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Oil & Gas Stock Roundup: Apache's Canadian Exit, Halliburton's Acquisition & More

It was a week where both oil and gas prices were down again.

On the news front, independent producer Apache Corp. APA announced its departure from Canada’s energy sector, while world’s second largest oilfield services group Halliburton Co. HAL bought pumping technology provider Summit ESP for an undisclosed sum.

Overall, the sector started the third quarter on a bearish note. West Texas Intermediate (WTI) crude futures lost 3.9% to close at $44.23 per barrel, while natural gas prices fell 5.6% to $2.864 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Carrizo & Shell's Acquisitions, Conoco's Asset Sales & More.)

Suffering its sixth loss in seven weeks, oil prices were pressured by rising U.S. oil production and surge in drilling rig count number of rigs searching for oil in the country) – both pointing to growing shale output that continues to be the biggest headwind for the market. Investors were also spooked by surging volumes from Libya and Nigeria, two African countries exempt from the OPEC-led agreement to cut production.

These factors more than offset the U.S. Energy Department's bullish inventory release that showed a significant decline in oil and gasoline inventories.

Meanwhile, natural gas also turned sharply lower following a larger-than-expected increase in weekly supplies and worries over the fuel’s tepid demand on the back of bearish weather predictions.

Recap of the Week’s Most Important Stories

1.    US energy explorer Apache Corp. is set to exit Canada following its latest deal with local oil producer Paramount Resources Ltd. Through the deal worth C$459.5 million ($354 million), Apache is divesting its Canadian unit. This is the company’s third sell-off in the last two months in Canada.

Paramount Resources will pay the stipulated amount along with working capital and other monetary adjustments. The deal, expected to be completed by Aug 2017, will add 1.6 million acres to the acquirer's portfolio of which 185,000 acres have good prospects and 45,000 acres are yet to be developed. Apache Canada's assets are mainly located in the provinces of Alberta and British Columbia.

The deal is in line with Apache's plan to streamline its portfolio and shift focus from Canada to its assets in the US, UK North Sea and Egypt. This strategy will help the company to manage its resources efficiently and engage in high growth areas, especially in the Permian Basin.

Apache expects the aggregate proceeds from these three transactions to be around $713 million (C$ 927 million). These will be utilized to fund Apache's capital program of 2017-18, decrease debt and enhance its overall liquidity. (Read more: Apache to Exit Canada, Eyes Prospects in Other Regions.)

2.    Leading oilfield service firm Halliburton Co. recently acquired Tulsa, OK-based Summit ESP.

Summit ESP is the manufacturer of electric submersible pump systems that indirectly help boost the production of oil and natural gas by maintaining pressure of aging wells. During May, the company completed the installation of its 8,000th electric submersible pump. This marks an increment of 1,000 installations since late 2016.

We expect Halliburton to gain from this acquisition given that devices manufactured by Summit ESP are in high demand and are being utilized by upstream energy players for extending the life of shale wells. Importantly, the deal has made Halliburton more competent in the North American oilfield services market by significantly enhancing the artificial lift potential.

In other words, following the accord, Halliburton will be able to maximize the value of properties for customers and is now in a better position to compete with leading oilfield service providers like Schlumberger Ltd. and Weatherford International plc.(Read more: Halliburton's Summit Buyout Boosts Artificial Lift Potential.)

3.    Integrated energy company Chevron Corp. CVX recently sold five fields in Gulf of Mexico’s Outer Continental Shelf and in Louisiana state waters to Cantium LLC, a private and independent oil and gas company. Cantium is funded by York Capital Management and Sole Source Capital.

The deal will provide Houston-based Cantium ownership of Chevron's Bay Marchand and Main Pass assets. The transaction includes 300 active wells, 151 platforms, the Port Fourchon onshore treatment plant, caissons, and several offshore structures. The deal amount was not disclosed by the companies. It is expected to be completed by the second half of this year. Cantium might retain some of the Chevron workers following the acquisition.

