which fell by 2.5%.

Longer-term, over the last six months, the sector tracker is down 1.6%. It was again Schlumberger that was the major laggard during this period, experiencing a 15% price decline.

What’s Next in the Energy World?

As usual, 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.

Finally, the 2017 Q3 earnings will remain under scrutiny this week, with the oil services companies, providers of technical products and services to drillers of oil and gas wells, kicking off what is expected to be a good earnings season for U.S. energy firms.

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