The Zacks Analyst Blog Highlights: Callon Petroleum, Carrizo Oil & Gas, McDermott International and Occidental Petroleum

Zacks Equity Research

For Immediate Release

Chicago, IL – July 17, 2019 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Callon Petroleum Company CPE, Carrizo Oil & Gas CRZO, McDermott International MDR and Occidental Petroleum OXY.

Here are highlights from Tuesday’s Analyst Blog:

Oil & Gas Stock Roundup: CPE, CRZO, MDR & More

It was a week where both oil and natural gas prices settled higher.

On the news front, shale producer Callon Petroleum Company agreed to buy Houston-based upstream player Carrizo Oil & Gas in a $3.2 billion deal, while McDermott International clinched twin contracts from Saudi Aramco.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures rose 4.7% to close at $60.21 per barrel, while natural gas prices moved up 1.4% for the week to finish at $2.453 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: ExxonMobil's Q2 Update, TC Energy's Asset Sale & More)

The U.S. crude benchmark hit the highest settlement level since May 22, buoyed by a significantly bigger-than-expected drop in U.S. crude supplies and worries about Tropical Storm Barry that sharply curtailed offshore oil production in the Gulf of Mexico (GoM).

Natural gas prices gained too as the market participants shrugged off another larger-than-expected climb in U.S. supplies and chose to focus on a bullish near-term weather forecast that could trigger strong power sector demand for the fuel, with an added push in the wake of the GoM storm.

Recap of the Week’s Most Important Stories

1.  Callon Petroleum recently announced that the company has struck an all-stock deal to acquire Carrizo Oil & Gas.

The deal is valued at around $3.2 billion, which incorporates about $1.7 billion debt of Carrizo. The acquisition is expected to boost Callon’s footprint in the prolific Permian Basin. However, the company is set to lose its pure-play Permian status on acquiring Carrizo’s Eagle Ford shale play properties.

The combined company is expected to have around 200,000 net acres in the Permian Basin and Eagle Ford shale. Combined production in first-quarter 2019 was 102.3 thousand barrels of oil equivalent per day (Mboe/d), of which 71% was crude oil.

The deal is expected to generate more than $100 million of fee cash flow and annual cost-saving synergies in the range of $100-$125 million. (Read more

2.   McDermott Internationals shares spiked 12.89% after the company announced that it clinched two major contracts associated with Saudi Aramco’s Marjan Increment Development project offshore Saudi Arabia. The twin contracts for Marjan Package 1 and 4 are worth more than $4.5 billion.

Under the Package 1 contract, which is worth more than $3 billion, McDermott will offer engineering, procurement, construction and installation (EPCI) of Marjan offshore field’s Gas-Oil Separation Plant (GOSP). China Offshore Oil Engineering Company will partner with McDermott for the Package 1 contract. The consortium contract led by McDermott aims at building the GOSP, which will enhance oil output from the Arabian Gulf field from 500,000 to 800,000 barrels per day.

Under the Package 4 contract, which is worth more than $1.5 billion, McDermott will provide EPCI of offshore gas facilities and pipelines. The contract involves the fabrication of three tie-in platforms and seven wellhead platforms, along with the installation of subsea trunk lines, in-field pipelines and subsea cables.

The engineering phase of this contract will commence during third-quarter 2019 and be completed by year-end 2022. The value of the contract will be reflected in McDermott’s second-quarter 2019 backlog.(Read more McDermott Wins EPCI Contracts Worth $4.5B From Saudi Aramco)

3.   Occidental Petroleum recently announced that the board of directors has approved a 1.3% increase in the quarterly dividend rate. The revised dividend will be 79 cents, payable Oct 15, 2019 to its shareholders of record at the close of business on Sep 10. The new annualized dividend rate of the company is $3.16 per share, resulting in a dividend yield of 6.26%. Its current dividend yield is better than the Zacks S&P 500 composite’s 1.88%.

Occidental's continued focus on the Permian Resources has been beneficial for the company.  Production from this region is expected to improve further from the current levels, thanks to the newly added wells. Occidental, which carries Zacks Rank #3 (Hold), has also executed a strategic initiative to divest of lower-margin, lower-return oil and gas production, with the plan to replace it with higher-margin and higher-return production. We expect these initiatives to help Occidental generate more free cash flow.

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

Occidental has a long history of sharing profits with its shareholders. The company has been distributing dividend since 1975. Occidental has increased its annual dividend for 17 consecutive years. The total increase in annual dividend of the company from 2002 exceeds 500%.(Read more Occidental Petroleum Board Approves 1.3% Dividend Hike)

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