Oil & Gas Stock Roundup: Spotlight on Deals by Equinor, Marathon

It was a week when oil prices settled below $80 for the first time in months, while natural gas futures hit their lowest point since July.

On the news front, Norwegian energy behemoth Equinor EQNR signed a 10-year gas supply agreement with Poland, while oil refiner Marathon Petroleum MPC finalized its joint venture deal for the Martinez renewable fuels project in California with Finland’s Neste. Developments associated with Eni E, Cheniere Energy LNG and Schlumberger SLB also made it to the headlines.

Overall, it was a dismal seven-day period for the sector. West Texas Intermediate (WTI) crude futures lost 7.1% to close at $78.74 per barrel, while natural gas prices decreased around 12% to end at $6.828 per million British thermal units (MMBtu). In particular, the oil and gas markets continued their rapid decline over the last few weeks.

U.S. oil prices crashed following the Federal Reserve's recent decision to hike interest rates further in line with many other central banks across the world to step up the fight against soaring inflation. The tightening monetary policies have sparked concerns about a possible recession and consequently, slowing crude demand. A stronger greenback, which can weaken dollar-denominated commodities like crude, also contributed to the downside.

Natural gas notched a bigger weekly loss, primarily due to a bearish inventory report. Unfavorable weather forecasts and a spurt in production were also blamed for pushing prices lower.

Recap of the Week’s Most-Important Stories

1.  Stavanger, Norway-headquartered integrated major Equinor signed an agreement to sell natural gas to Polish state-controlled PGNiG for 10 years. The pact is expected to improve the nation’s energy security after Russia cuts natural gas exports to countries in Europe this year.

PGNiG is one of the leaders in the Polish natural gas market. The company’s core business includes the exploration and production of natural gas and crude oil. The agreement, running from Jan 1, 2023, to Jan 1, 2033, involves the supply of 2.4 billion cubic meters (bcm) of gas per year through the Baltic Pipe. The volumes are equivalent to 15% of the annual gas consumption in Poland.

The Baltic Pipe pipeline will enable gas transport from Norway to the Denmark and Poland markets. Baltic Pipe is a gas infrastructure project aimed at creating a gas supply corridor in the Europe market. The pipeline is planned for partial commissioning this October. It is expected to be fully commissioned on Jan 1, 2023, at an annual capacity of up to 10 bcm. (Equinor Signs Deal to Supply Natural Gas to Poland)

2.  U.S. downstream operator Marathon Petroleum declared that it has finalized the previously proposed joint venture with the Finnish oil refining and marketing company — Neste. The two firms will now hold equal shares in the joint venture, Martinez Renewables, to convert the Martinez refinery to produce renewable fuels.

All necessary permits and regulatory approvals have been received for the project. Neste will invest a sum of $1 billion, including half of the total project development cost anticipated at around $1.2 billion, through the completion of the project. Meanwhile, Zacks Rank #1 (Strong Buy) MPC will be responsible for managing the completion of the conversion project along with the operation of the facility upon completion.

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

Currently, the first phase of the Martinez facility is targeted to be mechanically complete by the end of this year. The initial production capacity is estimated at 260 million gallons per year of renewable fuels. Later, it will rise to its full nameplate production capacity of 730 million gallons per annum by year-end 2023. (Marathon, Neste Form Joint Venture for Renewable Project)

3. Rome-based energy biggie Eni, through its Plenitude retail and renewable business, formed a partnership with Infrastrutture SpA to develop solar and wind power projects in Italy and Spain.

Per the deal, Plenitude will acquire a 65% stake in energy developer and investor Infrastrutture’s subsidiary Hergo Renewables. Infrastrutture will hold the rest. Hergo Renewables holds a portfolio of projects in the two Mediterranean countries, with a total capacity of 1.5 gigawatts (GW).

The first project involves a photovoltaic facility in Italy’s Montalto di Castro, with a capacity of 37 megawatts. The project’s work will begin in the coming weeks. The facility will likely be up and running in the second half of 2023. The partnership will enhance Infrastrutture’s proficiency and portfolio of projects built over its 30 years of industry experience in Italy and Spain. It will contribute to deploying renewable projects to fight against climate change. (Eni to Develop Renewable Energy Projects in Italy And Spain)

4   Natural gas exporter Cheniere Energy and Whistler Pipeline have agreed to form a joint venture (JV) for the construction of the ADCC Pipeline. It is a 42-inch, intrastate pipeline that is anticipated to extend 43 miles from the terminus of Whistler Pipeline in Agua Dulce, TX to the Corpus Christi LNG terminal in Texas.

The pipeline project, subject to customary regulatory and other approvals, is planned to be commissioned in 2024. It is expected to transport up to 1.7 billion cubic feet per day of (Bcf/d) natural gas and will be expandable to 2.5 Bcf/d of natural gas. Moreover, the project involves the installation of three new compressor stations. These are planned to be commissioned in September 2023.

The development comes at a time when demand for U.S. liquefied natural gas (LNG Quick QuoteLNG - Research Report) from Europe has skyrocketed as a result of Europe hustling to find alternatives to Russian gas. (Cheniere, Whistler JV to Construct Texas Gas Pipeline)

5   Schlumberger, a leading provider of technical products and services to drillers of oil and gas wells, collaborated with Gulf energy behemoth Saudi Aramco to develop a digital platform to provide sustainable solutions for industrial sectors, which are among the most challenging to decarbonize.

The platform will enable industrial companies such as oil and gas, chemicals, utilities, cement, and steel to collect, measure, report and validate their emissions. It will also enable them to assess different decarbonization pathways.

The companies will be able to measure and report baselines, targets, emissions, offsets and credits to manage their carbon footprints efficiently by increasing the availability and visibility of relevant data in a transparent and flexible solution. (Schlumberger, Aramco to Develop Low-Carbon Solutions)

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                   -8%                +0.7%
CVX                    -7.5%            -14.5%
COP                   -11.1%           -6.4%
OXY                    -8.8%              0.0%
SLB                    -8.8%              -19.9%
RIG                     -22.1%           -49.3%
VLO                    -3.7%              +3.4%
MPC                   -4.4%              +11.2%

With oil being deep in red for the week, stocks plunged too. The Energy Select Sector SPDR — a popular way to track energy companies — was down 9.2% last week. Over the past six months, the sector tracker has decreased 10.7%.

What’s Next in the Energy World?

Following last week’s sliding 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 extended coronavirus lockdowns in China will be the other factors that will dictate the near-term price movement of the commodities.


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Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Eni SpA (E) : Free Stock Analysis Report
 
Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report
 
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
 
Equinor ASA (EQNR) : Free Stock Analysis Report
 
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