Oil & Gas Stock Roundup: FMC Tech to Merge with Technip, Chevron Aims to Restart Gorgon

 

It was a week where oil prices marked its highest settlement in 7 months but natural gas futures ended lower.

On the news front, oilfield service providers FMC Technologies Inc. FTI and Technip SA have agreed to merge in an all-stock deal worth $13 billion, while Chevron Corp. CVX hopes to resume its Gorgon LNG operations soon.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures gained 3.3% to close at $47.75 per barrel, natural gas prices fell 1.6% to $2.062 per million Btu (MMBtuOil prices moved north for the sixth time in 7 weeks on supply disruptions in Nigeria, Libya, Venezuela and Canada. Things were further helped by a continued decline in U.S. crude production.

On the other hand, natural gas fared badly after an encouraging inventory report was more than offset by mild temperatures across most parts of the country that restricted the commodity’s requirement for power burn.

Recap of the Week’s Most Important Stories

  1. Oilfield service players FMC Technologies Inc. and Technip SA are merging in an all-stock deal of equal proportions, in a sign that consolidation is picking up in the energy space. The tie-up – which should close early next year – would combine Houston-based FMC Technologies, a major underwater energy equipment maker, with Paris-based Technip, an offshore oil and gas field developer.

The merged organization will do business as TechnipFMC (stock symbol not stated). Based on May 18 closing prices, the joined company will be worth $13 billion boasting of 2015 pro forma revenue of $20 billion, EBITDA of $2.4 billion and total order backlog – as of Mar 31, 2016 – of $20 billion.

Under the terms of the transaction, Technip shareholders will receive two shares in the new business for each share they hold, while each FMC Technologies share will be converted into one share of TechnipFMC. Post merger, Technip investors will own around 50% of the combined firm while FMC Technologies shareholders will own the remaining half.

  1. U.S. oil major Chevron Corp. said that it has started preparation to resume its Gorgon liquefied natural gas (LNG) development.

The $54-billion project – located off the coast of Australia – was shut down last month due to technical problems. Before that on Mar 7, the company commenced the production of LNG and condensate from the massive Gorgon project. In March, the company also sent the first LNG cargo to a Japanese customer from the project.

Chevron foresees the fundamentals of LNG to be favorable in the long run and revealed that there is growing need for natural gas specifically in the Asia-Pacific area. The company believes that Gorgon LNG, which will help Australia to become the largest exporter of LNG worldwide in a few years by edging out Qatar, will serve this huge demand for several decades.

  1. Hamilton, Bermuda-based offshore drilling firm SeaDrill Ltd. SDRL confirmed that the contract for its semi-submersible drilling rig, West Hercules to Norwegian oil major Statoil ASA has been terminated ahead of schedule.

Per the terms of the contract, SeaDrill will receive a hefty compensation of approximately $61 million from Statoil. The company will also get dayrate and reimbursement of costs associated with disbandment of the rig from the latter.

As oil remains in a bearish territory, the top energy companies have cut spending (particularly on the costly drilling projects) on the back of lower profit margins. This, in turn, has meant less work for the beleaguered drillers as offshore exploration for new oil and gas projects has almost come to a standstill.

  1. Rowan Companies plc RDC announced that owing to the premature cancellation of one of its drilling contracts it would receive millions in compensation. The company’s drilling contract for the drillship Rowan Relentless with its customer Freeport-McMoRan Inc. (Freeport) was terminated with immediate effect. The contract was scheduled to terminate in Jun 2017.

Per the agreement, Rowan would receive $215 million in cash from Freeport to settle outstanding receivables and the early termination of the contract. The company may also receive additional contingent payments of $10 million and $20 million, respectively, depending on the average price of oil over a 12-month period.  In addition, Rowan expects to reduce its costs for the Rowan Relentless by efficient warm stacking of the rig.

  1. Brazil’s state-run energy giant Petrobras PBR – having the highest debt load in the oil industry – is issuing new global debts to buy back notes that will mature in the coming years. Notably, this the first time in a year that Petrobras is offering an international bond.

Petrobras has offered five-year notes worth $5 billion having yield 8.625% along with 10-year notes that yield 9%. From the sale proceeds, the company will likely buy back notes having principal amount of $3 billion and about to mature by 2018. Credit rating agency Moody’s Investors Service has rated the global bonds as “B3” – six notches below the investment grade.

The record high rate that the company is offering reflects its weak fundamentals. In other words, Petrobras hasn’t been in good shape after it got involved in a multimillion dollar money laundering scam. Also, the business scenario for the energy players has not been favorable for a long time following weak oil and gas prices, although crude has started taking a bullish turn.

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.

Company Last Week Last 6 Months
XOM +0.19% +9.43%
CVX -1.41% +8.79%
COP -0.57% -21.20%
OXY -2.05% -1.36%
SLB +1.26% -4.05%
RIG -1.69% -37.97%
VLO +1.70% -25.43%
TSO +1.75% -34.87%

 

Over the course of last week, ‘The Energy Select Sector SPDR’ was up 1.06% on supply outages. Consequently, investors witnessed a buying spree in most large companies. The best performer was downstream operator Tesoro Corp. TSO that added 1.75% to its stock price.

Longer-term, over the last 6 months, the sector tracker is down 2.06%. Offshore drilling giant Transocean Ltd. RIG was the main casualty during this period, experiencing a 37.97% price decrease.

What’s Next in the Energy World?

As usual, market participants will be closely tracking the regular weekly releases i.e. the U.S. government data on oil and natural gas. Moreover, oil prices will again guide market proceedings to a significant extent.

PETROBRAS-ADR C (PBR): Free Stock Analysis Report

FMC TECH INC (FTI): Free Stock Analysis Report

TESORO CORP (TSO): Free Stock Analysis Report

CHEVRON CORP (CVX): Free Stock Analysis Report

ROWAN COS PLC (RDC): Free Stock Analysis Report

TRANSOCEAN LTD (RIG): Free Stock Analysis Report

SEADRILL LTD (SDRL): Free Stock Analysis Report

To read this article on Zacks.com click here.

Symbols: CVX FTI PBR RDC RIG SDRL TSO

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