Oil & Gas Stock Roundup: News From ExxonMobil, Repsol & Halliburton

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

On the news front, energy major ExxonMobil XOM canceled its plan to offload its interest in Australia’s Bass Strait oil and gas assets, while Repsol REPYY and Halliburton HAL announced plans of transition to a low-carbon future.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained 7.3% to close at $45.53 per barrel, while natural gas prices increased 2.6% in the week to finish at $2.8430 per million Btu (MMBtu). In particular, the oil markets maintained their forward momentum from the previous three weeks and closed above the $45-a-barrel mark.

Oil prices ended sharply higher benefiting from the optimism over a string of positive coronavirus vaccine development news. The commodity has been riding high after positive trial results from experimental candidates developed by Pfizer-BioNTech, Moderna and Oxford-AstraZeneca. All of them have demonstrated encouraging efficacy in preventing infections without any serious safety issue, based on provisional data analyses.

For oil in particular, the developments hold out hope of protection against the deadly pandemic that has crushed the commodity’s demand and caused a bloodbath for the energy-related stocks. A potential treatment is expected to revive economic and transport activity, leading to stronger crude demand.

Natural gas finished higher too after the U.S. Energy Department's inventory release showed the season’s first storage withdrawal. The heating fuel was also supported by forecasts of a drop in temperature that is expected to push up demand.

Recap of the Week’s Most-Important Stories

1.  ExxonMobil has canceled its major oil and gas asset divestment plan in Australia's Bass Strait. The latest move came after six weeks following the deadline for bids set by JPMorgan, a financial advisor. The energy major had put its stake in the giant Bass Strait oil and gas fields for divestment, located off the coast of Victoria, more than a year ago.

The company was looking for potential buyers for its interest in the assets in the 50-year-old Gippsland Basin joint venture with BHP Group BHP. Notably, this was the second time ExxonMobil was attempting to shed oil and gas operations in southeast Australia over the past few years. The sale was expected to be a lucrative opportunity for the domestic companies to boost their portfolio. However, the aging fields in southeast Australia might bear significant decommissioning costs, which could have reduced its potential of fetching big bucks.

Moreover, the complex tax arrangements with ExxonMobil’s partner in the basin might have been added to the cons by the potential buyers. Plus, the weak energy demand environment caused by the coronavirus pandemic has affected oil and gas prices. This might have made the assets less lucrative for the bidders. As such, the divestment process did not yield tempting offers. (ExxonMobil Cancels Bass Strait Asset Sale in Australia)

2.  Repsol announced plans to decelerate its oil production with the aim of increasing its renewable energy capacity as it follows its path toward carbon neutrality.

The Spanish oil-and-gas major revealed its plan for the next five years during which it will progress toward its low-carbon future goals with a project that accelerates the energy transition, while raising shareholders’ returns. Repsol will decarbonize its asset base and apply the latest operating model to utilize its strengths and enhance its capabilities for the company’s future.

The plan involves an investment of €18.3 billion ($21.8 billion), 30% of which will be expended in its newly built low-carbon power generation business to expand its renewable capacity to 7.5 gigawatts (“GW”) by 2025 and 15 GW by 2030 from 2.95 GW at present. The plan further entails green-hydrogen production of more than 1.2 GW in 2030, which is in line with the Spanish government’s aim to ramp up the use of hydrogen. (Repsol's Latest Strategies to Focus on Renewables)

3.  Halliburton stated that it would set climate-reduction targets to reduce greenhouse gas (“GHG”) emissions to meet the goals of the Paris Agreement, which aims to reduce global warming by keeping the temperature rise well-below 2°C above pre-industrial levels.

The decision came as investors brought immense pressure on the global energy sector, mainly concerned about the climatic impacts of fossil fuels. As a result, Halliburton, which carries a Zacks Rank of #3 (Hold), joined several global firms with a shared purpose by setting science-based targets through the Science Based Targets initiative (“SBTi”) to prevent the worst effects of climate change.

