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Oil & Gas Stock Roundup: Chesapeake's Bankruptcy, Eni's Renewable Push & More

Nilanjan Choudhury

It was a week when both oil and natural gas prices settled lower.

On the news front, the long struggling shale pioneer Chesapeake Energy CHK filed for Chapter 11 bankruptcy protection, while Italy’s Eni SpA E acquired three wind farm projects.  

Overall, it was a bearish week for the sector. West Texas Intermediate (WTI) crude futures slumped 8.8% to close at $36.26 per barrel, while natural gas prices fell 7.5% for the week to finish at 1.544 per million Btu (MMBtu). In particular, the oil markets reversed their gain from the previous week when the commodity pushed toward $40 a barrel.

Coming back to the week ended Jun 26, the crude benchmark recorded a big decline as investors remain worried about a second wave of coronavirus infections. With several U.S. states experiencing a spike in new coronavirus infections and hospitalization, there are apprehensions that the country was perhaps premature in re-opening its economy. Resurgence in cases of the deadly pandemic could lead to another lockdown with many businesses forced to close again just after reopening. Moreover, this would create doubts around the trajectory of oil's nascent demand recovery. Further, U.S. government data revealing a surprise addition to crude stockpiles kept investors on the defensive.

Meanwhile, natural gas sunk to its lowest since 1995 on weak LNG demand and continued oversupply.

Recap of the Week’s Most Important Stories

1.  Chesapeake Energy recently filed for Chapter 11 protection in the U.S. Bankruptcy Court in the Southern District of Texas. The company is one of the biggest shale natural gas producers responsible for the famous shale revolution.

The move is expected to reset Chesapeake’s capital structure and business. At the end of first-quarter 2020, it had a cash balance of only $82 million, not sufficient to pay off $420 million of net current maturities of long-term debt. Importantly, $250 million of senior notes were due in 2020 and $294 million in 2021. Moreover, the company’s ability to pay long-term debt of more than $9 billion is questionable since low gas prices are affecting the bottom line. Chesapeake, which once reached a market valuation of more than $37 billion, closed at $115.9 million last Friday.

The stock, which went through a reverse stock split to boost share price in April, has been under the scanner of investors for the last few months. The recent restructuring plan is expected to enable the company to reduce $7 billion of debt. As such, the decision was supported by several creditors. It secured $925 million in debtor-in-possession financing to fund operations during the reorganization process. (Chesapeake Files for Bankruptcy Amid Low Gas Prices)

2.   Eni SpA announced the purchase of three onshore wind projects in Italy. Notably, the value of the initial transaction has not been disclosed.

Through its affiliate, Eni New Energy, the integrated energy firm has purchased 100% interest in CDGB Enrico, CDGB Laerte and Wind Park Laterza from Asja Ambiente Italia. The company expects the three projects to produce 35.2 megawatts (MW) of power at peak capacity. Eni also anticipates the developments — to be constructed in Comune di Laterza, in the Puglia area — to produce roughly 81 Gigawatt hours (GWh) of power every year. Thus, the energy major expects these wind projects to help eliminate emissions of 33,400 tons of CO2 every year.

Investors should know that the company expects the construction of the plants to commence by the third trimester of 2021. Importantly, this is the first time that the energy giant will be producing energy from wind projects in Italy. With this acquisition, Eni has made significant progress in its decarbonization process and estimates this to reduce its net emissions of greenhouse gases by 80% by 2050. (Eni Buys 3 Onshore Wind Farms in Italy to Cut Carbon Emission)

3.  BP plc BP has announced that its natural gas project at Oman’s Ghazeer field will be onstream by the end of 2020. The British energy giant added that 99% of the field’s installation work has been completed and the project’s production capacity is estimated at 500 million cubic feet by the time it comes online.

The integrated – carrying a Zacks Rank #3 (Hold) - firm revealed that out of its total planned investment of $16 billion for Oman’s Block 61 – with both Ghazeer and Khazzan fields – it has invested $9.3 billion so far. BP added that from the prolific Khazzan project, it is producing at a rate of 1 billion cubic feet per day with daily volumes estimated to surge to 1.5 billion cubic feet.

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

BP also said that out of a total of 300 wells, drilling activities have been completed for 126 wells at Khazzan and Ghazeer fields. Importantly, from both the fields in Block 61, the integrated player is planning to produce 10.5 trillion cubic feet of natural gas. (BP Gears Up to Produce Natural Gas From Oman's Ghazeer Field)

4.   TOTAL S.A. TOT along with its partners announced the start-up of the second Floating Production Storage and Offloading (“FPSO”) P-70 of the Lara cluster (Block BM-S-11A), located offshore Brazil. It has a 22.5% working interest in the block. The operator of the block is Petrobras with a 42.5% interest.

The start-up of the second FPSO on Lara will result in a production of 150,000 barrels of oil per day, doubling the current production volumes from the Lara cluster. The ramp up of production from the Lara cluster is in sync with TOTAL’s goal of producing more oil at competitive costs that will help it withstand choppy prices.

TOTAL’s long-term plan is to produce 150,000 barrels of oil per day by 2025 from Brazil-based assets. This objective is achievable through the development of its assets on the Iara, Mero and Lapa projects. (TOTAL Boosts Output in Brazil With Second FPSO on Lara)

5.   Chevron CVX recently inked a deal with BHP’s BHP Nickel West business in Australia. Per this gas sales agreement, the company will supply BHP Nickel West with a total of 22 Petajoules of equity domestic gas over the 3.5-year term of the contract from its Wheatstone gas facility.

Western Australia already holds a dominant position for its strong domestic gas supply capacity and this latest contract will further fortify its global footing. Per Paul Everingham, chief executive of Chamber of Minerals and Energy of WA, easy availability of dependable and cost-effective energy resources will improve WA’s economy, which was necessary in the wake of the COVID-19 adversity.

Wheatstone project is an endeavor, jointly run by Chevron (operator, 64.14 %), Woodside (13 %), KUFPEC (13.4%), PE Wheatstone (partly-owned by JERA, 8%) and Kyushu Electric Power Company (1.46%). (Chevron Snaps Up Gas Sales Deal With BHP in Western Australia)

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.

Company    Last Week    Last 6 Months

XOM                -5.1%             -37.6%
CVX                 -4.6%            -28.1%
COP                -7.7%            -37.9%
OXY                 -10.2%          -56%
SLB                 -11.5%           -56.4%
RIG                  -15.2%          -70.6%
VLO                 -10.8%          -39.6%
MPC                -7.4%             -41.4%

The Energy Select Sector SPDR – a popular way to track energy companies – lost 6.6% last week. The worst performer was offshore driller Transocean Ltd. RIG whose stock slumped 15.2%.

But longer-term, over six months, the sector tracker is down 40.8%. Transocean was the major loser during this period too, experiencing a 70.6% price plunge.

What’s Next in the Energy World?

As global oil consumption gradually ticks up, market participants will be closely tracking the regular releases to watch for signs that could further validate a rebound. In this context, the U.S. government statistics on oil and natural gas - one of the few solid indicators that comes out regularly - will be on the energy traders' radar. Data on rig count from energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, will also be closely followed.

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Transocean Ltd. (RIG) : Free Stock Analysis Report
 
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