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Deals by Cenovus and BP Dominate Oil & Gas Stock Roundup

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It was a forgettable week for both oil and natural gas.

On the news front, Calgary-based energy behemoth Cenovus Energy CVE agreed to take over the remaining 50% stake in northern Alberta’s oilsands project, while London-based supermajor BP plc BP announced the acquisition of a 40.5% share in an ambitious green hydrogen project in Australia. Developments associated with Eni E, Cheniere Energy LNG and Matador Resources MTDR also made it to the headlines.

Overall, it was a dismal seven-day period for the sector. West Texas Intermediate (WTI) crude futures lost as much as 9.2% to close at $109.56 per barrel, while natural gas prices plunged more than 21% to end at $6.944 per million British thermal units (MMBtu). In particular, the oil market reversed its course after rising for seven weeks in a row.

Coming back to the week ended Jun 17, the gloomy oil price action could be attributed to investors’ tryst with recessionary fears. In the wake of the central bank’s decision to hike the interest rate by a record-high 75 basis points in June and the possibility of doing the same in July, the commodity came under extreme pressure. Per a large section of market watchers, prolonged supply-chain devastation, stemming from China’s stringent COVID-19 curbs and the termination of the easy-money policy, is likely to slow the economy and, as an extension, crude demand. A stronger greenback, which can weaken dollar-denominated commodities like crude, also contributed to the decline.

Natural gas notched a more severe weekly loss despite healthy demand, primarily due to the possibility of protracted downtime associated with the fire breakout at the Freeport LNG export plant in Texas.

Recap of the Week’s Most-Important Stories

1. Canadian integrated oil and gas firm Cenovus Energy announced that it would acquire the remaining 50% interest in the country’s Sunrise oil-sand project from British energy major BP. The transaction involves a cash consideration of $600 million and a variable payment of $600 million expiring after two years. The acquisition, expected to be completed in the third quarter of 2022, will strengthen Cenovus’ position in the oil-sand industry.

The Sunrise oil-sand project currently produces 50,000 barrels per day (bpd). Cenovus, the project’s operator, expects to achieve a production capacity of 60,000 bpd through a multi-year development program. As part of the agreement, Cenovus will give up its 35% interest in Canada’s Bay du Nord oil project to BP.

The acquisition enables Cenovus to gain from the significant optimization opportunities available. With its cutting-edge operating methods, Cenovus expects to increase production at Sunrise, while reducing sustaining capital, operating expenses and emission intensity. (Cenovus to Acquire Remaining Stake in BP's Sunrise Project)

2. BP entered an agreement to acquire a 40.5% interest in a renewable energy project in Australia, capable of becoming one of the leading producers of green hydrogen globally. The London-based firm is taking the initiative on the project, known as the Asian Renewable Energy Hub (“AREH”), to produce large amounts of hydrogen from renewable energy in Australia’s Outback.

As part of the deal, BP will take over the operatorship of the renewable energy project from Jul 1, 2022. The project is expected to cover a 2,500-square-mile area, which is greater than the size of Delaware. Notably, the company did not reveal any financial details of the agreement.

AREH attempts to produce onshore wind and solar electricity in multiple phases to a total capacity of up to 26 gigawatts. This is equivalent to producing more than 90 terawatt-hours per year, which is one-third of the overall electricity generated in Australia in 2020. (BP to Acquire Stake in Australia's Renewable Energy Project)

3   Rome-based energy biggie Eni has been selected by Qatar Energy for the North Field expansion project to improve Qatar’s position as a major liquefied natural gas (“LNG”) exporter globally. Russia’s aggressive invasion of Ukraine brought pressure across the world to develop alternative energy sources as Western countries seek new supplies after phasing out purchases of Russian oil.

The Eni-Qatar Energy joint venture will hold a 12.5% interest in the North Field expansion project, which includes four mega LNG trains with a combined capacity of 32 million tons per annum (Mtpa). Qatar Energy will own a 75% stake in the joint venture, while Eni will own the rest.

The North Field expansion project is expected to raise Qatar’s LNG production capacity from 77 Mtpa to 110 Mtpa. The $30-billion project is likely to commence production in the fourth quarter of 2025. (Eni Joins Qatar Gas Project to Increase LNG Exports)

4    The Houston, TX-based natural gas exporter, Cheniere Energy, recently announced that it entered into an LNG sale and purchase agreement with the Norwegian state-owned energy firm, Equinor ASA.

Per the terms of the deal, Equinor will buy roughly 1.75 million tons per annum (mtpa) of LNG from Zacks Rank #1 (Strong Buy) Cheniere on a free-on-board basis for about 15 years. The delivery under the agreement is set to commence in the second half of 2026 and reach the full 1.75-mtpa figure by the second half of 2027.

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

Jack Fusco, LNG’s President and Chief Executive Officer, mentioned that EQNR is one of Europe’s top energy companies and that his firm is excited to form a long-term partnership with an organization that shares the common ambition for a sustainable future. He added that this deal further cements Cheniere’s leadership in supplying reliable and cleaner-burning long-term LNG. (Cheniere Signs a Long-Term LNG Sale Deal With Equinor)

5.  U.S. energy explorer Matador Resources announced its intent to increase its quarterly dividend to 10 cents per share, representing a 100% hike from 5 cents initiated last October.

MTDR expects the board of directors to implement the raised dividend with its next quarterly distribution, which is expected in the third quarter of this year. The prime priorities, which Matador has set for this year, are lowering debt, delivering significant free cash flows and maintaining or increasing dividends.

The change in the company’s dividend policy reflects its enhanced financial and operational ability. The increment in the quarterly dividend represents Matador’s strong focus on returning capital to stockholders. Along with its aim to return capital to stockholders, the company focuses on paying down its debt. (Matador Announces a 100% Hike in Its Quarterly Dividend)

Price Performance

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              -14.3%               +45.6%
CVX               -15.4%               +30.6%
COP              -19.8%               +36.7%
OXY               -12.8%               +106.4%
SLB               -22.4%               +28.7%
RIG               -20%                   +30.7%
VLO              -20%                   +57.7%
MPC             -19.4%                +37.6%

With oil being deep in red for the week, stocks were in freefall too. In fact, the Energy Select Sector SPDR — a popular way to track energy companies — plunged 17.2% last week. But over the past six months, the sector tracker has increased 34.8%.

What’s Next in the Energy World?

Following last week’s commodity price crash, market participants will closely track the regular releases to look for further guidance on the direction of prices. 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 production, is closely followed too. News related to the ongoing Russia-Ukraine geopolitical conflict and the potential demand loss from fresh coronavirus curbs in China will be the other factors that will dictate the near-term price movement for oil.

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