TORONTO SU.TO 50,37 CA$ 18,66%

Oil & Gas Stock Roundup: Crude at Sub-$30, Suncor to Buy Rival in Sweetened Deal

Publié le 19 janvier 2016

It was a week where oil futures dropped to their worst settlement levels since Nov 2003 and natural gas tumbled to its lowest in almost a month.

On the news front, Suncor Energy Inc. SU reached an agreement to acquire Canadian Oil Sands Ltd. after raising its all-stock offer by 12%.

Overall, it was a pretty bad week for the sector. West Texas Intermediate (WTI) crude futures dived 11.3% to close at $29.42 per barrel, while natural gas prices plunged 15.1% to $2.10 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Crude Slumps Further, Suncor Extends Takeover Deadline.)

Crude prices ended sharply lower as the market braces for a flood of new oil from Iranian exports following the lifting of sanctions. Another catalyst for the sell-off was lingering concerns over weak Chinese economic data that stoked fears about a slowdown in energy demand from the world’s second largest oil consumer. The commodity received a further jolt when the U.S. Energy Department's latest inventory release showed that refined product inventories – gasoline and distillate – both increased significantly from their previous levels for a second week.

Natural gas also fared badly after an inventory report showed a smaller-than-expected withdrawal. The heating fuel was also pressured by predictions of tepid demand due to milder winter weather forecasts over the next few days.

Recap of the Week’s Most Important Stories

1. After months of negotiation, Suncor Energy − Canada’s largest energy firm − has finally decided to raise its takeover bid for Canadian Oil Sands Ltd.

The two companies signed a friendly accord under which Suncor has consented to take its bid to C$4.24 billion from the prior offer of C$3.78 billion. Suncor’s new offer of 0.28 share for every share of Canadian Oil Sands has been increased from the previous ratio of 0.25. Investors should know that including C$2.4 billion in debt, the latest bid is valued at C$6.6 billion.

Most importantly, the board of directors of both Suncor Energy and Canadian Oil Sands is in favor of the revised agreement. However, the deal − likely to expire by Feb 5, 2016 − is still dependent on 51% of Canadian Oil Sands’ shareholders’ approval – lower than the previous threshold of almost 66.7%.

2. British oil and gas company BP plc BP intends to cut its North Sea workforce by 20% to combat the ongoing slump in oil prices.

Over the next two years, BP plans to decrease the headcount in its Aberdeen-based North Sea operations by 600. However, the majority of cuts are expected in 2016. The jobs to be slashed signify one fifth of BP’s 3,000 staff and contractors in the area.

As part of its $3.5 billion restructuring program, the company intends to reduce its global oil production, or upstream, headcount to 20,000 from 24,000. At the end of 2015, BP had about 80,000 personnel under its employment. (See More: BP to Slash Headcount by 20% as Oil Slaughter Continues.)

3. For the second time in 2 months, U.S. energy major Chevron Corp. CVX has entered into a deal with a Chinese buyer for shipping its liquefied natural gas (LNG) from its projects in Australia. This time, the leading integrated player has decided to sell LNG from the Gorgon gas development in Australia, to an affiliate of Chinese gas distributor ENN Energy Holdings Ltd.

Per the non-binding Heads of Agreement (HoA), Chevron will likely deliver 500,000 metric tons of LNG every year, for a span of 10 years, from the Gorgon development. Chevron – holding an approximately 47% operated interest in the A$43 billion ($37 billion) project – anticipates the supply to start either by 2018 or by the first half of 2019.

The Chinese agreements follows Chevron’s multiple deals with Japanese and South Korean companies to sell a major portion of LNG from its Gorgon development. the sales contract represents an important milestone in Chevron’s efforts to commercialize its share of LNG from the Gorgon project.

4. Norway’s energy giant Statoil ASA STO has acquired a minority stake of 11.9% in the Swedish independent oil and gas explorer, Lundin Petroleum, for about 4.6 billion kronor ($540 million).

The move is expected to augment Statoil's indirect exposure to the Norwegian continental shelf (NCS), which includes discoveries such as the large new Johan Sverdrup field development. Statoil holds 40% in the field, while Lundin owns 22.6%.

The Norwegian producer is confident about Lundin’s management, Board and strategy. Statoil has no intention to put a representative on the Stockholm-based company’s Board. (See More: Statoil Buys Minority Stake in Lundin Petroleum for $540M.)

5. Brazil’s Petrobras PBR slipped more than 10% on the NYSE after it announced a steep cut in its capital spending budget for the period 2015–19. The reduction in expenditure came in an unfavorable business scenario following persistently weak oil prices. Most importantly, the company indicated that it its spending budget will be revised again if there is any further fall in crude prices.

The largest integrated energy firm in Brazil reduced its five-year capital budget for the 2015–2019 by nearly 25% or $32 billion to $98.4 billion from the prior projection of $130.3 billion, declared last year. Notably, $130.3 billion also reflected a mark down from the previous capital budget of the earlier five-year program of $206.8 billion through 2018.

Of the total, 81% will be allocated toward exploration and production activities, while the refining, transportation and marketing operations will get 11%. The remaining will go toward gas & power business and other areas. (See More: Petrobras Slips 10% on Huge Cut in 5-Year Capital Budget.)

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.

Company	Last Week	Last 6 Months
XOM	+3.75%	-6.43%
CVX	+1.58%	-11.44%
COP	-7.93%	-32.08%
OXY	-0.17%	-13.39%
SLB	-3.28%	-24.89%
RIG	-9.38%	-32.51%
VLO	-2.70%	-1.56%
TSO	-9.75%	-9.81%

Over the course of last week, ‘The Energy Select Sector SPDR’ suffered a loss of 3.03% as crude hit its lowest settlement in more than a decade and investors witnessed a bout of heavy selling in major companies. The worst performer was refiner Tesoro Corp. TSO whose stock shed 9.8%.

Longer-term, over the last 6 months, ‘The Energy Select Sector SPDR’ lost 25.78% of its value. Offshore drilling giant Transocean Ltd. RIG was the main laggard, as it witnessed a 32.5% price decline.

What’s Next in the Energy World?

Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking a series of top-tier economic readings, including those on retail sales, industrial production, inflation, housing and employment.

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