The deal is in line with Chevron’s plan last year to divest $10 billion shallow water assets during 2016-17. This will enable the company to focus on its deepwater assets and increase cash margin. (Read more Chevron Sells Gulf of Mexico Oil Fields to Cantium.)

4.    Energy services firm McDermott International Inc. MDR recently entered into a five-year amended and restated credit agreement. The deal is likely to provide support to the company’s growth plans and increase its financial flexibility.

The amended agreement replaces the prior borrowing capacity of $450 million and provides McDermott with $810 million capacity of letters along with $300 million revolving cash sublimit.  The term of maturity of the facility is also extended till 2022, provided that the company’s existing term loans are repaid by Dec 2020, reducing the leverage and simplifying the capital structure. Further, the restated agreement allows lenders to increase their commitments up to $1 billion.

The increased credit limit of the facility emphasizes the belief that creditors have in McDermott. The company has made a major turnaround through its cost saving initiatives to shore up its financials over the years. The company has also been winning a number of contracts lately, adding to its robust backlog of around $4 billion.

McDermott is likely to utilize the proceeds from the credit agreement to boost its future growth plans. It will provide the company with a leaner capital structure and balance sheet flexibility which will enable McDermott to deploy cash to bolster its portfolio further. (Read more: McDermott Extends Credit Facility to $810 Million.)

5.    Moving ahead with its divestment goals, Brazil's state-run energy giant Petrobras PBR recently announced plans to offload assets in Paraguay and Maromba field in the Campos basin. The company, grappling with huge debt, intends to reinstate its financial health through deleveraging efforts and divestment goals.

In Paraguay, Petrobras is set to divest its entire stake in three subsidiaries namely – Petrobras Paraguay Distribución Limited, Petrobras Paraguay Operaciones y Logística SRL and Petrobras Paraguay Gas SRL. These subsidiaries are involved in the distribution and sale of fuel, liquefied petroleum gas and lubricants.

Along with divestment of assets in Paraguay, Petrobras will also unload its stake in the Maromba oil field in the Campos Basin, offshore Brazil. Maromba is a heavy oil field located in shallow waters close to the fields of Peregrino and Papa-Terra. The company, which had earlier planned to develop the field through the use of floating production system, now considers Maromba as one of its non-core assets.

Petrobras which aims to revive its financial health through the divestment program of 2015–2018, has already sold assets over $13.6 billion since Jan 2015. The company – currently carrying a Zacks Rank #2 (Buy) – intends to raise another $21 billion over the next two years to garner $35 billion from asset sales. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. (Read more: Petrobras to Offload Assets in Paraguay and Maromba.)

Price Performance

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

Company

Last Week

Last 6 Months

XOM

-1.04%

-7.16%

CVX

-0.52%

-11.29%

COP

-1.94%

-13.78%

OXY

-2.05%

-14.86%

SLB

-0.21%

-23.41%

RIG

-1.86%

-49.24%

VLO

+1.46%

+2.36%

TSO

+2.62%

+19.14%

Over the course of last week, the Energy Select Sector SPDR – a popular way to track energy companies – fell by -0.54%. The worst performer was Houston-based energy explorer Occidental Petroleum Corp. OXY whose stock price was down -2.05%.

Longer-term, over the last 6 months, the sector tracker is down -13.95%. The major laggard during this period was offshore drilling powerhouse Transocean Ltd. RIG, experiencing a -49.24% price decline.

What’s Next in the Energy World?

Meanwhile, market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas - one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count.

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Petroleo Brasileiro S.A.- Petrobras (PBR): Free Stock Analysis Report
 
McDermott International, Inc. (MDR): Free Stock Analysis Report
 
Halliburton Company (HAL): Free Stock Analysis Report
 
Chevron Corporation (CVX): Free Stock Analysis Report
 
Transocean Ltd. (RIG): Free Stock Analysis Report
 
Apache Corporation (APA): Free Stock Analysis Report
 
Occidental Petroleum Corporation (OXY): Free Stock Analysis Report
 
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