Oil & Gas Stock Roundup: Chesapeake Sells Assets, QEP Resources Offloads Gas Pipelines

It was a week where Chesapeake Energy Corp. (CHK) unloaded certain assets in West Virginia for $5.4 billion, while QEP Resources Inc. (QEP) sold its gas pipelines in a $2.5 billion deal.

Overall, it was a bearish week for the sector. West Texas Intermediate (WTI) crude futures declined by 3.6% – the fifth decrease in 6 weeks – to close at $82.75 per barrel. Natural gas prices lost 2.4% to $3.77 per million Btu (MMBtu). (See last ‘Oil & Gas Stock Roundup’ here: Targa, Atlas to Combine Pipeline Assets for $7.7B.)

Oil prices fell to their lowest level since Jun 2012 on plentiful supplies and lackluster demand expectations. Moreover, a stronger dollar made the greenback-priced crude dearer for investors holding foreign currency. The negative sentiment was further dampened by weakening growth in China and a stagnant European economy. On top of that, OPEC members (like Saudi Arabia) have made it clear that they are more intent on preserving market share rather than attempting to arrest the price decline through production cuts.

Natural gas also fared badly, as it had to deal with another above-average supply increase. The commodity was also depressed by expectations of mild heating demand with forecasts of tepid early-winter weather.

Recap of the Week’s Most Important Stories

1. Shares of Chesapeake Energy Corp. gained nearly 17%, post the announcement of its multibillion dollar asset sale deal with Southwestern Energy Co. The Oklahoma City-based independent oil and gas company has entered into an agreement to sell assets located in the Southern Marcellus Shale and Eastern Utica Shale for a massive $5.375 billion. The deal is likely to close in the final quarter of the year. Shareholders appreciated Chesapeake’s move as it would strengthen financials, bringing in the much needed cash.

The agreement includes drilling rights in acreage spread across approximately 413,000 net acres in Northern West Virginia and Southern Pennsylvania. The assets include 1,500 wells, of which 435 are located in the promising Marcellus and Utica Shale plays. (Read More: Chesapeake Soars on Asset Sale to Southwestern Energy.)

2. Independent energy explorer QEP Resources Inc. announced that it has entered into a deal with Tesoro Logistics L.P. to sell its natural gas gathering and processing subsidiary, QEP Field Services Company. As part of this $2.5 billion transaction, Tesoro Logistics will also acquire ownership interest in QEP Midstream Partners L.P.

The assets under sale include natural gas and crude oil gathering and transmission pipelines spread across 2,000 miles, with a throughput capacity of over 2.9 billion cubic feet per day of natural gas and 54,000 barrels of crude oil per day. (Read More: QEP Resources to Sell Pipeline Assets to Tesoro Logistics.)

3. Shell Midstream Partners L.P. – a newly formed subsidiary of energy behemoth Royal Dutch Shell plc (RDS.A) – announced the launch of an initial public offering (“IPO”) of 37.5 million common units representing limited partner interests. The partnership also intends to provide the underwriters with a 30-day option to purchase up to 5.6 million additional common units to cover over-allotments, if any. Shell Midstream, whose common units will be listed on the New York Stock Exchange under the ticker symbol ‘SHLX’, expects the offering to be priced in the range of $19–21 per unit. The partnership’s assets include stakes in four onshore and offshore pipelines, mainly based in Texas and Louisiana.

4. The past few days saw a kickoff in quarterly reporting from the oilfield services segment, with biggies Baker Hughes Inc. (BHI), Schlumberger Ltd. (SLB) and Halliburton Co. (HAL) already coming out with third quarter numbers. While the results were a mixed bag, they were mostly unanimous in pointing towards an improving North American market, coupled with strength in the Middle East and Asia. Additionally, the companies remain positive about stepped-up activity in the U.S. Gulf of Mexico.

5. Oil and natural gas exploration and production firm Marathon Oil Corp. (MRO) announced that it has completed the sale of its Norway operations. From the divestment, Marathon Oil received $2.1 billion − after adjusting debt, net working capital and interest on purchase price – from Det norske oljeselskap ASA, an Norwegian upstream energy.

The divested properties comprise 10 operated licenses, a few non-operated licenses on the Continental Shelf of Norway in the North Sea, apart from a floating production, storage and offloading (:FPSO) vessel. The resources contributed roughly 80,000 barrels of oil equivalent (BOE) every day to Marathon Oil’s total output in 2013. (See More: Marathon Oil Closes Norway Business Divestiture for $2.1B.)

Price Performance

The following table shows the price movement of the major oil and gas players over the past week and during the last 6 months.

Refiner Tesoro Corp. was the week's best performer among the market heavyweights, adding 8.4% to its stock price after affiliate Tesoro Logistics L.P. agreed to acquire QEP Resources’ natural gas business. On the other hand, the biggest loser was U.S. energy explorer Occidental Petroleum Corp., which fell 3.1% during the period in the face of plunging oil prices.

Over the last 6 months, Tesoro was again the leader of the pack with its shares advancing 23.7%. Investors have rewarded the company for its continued focus on shareholder returns. On the other hand, offshore driller Transocean Ltd. was the laggard, as it witnessed a 27.8% price decline over the same time frame on the back of rig oversupply that has led the industry into a cyclical downturn.

What’s Next in the Energy World?

Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking releases on housing, consumer price and jobless claims, apart from a host of earnings reports.

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