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Oil & Gas Stock Roundup: ConocoPhillips' Acquisition, Shell's AGM & More

It was a week when oil prices moved up while natural gas futures tumbled.

On the news front, the headlines came from upstream behemoth ConocoPhillips’ COP buyout of Canada’s Surmont oil sands project and supermajor Shell’s SHEL contentious annual general meeting. Developments associated with TechnipFMC FTI, Eni E and Petrobras PBR also made it to the headlines.

Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures increased 1.4% to close at $72.67 per barrel but natural gas prices plunged 15.6% to end at $2.18 per million British thermal units (MMBtu).

In particular, the crude price action continued to be positive on the reported progress toward U.S. debt-ceiling resolution and the possibility of another supply cut in the upcoming meeting of oil producers alliance OPEC+.

Meanwhile, natural gas was overwhelmed by expectations for comfortable temperatures and, therefore, lighter heating or cooling demand.

Recap of the Week’s Most Important Stories

1. One of the world’s largest independent oil and gas producers, ConocoPhillips exercised its rights to acquire the remaining interest in the Surmont oil facility, thereby gaining complete ownership of the Alberta operation. The acquisition involves a $3-billion price tag and $325 million in contingent payments. The transaction, expected to be completed in the second half of 2023, will be funded with cash, and short and medium-term financing or a combination of both.

Surmont, located in northeastern Alberta, is the fourth-largest oil-sand well site in Canada. The facility produced about 135,000 barrels of oil per day in April. Oil is produced at Surmont by injecting steam into underground wells to push the region’s heavy bitumen to the surface.

Gaining control of Surmont’s low-cost production will help ConocoPhillips reach its goal of returning $11 billion in cash to shareholders this year. The acquisition will add about $600 million of free cash flow per year in 2024. It will provide diversity to ConocoPhillips’ portfolio, which is mainly focused on U.S. shale right now. (ConocoPhillips to Buy Remaining Stake in Surmont Facility)

2.Shell’s shareholders supported CEO Wael Sawan and the board at the company's annual general meeting in London, despite disruption by climate activists. A few protesters barged onto the platform where Shell's board members were seated, prompting numerous security personnel to step in and remove them.

While numerous climate activists demanded an immediate stop to fossil fuel production, the European energy behemoth was backed by shareholders’ vote to set carbon emission reduction objectives for 2030. The company was also supported by big pension funds and investors.

In his first annual meeting as Shell's CEO, Wael Sawan, defended the business against claims that it was not transitioning from fossil fuels to renewable energy quickly enough. According to Sawan, SHEL invested $4.3 billion in low-carbon energy in 2022, including renewable energy, hydrogen, electric vehicle charging stations and biofuels. (Shell Shareholders Support Board at AGM Despite Protests)

3. TechnipFMC, a renowned engineering and construction company, clinched a significant integrated Engineering, Procurement, Construction and Installation (“iEPCI”) contract from Shell plc for the Dover development in the Gulf of Mexico. This contract showcases TechnipFMC's expertise and capabilities in subsea engineering and construction, thereby strengthening its position as a key player in the industry.

The Zacks Rank #3 (Hold) company, which had previously collaborated with Shell on the Appomattox platform, has been entrusted with the task of providing and installing subsea production systems for the Dover development. This project is an important initiative by Shell to enhance its operations in the Gulf of Mexico.

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

FTI has several responsibilities in the aforementioned project. First, the company will supply the subsea tree systems required for the development. These systems play a vital role in the efficient extraction of hydrocarbons from underwater reservoirs. (TechnipFMC Wins iEPCI Contract for Dover Development)

4   Rome-based energy biggie Eni’s CEO Claudio Descalzi signed a memorandum of understanding (MoU) with Sonangol to expand the scope of understanding between the two companies. They plan to do so by conducting research on the agribusiness value chain and other decarbonization matters, such as energy transition minerals and innovation ecosystem.

Per the terms of the MoU, Eni and Sonangol will work in tandem to identify and assess opportunities in the energy transition field. Their efforts will include the assessment of agro-industrial supply chains for the generation of low-carbon fuels, valorization of residual biomass and the use of green ammonia for agro-industrial applications.

The companies will also evaluate agribusiness potential, including research to support synergies across national agricultural food and bioenergy value chains. They will do so with an eye on improved seeds and biotechnologies, mechanization, fertilizers and logistics services. (Eni Signs MoU With Sonangol for Decarbonization Efforts)

5.   Petrobras, the renowned Brazilian oil company, recently announced its intention to file a request with Brazil's environmental protection agency, IBAMA, seeking a reconsideration of its denial of the environmental license for drilling an exploratory well in block FZA-M-059. This block is located in the deep waters of Amapá, offshore Brazil. The decision followed IBAMA's assessment, which highlighted a range of technical inconsistencies and recommendations from analysts on the Environmental Licensing Board.

In a report issued by Ibama, several concerns were raised regarding Petrobras' request. It pointed out discrepancies in environmental studies, inadequate measures for communicating with indigenous communities and deficiencies in PBR's plan to safeguard the region's wildlife. According to Reuters, these factors led to the rejection of the company's application.

Petrobras, however, maintains that it has fulfilled all the requirements outlined in the reference legislation for the bidding process of block FZA-M-059 and met the technical demands set by Ibama. The company asserted that its emergency response structure is the largest in the country. PBR also expressed its willingness to meet any additional demand that may be required. (Petrobras Challenges Ibama's Environmental License Decision)

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

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XOM              -1.2%                     -5%
CVX               -0.7%                     -15%
COP              -0.7%                     -18%
OXY               -0.3%                     -14.7%
SLB               -1.7%                     -12.9%
RIG               +4.6%                    +52.7%
VLO              +3.2%                     -15.8%
MPC              -1.4%                     -11.9%

With oil rising a little for the week, a few stocks were up too. The Energy Select Sector SPDR — a popular way to track energy companies — fell 1.1% last week. But over the past six months, the sector tracker has decreased 13.2%.

What’s Next in the Energy World?

As usual, market participants will closely track the regular releases to look for guidance on the direction of the commodities. 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/natural gas production, is closely followed too. Currently, news related to the political standoff over the U.S. debt ceiling will be the key factor that will dictate the near-term price movement of the commodities.

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ConocoPhillips (COP) : Free Stock Analysis Report

Petroleo Brasileiro S.A.- Petrobras (PBR) : Free Stock Analysis Report

Eni SpA (E) : Free Stock Analysis Report

TechnipFMC plc (FTI) : Free Stock Analysis Report

Shell PLC Unsponsored ADR (SHEL) : Free Stock Analysis Report

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