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Oil & Gas Stock Roundup: Spotlight on Deals by Diamondback, Chevron

It was a week when oil prices moved down while natural gas futures registered an increase.

On the news front, shale driller Diamondback Energy FANG agreed to acquire Midland Basin operator Lario Oil & Gas for a mixture of stock and cash, while energy giant Chevron CVX disclosed the buyout of energy solutions firm Beyond6, together with its compressed natural gas (CNG) stations. Developments associated with ConocoPhillips COP, Transocean RIG and Enbridge ENB also made it to the headlines.

Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures lost some 4.8% to close at $76.28 per barrel, while natural gas prices increased around 11.4% to end at $7.0240 per million British thermal units (MMBtu).

Coming back to the holiday-shortened week ended Oct 25, the oil price action continued to be bearish in the United States, weighed by China’s economic slowdown due to the continuation of its zero-COVID lockdown policy. The slower-than-expected effect of Western sanctions on Russian crude export has also been a major factor.

Meanwhile, natural gas finished up for the third straight week following the first draw of the winter heating season and strong temperature-driven consumption.

Recap of the Week’s Most Important Stories

1.  Diamondback Energy — the Midland, TX-headquartered independent oil and gas exploration & production company — declared that it has agreed to acquire all leasehold and related assets in the Permian Basin from Lario Oil & Gas in cash and stock.

Per the terms of the deal, which is anticipated to be closed on Jan 31, 2023, Lario will receive 4.18 million Diamondback shares and $850 million as cash consideration.

The acquisition includes about 25,000 gross (15,000 net) acres in the core of the Northern Midland Basin, with the full-year 2023 estimated average production of roughly 25 thousand barrels of oil equivalent per day. Moreover, FANG expects to reduce the operated rig count from two currently to one or less post-closing for 2023 development. (Diamondback to Buy Permian Basin Assets From Lario)

2. Supermajor Chevron recently announced that it signed a definitive agreement to take over full ownership of Beyond6, LLC and its network of 55 compressed natural gas (CNG) stations spread across the United States. CVX is acquiring ownership from Beyond6’s current co-owners — Mercuria Energy Trading and CEO Andrew West. The financial terms of the deal have not been disclosed.

As part of the transaction, Mercuria will enter a long-term supply relationship to deliver renewable natural gas (RNG) to Chevron. This will enable CVX to market the RNG it either produces or procures through a nationwide network of CNG locations.

Chevron mentioned that this acquisition of Beyond6 complements the energy giant’s strength in its traditional product business with new offerings. These will assist customers in supporting a lower carbon future, of which RNG is an essential part of the company’s portfolio of solutions. (Chevron to Buy 100% Stake in Beyond6 CNG Fueling Network)

3.  Upstream energy giant ConocoPhillips is modifying its agreement to purchase additional liquified natural gas per year from Sempra Energy’s Port Arthur liquefied natural gas (LNG) export project in Texas.

ConocoPhillips will purchase 5 million tons per annum of LNG from southern California-based energy services holding company Sempra Energy’s Port Arthur Phase 1 project in Jefferson County for 20 years. COP also acquired a 30% stake in the first phase of the Port Arthur project. Per the terms of the deal, the Zacks Rank #3 (Hold) company will handle the natural gas supply requirements for Phase 1 of the proposed liquefaction facility.

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

Port Arthur LNG Phase 1 will involve two liquefaction trains, LNG storage tanks and associated facilities. The project is expected to produce up to 13.5 million tons per annum of LNG, with the Phase 2 project currently under development. (ConocoPhillips Inks Deal to Buy LNG From Sempra Energy)

4   Offshore drilling powerhouse Transocean declared that one of its subsidiaries, along with Perestroika A.S. and funds managed by Lime Rock Management L.P., formed a joint venture named Liquila Ventures Ltd.

The joint venture has agreed to purchase the ultra-deepwater newbuild drillship — formerly known as West Aquila — Hull 3623 from the South Korean shipbuilding firm Daewoo Shipbuilding & Marine Engineering Co., Ltd. The consideration for the transaction is approximately $200 million.

Hull 3623 is a high-specification, 1400 short-ton hook load ultra-deepwater drillship. This seventh-generation dual-activity drillship will have an outsized space and high-load capacities, along with being dual-stack ready. (Transocean Acquires Stake in Ultra-Deepwater Drillship)

5   Energy infrastructure provider Enbridge and partners reached a milestone by commissioning France’s first commercial-scale offshore wind project — Saint-Nazaire Offshore Wind Farm.

The resumption of the offshore wind farm adds 480 megawatts (MW) of capacity to the current supply network when Europe is struggling to secure energy supplies after Russia’s aggressive invasion of Ukraine. The project is co-owned by EDF Renewables and CPP Investments.

Located 12-20 kilometers off France’s west coast, the 480-MW Saint-Nazaire wind farm involves 80 turbines at depths of 12-25 meters. The offshore wind farm can power an equivalent of 400,000 homes per year or 20% of the Loire-Atlantique region’s electricity requirements. (Enbridge Begins Operation in France Offshore Wind Farm)

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               +1%                 +16.4%
CVX                +0.4%             +3.3%
COP               -1.4%              +10.6%
OXY                -1.4%              +0.4%
SLB                -4.9%              +6.7%
RIG                -1.9%               -2.6%
VLO                +0.6%             +5.6%
MPC               +3.3%             +23%

With oil and gas moving in opposite directions for the week, stocks saw a mixed bag. The Energy Select Sector SPDR — a popular way to track energy companies — edged up 0.3% last week. Over the past six months, the sector tracker has risen 4.2%.

What’s Next in the Energy World?

Following last week’s mixed fortunes for oil and gas, 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/natural gas production, is closely followed too. News related to the ongoing Russia-Ukraine geopolitical conflict and the potential demand loss from the continued coronavirus lockdowns in China will be the other factors that will dictate the near-term price movement of the commodities.

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