Shell’s Permian exit, rising APA dividends and more
It was a week when oil prices moved closer to $ 75 and natural gas futures returned to the $ 5 mark.
On the news front, biggie energy Royal Dutch Shell (RDS.A) sold its Permian Basin operations to an American company ConocoPhillips COP for $ 9.5 billion, while the upstream actor APA Company APA said it plans to increase its quarterly payment by 150%.
Overall, it was another good week for the industry. West Texas Intermediate (WTI) crude futures gained 3% to close at $ 73.98 per barrel and natural gas prices edged up 0.7% to $ 5.14 per million. British thermal units (MMBtu). Overall, both commodities managed to maintain their forward momentum compared to the previous four weeks.
Going back to the week ended September 24, oil prices rose, supported by an Energy Information Administration (“EIA”) report that showed a reduction in crude and distillate inventories due to consumption stronger. Crude supplies are now at their lowest level since October 2018, with U.S. commercial inventories declining about 18% since mid-March.
Natural gas also climbed, supported by the slow recovery in hurricane-affected operations, the anticipated tightening of supply before winter, and soaring consumption in Europe and Asia.
Recap of the most important stories of the week
1. Royal Dutch Shell recently announced an agreement to sell all of its assets in the Permian, the most prolific basin in the United States, to the US major ConocoPhillips upstream. The cash transaction is valued at $ 9.5 billion.
This agreement with ConocoPhillips unleashes significant value for Shell after reviewing numerous strategies and portfolio choices for its Permian assets. At closing, the $ 7 billion proceeds from the transaction will be used by European supermajor Zacks Rank # 2 (Buy) to support additional dividends for shareholders, with the balance going towards debt reduction. .
You can see The full list of today’s Zacks # 1 Rank stocks here.
For ConocoPhillips, the transaction is highly accretive and involves the acquisition of approximately 225,000 net acres in the heart of the Central Delaware Basin, a larger Permian sub-basin. The deal also includes the buyout of operated crude, gas and water pipelines and infrastructure, covering a vast area of approximately 600 miles. (Here’s why Shell bids farewell to the Permian Basin)
2. APA Corporation recently obtained approval from the board of directors to increase the quarterly dividend from 3.75 cents to 6.25 cents per share. The new payment will be made on November 22 to its common shareholders of record on October 22.
APA management sees rising dividends as the start of its path to return “a higher percentage of cash flow” to its investors. This comes after the upstream operator opportunistically reduces its debt to improve its financial situation. In August, APA bought back $ 1.7 billion of debt through a grossed-up takeover bid, which saw the company cut its annual interest expense by 20%, or about $ 78 million, which is more than enough to meet its $ 57 million dividend obligation.
APA’s core assets with significant cash flow potential position it well for the long-term sustainability of the energy explorer’s free cash flow generation capacity and future dividend increases. (Is the rise in dividends enough to help APA become attractive?)
3 A pioneer in natural resources PXD recently agreed to divest certain assets in Texas for Laredo Oil LPI. The deal is expected to bring in $ 230 million to the Permian operator.
The transaction included approximately 20,000 net acres located in western Glasscock County and is expected to close next month. The surrendered acres currently produce about 4,400 barrels of oil equivalent per day, 59% of which is crude oil. Pioneer Natural will receive $ 160 million in cash and 959,691 common shares of Laredo from the divestiture.
While the deal is expected to strengthen Laredo’s footprint in the prolific Midland Basin, it is in line with Pioneer Natural’s plan to divest some of its non-core assets. The company is considering selling its assets in the Delaware Basin, according to Reuters. It also expects to generate more than $ 2 billion from the divestitures. (Pioneer Natural sells Texas Acres to Laredo for $ 230 million)
4. TC Energy TRP has entered into a 15-year Power Purchase Agreement (PPA) with a subsidiary of the renewable energy company EDP Renewables SA for 100% of the output from the Sharp Hills wind farm in Alberta. Subject to customary regulatory approvals and restrictions, the PPA will allow for the continued development, final construction and operation of the wind farm.
Located in the municipality of Special Areas near the hamlets of Sedalia and New Bridgen, in the province of Alberta, the 297 megawatt (MW) Sharp Hills wind farm is expected to be operational in 2023.
TC Energy, based in Calgary, Alta., Will obtain the rights to all environmental features in addition to the electricity produced by the Sharp Hills wind farm. The company is dedicated to developing solutions for a sustainable energy future and its investment in the Sharp Hills Wind Farm is helping it achieve its goal of defining and delivering substantial advancements to the energy industry as a whole. (TC Energy, EDP Ink PPA for a 297 MW wind farm in Alberta)
5. Petrobras PBR has announced its commitment to achieve net zero emissions from its operations and to work with its partners in non-operating areas to help them reduce their emissions.
With the rise of environmental, social and governance investments and the large-scale transition to clean energy; a number of oil and gas companies have made a voluntary decision to become carbon neutral over the next three decades.
Petrobras’ net zero target revolves around Scopes 1 and 2 emissions, which involve greenhouse gas emissions from its operations and indirect emissions associated with energy purchases from third-party suppliers. The objective will be reached within a timeframe in accordance with the Paris climate agreements. (Petrobras aims to achieve net zero emissions from its operations)
The following table shows the evolution of the prices of some major oil and gas players over the past week and over the past six months.
Company Last week Last 6 months
XOM + 4.4% + 2.8%
CVX + 4% -6.4%
COP + 10.4% + 18.1%
OXY + 4.3% + 1.2%
SLB + 2.5% + 2.5%
RIG + 2.1% + 3%
VLO + 3.1% -7.5%
CPM + 5.1% + 12.5%
The SPDR Energy Select Sector – a popular way to track energy companies – rose 4.5% last week. The best performer was ConocoPhillips whose stock rose 10.4%.
Over the past six months, the sector tracker has gained 0.9%. ConocoPhillips was also the main winner during the period, with price appreciation of 18.1%.
What’s the next step in the energy world?
As the outlook for global oil consumption strengthens amid tightening fundamentals, market participants will be watching the regular releases closely to watch for signs that could further validate the bullish momentum. Against this backdrop, US government statistics on oil and natural gas – one of the few solid indicators that come out regularly – will be on the radar of energy traders. Oil service firm Baker Hughes’ rig count data, which indicates trends in US crude production, is also being closely monitored. News related to the approval / deployment / distribution of the coronavirus vaccine will be of the utmost importance. Finally, investors will keep an eye on the health of the Chinese economy following the Evergrande crisis.
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ConocoPhillips (COP): Free Stock Analysis Report
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Petroleo Brasileiro SA Petrobras (PBR): Free stock analysis report
APA Corporation (APA): Free Stock Analysis Report
Pioneer Natural Resources Company (PXD): Free Stock Analysis Report
TC Energy Corporation (TRP): Free Inventory Analysis Report
Laredo Petroleum, Inc. (LPI): Free Inventory Analysis Report
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