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

The SBTi is a partnership formed by CDP, United Nations Global Compact, World Resources Institute and the World Wide Fund for Nature to fight against climate variability by allowing companies to set targets for emission reduction. Setting those targets would help mitigate the risks of global warming and ensure that businesses remain flexible and responsive in an evolutionary working environment. (Halliburton to Reduce Greenhouse Emissions Through SBTi)

4.  Suncor Energy SU announced that it reached a tentative agreement with the other owners of the joint venture ­— Syncrude — to take up daily operations by late 2021. However, Suncor is yet to receive a formal approval from the co-owners.

The Syncrude project was initiated by a group of partners, with Suncor holding the majority stake of 58.74%. The remaining stakeholders include Imperial Oil Limited (IMO), with 25% working interest, while subsidiaries of Sinopec and CNOOC own a 9% and 7% stake, respectively.

The Calgary-based company intends to reduce its operating costs to C$30 (US $23) per barrel of oil and achieve 90% utilization. Further, the move is expected to acquire a yearly saving worth C$300 million and make Syncrude yet more regionally and globally competitive. Per Mark Little, president/CEO at Suncor, this might lead to employee layoffs on the administrative side of the business as it moves through the transition process. Despite the job cuts, Syncrude and the joint-venture participants are likely to achieve major approaches to make this business stronger. (Suncor to Take Operatorship of Syncrude JV by 2021)

5.  Brazil’s Petrobras PBR recently curbed its capital spending guidance for the next five years in response to the coronavirus-induced weak market scenario. The company lowered its five-year capital spending guidance to $55 billion, indicating a 27% decline from the year-ago five-year capital budget forecast.

Further, Petrobras anticipates spending approximately $46 billion on exploration and production between 2021 and 2025 — 70% on pre-salt assets — compared with $64 billion projected a year ago. The company is planning to limit its spending approval and is now targeting projects that will produce break-even results when oil price is trending at $35 per barrel.

As the company focuses on regaining its financial footing by selling assets and curtailing debt load, it assumes its gross debt to be $67 billion for 2021 and intends to lower the same to $60 billion in 2022.Coronavirus-induced tepid demand and increased asset sales indicate short-term decline in production for the company. Petrobras projects 2021 output at 2.23 thousand barrels per day, lower than 2.28 thousand barrels per day expected in 2020. (Petrobras Slashes 2021-2025 CapEx Guidance Amid Coronavirus)

Price Performance

The following table shows the price movement of some the major oil and gas players over past week and during the last six months.

Company    Last Week    Last 6 Months

XOM                 +8.8%              -11.6%
CVX                  +6.4%              -0.4%
COP                 +7.9%              +1.4%
OXY                  +22.8%            +27.9%
SLB                  +8.3%               +18.5%
RIG                   +50.7%             +63.2%
VLO                  +11.4%              -15%
MPC                 +8.3%                +17.9%

The Energy Select Sector SPDR — a popular way to track energy companies — was up 8.7% last week. The best performer was offshore driller Transocean RIG whose stock surged 50.7%.

Meanwhile, for the longer term, over six months, the sector tracker has edged up a mere 0.4%.Transocean was again the major gainer during the period, experiencing a 63.2% price appreciation.

What’s Next in the Energy World?

With rapidly rising new coronavirus cases around the world leading to the reimposition of lockdowns and the looming threat of another bout of oil demand weakness, market participants will be closely tracking the regular releases to watch for signs that could validate a revival. In this context, the U.S.government’s statistics on oil and natural gas — one of the few solid indicators that comes out regularly — will be on energy traders' radar. Data on rig count from energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is also closely followed. Finally, news related to coronavirus vaccine development will be closely watched as well

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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
Petroleo Brasileiro S.A. Petrobras (PBR) : Free Stock Analysis Report
 
Halliburton Company (HAL) : Free Stock Analysis Report
 
BHP Group Limited (BHP) : Free Stock Analysis Report
 
Suncor Energy Inc. (SU) : Free Stock Analysis Report
 
Repsol SA (REPYY) : Free Stock Analysis Report
 
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