Yahoo Finance Oil & Gas Stock Roundup: Mergers & Divestments Take Center Stage
It was a week when oil prices fell, but natural gas futureswent northward.
The headlines revolved around American energy biggie ConocoPhillips’ COP proposed buyout of Marathon Oil MRO and shale producer Diamondback Energy’s FANG sale of its 25% stake in WTG Midstream Holdings for about $375 million. Developments associated with Hess Corporation HES and Chord Energy CHRD also grabbed attention.
Overall, it was a mixed seven-day period for the sector.While West Texas Intermediate (WTI) crude futures dropped around 1% to close at $76.99 per barrel,natural gas prices rose 3% to end at $2.587 per million British thermal units (MMBtu).
The crude price action was negative, primarily reflectingthe unexpected rise in gasoline inventories, despite the beginning of the summer driving season, traditionally a period of increased demand. Additionally, worries about sluggish demand growth in China and Europe, coupled with rising U.S. shale production, put further pressure on prices.
Meanwhile, natural gassettled witha gain on signs of production pullback, the resurgence of LNG exports and robust summer demand.
Recap of the Week’s MostImportant Stories
1. U.S. oil giant ConocoPhillips announced a definitive agreement to acquire smaller rival Marathon Oil in an all-stock transaction valued at $22.5 billion, including $5.4 billion of net debt. This strategic move is set to be immediately accretive to ConocoPhillips’ earnings, cash flows and return of capital per share.
Per the terms of the deal, Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips common stock for each share of the Marathon Oil common stock. This represents a 14.7% premium to Marathon Oil's closing share price on May 28, 2024.
ConocoPhillips chairman and CEO Ryan Lance emphasized the strategic alignment of the acquisition. He highlighted that the addition of Marathon Oil would enrich theZacks Rank #3 (Hold) company’s portfolio. The buyout would also be in sync with COP’s financial strategy, bolstering its low-cost supply inventory alongside its prominent U.S. unconventional assets. Lance emphasized shared values of safety and responsibility, aimed at generating consistent shareholders’ value.(ConocoPhillips to Buy Marathon Oil in a $22.5B Transaction)
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
2. Permian Basin-focused Diamondback Energy declared the sale of WTG Midstream Holdings LLC to midstream giant Energy Transfer LP. This strategic move will yield a total pre-tax consideration of approximately $375 million for Diamondback. The transaction will consist of a mix of cash and ET common units. The deal will be finalized in the third quarter of 2024.
This sale represents a significant financial milestone for FANG. Through its subsidiary, Rattler Midstream LP, FANG has owned a 25% stake in Remuda Midstream Holdings LLC (WTG Midstream) since October 2021. The sale of WTG Midstream Holdings LLC represents approximately 3.5Xon invested capital for FANG.
Proceeds from this transaction will be strategically used to reduce debt associated with the pending Endeavor Energy Resources, L.P. merger. This approach highlights FANG's commitment to financial stability and prudent debt management. (Diamondback Declares Strategic Sale of WTG Midstream)
3. Hess Corporation, a U.S. oil and gas company, received the necessary approval from its shareholders on Tuesday to proceed with its proposed merger with energy major Chevron despite the ongoing arbitration concerning assets in the Stabroek block off the coast of Guyana.
In October 2023, Chevron announced its intention to acquire Hess in a $53 billion all-stock deal, expected to close in the first half of 2024. Hess shareholders will receive 1.0250 shares of Chevron for each share of HES, taking the total enterprise value of the transaction, including debt, to $60 billion.
The approval came amid the arbitration proceedings initiated by ExxonMobil and CNOOC, Hess’ partners in the Stabroek block, who argue that they have preemptive rights over Hess’ 30% interest in the oil-rich offshore block under the existing joint operating agreement. (Hess Shareholders Approve Chevron Deal Amid Arbitration)
4. U.S. energy explorer Chord Energy completed the acquisition of Canada-based Enerplus Corporation on May 31, 2024. The acquisition, valued at $4 billion, received the approval of both Chord and Enerplus shareholders on May 14 and May 24, respectively. It was also approved by the Court of King's Bench of Alberta on May 28, 2024.
The merger is expected to create a leading operator within the Williston Basin. The combined entity is anticipated to boast significantly low-cost inventory, a sound financial position, and deliver enhanced scale and better shareholder returns. It will continue to focus on benefiting stakeholders and maximizing shareholder value.
Chord has highlighted that it will leverage best practices from both companies to create a more efficient organization and generate annual synergies exceeding $200 million (approximately), up from the original estimate of $150 million. In association with this deal, CHRD amended its existing credit agreement on May 31, 2024. The company increased the borrowing base to $3 billion and the total amount of elected commitments to $1.5 billion, thereby gaining access to an increased amount of funds. (Chord Updates 2024 Outlook After Enerplus Acquisition).
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 +3.4% +12.6%
CVX +2.9% +8.5%
COP -0.7% -0.8%
OXY +0.9% +4.5%
SLB -0.8% -12.2%
RIG +7.5% -13.1%
VLO -2.6% +22.6%
MPC -0.7% +16.8%
With oil and gas moving in opposite directions for the week, stocks were mixed.The Energy Select Sector SPDR — a popular way to track energy companies — rose 2% last week. Over the past six months, the sector tracker has increased 8.1%.
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.As a matter of fact, fuel demand and the rate of stock drawdowns in the coming weeks will determine the trend in commodity prices. 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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
ConocoPhillips (COP) : Free Stock Analysis Report
Marathon Oil Corporation (MRO) : Free Stock Analysis Report
Hess Corporation (HES) : Free Stock Analysis Report
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
Chord Energy Corporation (CHRD) : Free Stock Analysis Report
