It was a week when both oil and natural gas prices posted gains.
On the news front, the headlines came from midstream firm ONEOK Inc. OKE and energy major Chevron’s CVX acquisition announcements. Developments associated with ExxonMobil XOM, Cheniere Energy LNG and TechnipFMC FTI also made it to the headlines.
Overall, it was a bullish seven-day period for the sector. West Texas Intermediate (WTI) crude futures increased 2.2% to close at $71.55 per barrel, while natural gas prices jumped 14.1% to end at $2.59 per million British thermal units (MMBtu).
In particular, oil prices climbed on reported progress toward U.S. debt-ceiling resolution though gains were capped by continued recession fears.
Meanwhile, natural gas performed even better following a lower-than-expected increase in stockpiles held in underground storage in the lower 48 states and the hint of tightening supply.
Recap of the Week’s Most Important Stories
1. ONEOK, a prominent energy infrastructure provider, is set to acquire smaller pipeline operator Magellan Midstream Partners in a significant cash-and-stock transaction worth $18.8 billion. This deal is expected to create one of the largest oil and natural gas pipeline companies in the United States.
The agreement represents a current implied value of $67.50 per unit to each Magellan unitholder, for a 22% premium, based on the May 12, 2023, closing prices. ONEOK's acquisition of MMP marks a significant development in the energy infrastructure industry.
The two premier firms have joined forces to create a combined company with a net enterprise value of $60.0 billion. This new midstream giant will have a diversified portfolio of assets across North America and provide services to customers in the energy industry. (ONEOK Buys Magellan for $18.8B, Creates Midstream Giant)
2. Chevron recently revealed its plans to acquire upstream company PDC Energy in a transformative all-stock transaction valued at $6.3 billion. According to the terms of the agreement, PDC stockholders will get 0.4638 Chevron shares for every PDC share, for a total enterprise value of $7.6 billion, including debt. This strategic move is expected to strengthen Chevron's position in key U.S. production basins, unlock new opportunities, and drive higher returns for the American multinational firm.
In the Denver-Julesburg Basin, PDC Energy offers Chevron a number of benefits, including strong free cash flow, low breakeven production, and development potential close to the company's current operations. The acquisition will provide Chevron with additional acreage in the Permian Basin, bolstering its leading position in one of the world's most prolific oil and gas regions.
The transaction is expected to yield several benefits, such as an increase in earnings per share, free cash flow, and return on capital employed. Chevron anticipates the acquisition to be accretive to all key financial measures within the first year after closing and to generate approximately $1 billion in annual free cash flow, based on projected future prices.
3. U.S. supermajor ExxonMobil, through its subsidiary XTO Energy Inc. and affiliates, entered into an agreement to divest Williston Basin assets to Chord Energy for $375 million. The transaction is expected to be funded with cash on hand, which was $592 million as of Mar 31, 2023.
ExxonMobil, a Zacks Rank #3 (Hold) company, is expected to have started selling hydrocarbon-containing properties as it seeks to cut down debt by divesting some of its non-core assets. The transaction is expected to be closed by the end of June 2023 and be retroactive from Apr 1.
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The divested assets involve about 62,000 net acres in Williston Basin within and adjacent to near-term development program. Almost 77% of this is undeveloped. The low-cost, tier-one assets are highly competitive with Chord Energy’s existing portfolio and further extend its inventory runway. (ExxonMobil Signs Deal to Divest Williston Basin Assets)
4 A subsidiary of gas exporter Cheniere Energy subsidiary entered into a long-term liquefied natural gas sale and purchase agreement ("SPA") with Korea Southern Power Co. Ltd ("KOSPO"). This agreement set the stage for a mutually beneficial partnership spanning two decades.
Under the terms of the SPA, KOSPO will purchase approximately 0.4 million tons per annum (mtpa) of liquefied natural gas from Cheniere Marketing. Delivery of the same will commence in 2024 and continue until 2046.
The long-term nature of the SPA signifies the commitment between Cheniere Energy and KOSPO. The agreement ensures a steady supply of liquefied natural gas to meet KOSPO's energy demands. It also reinforces Cheniere's position as a leading liquefied natural gas provider in the global market. Over the course of the contract, KOSPO will receive approximately 0.4 million tons of LNG annually, contributing to the stability and security of South Korea's energy infrastructure. (Cheniere & Korea Southern Power Sign Long-Term LNG Deal)
5. TechnipFMC, a leading global provider of subsea solutions, secured a contract from Norwegian behemoth Equinor to deliver Riserless Light Well Intervention (RLWI) services on the Norwegian Continental Shelf. This two-year contract (2024-2025) comes with an option for extension over the subsequent three years.
Per the agreement, TechnipFMC will deliver production enhancement, data and pre-plug-and-abandonment services to Equinor using the RLWI method. The primary goal is to optimize the performance of Equinor's assets on the Norwegian Continental Shelf, thereby improving production rates and extending the lifespan of the existing wells.
The above-mentioned contract, with a value of $75-$250 million, is expected to contribute to TechnipFMC's inbound orders in the second quarter of 2023. This will further strengthen the company’s market position and reinforce its expertise in providing efficient and cost-effective RLWI services. (TechnipFMC Wins Contract for RLWI Services From Equinor)
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 +1.3% -8.1%
CVX +0.1% -18%
COP +3.7% -20.2%
OXY +1.8% -18.9%
SLB +2.7% -14.2%
RIG +1.5% +54.8%
VLO +0.7% -20.6%
MPC +1.1% -12.6%
With both oil and natural gas rising for the week, stocks were up too. The Energy Select Sector SPDR — a popular way to track energy companies — rose 1.4% last week. But over the past six months, the sector tracker has decreased 14.9%.
What’s Next in the Energy World?
As usual, market participants will closely track the regular releases to look for guidance on the direction of the commodities. 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. Currently, news related to the political standoff over the U.S. debt ceiling will be the key factor that will dictate the near-term price movement of the commodities.
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