Oil & Gas Stock Roundup: Permian Resources' Buyout, Shell's Project Start-Up & More

It was another week when both oil and natural gas prices posted losses, albeit small.

On the news front, the headlines revolved around energy producer Permian ResourcesPR $4.5 billion acquisition announcement and London-based supermajor Shell’s SHEL production commencement at a gas project in Malaysia. Developments associated with Cheniere Energy LNG, Crescent Point Energy CPG and Mtarix Service Company MTRX also made it to the headlines.

Overall, it was a bearish seven-day period for the sector. West Texas Intermediate (WTI) crude futures decreased 1% to close at $79.83 per barrel, while natural gas prices edged down 0.4% to end at $2.54 per million British thermal units (MMBtu).

In particular, the crude price action remained negative for the second week running on concerns over demand in China and the possibility of more rate hikes in the near future. The EIA report, revealing builds in fuel stocks, was also a factor.

Meanwhile, natural gas settled with a slight loss week over week, overwhelmed by export weakness and indications of a possible aversion of a workers’ strike in Australia.

Recap of the Week’s Most Important Stories

1.  Oil and gas producer Permian Resources entered an agreement to acquire smaller rival Earthstone Energy for $4.5 billion, which includes the assumption of net debt. The deal will form an independent exploration and production company focused on the Delaware Basin. The new company will be valued at around $14 billion. The deal is expected to be completed by the end of 2023.

Permian Resources will issue 211 million shares of common stock in the transaction. Upon the deal closure, Permian Resources shareholders will own 73% of the combined company, while Earthstone shareholders will own the rest.

The acquisition will expand Permian Resources’ existing footprint by adding 223,000 net acres in the Permian Basin. This will bring the combined company to more than 400,000 net acres with pro-forma production of 300,000 barrels of oil equivalent per day. In the Delaware Basin, Earthstone adds 56,000 net acres to the combined company.

2. A unit of British energy major Shell recently announced the commencement of gas production from its Timi platform in Malaysia, operating under the SK318 production sharing contract. This endeavor not only signifies a breakthrough in gas production but also reflects Shell’s unwavering commitment to sustainable innovation and the ongoing energy transition.

Timi’s strategic design ensures an impressive peak gas production capability of up to 50,000 barrels of oil equivalent per day. This momentous output will be effectively transported through a cutting-edge 80-kilometre pipeline to the well-established F23 production hub. The visionary project bears significance in nurturing the forthcoming expansion in the central Luconia region, strategically located off the vibrant coast of Sarawak.

Shell has a long history of success in Malaysia. The company continues to be dedicated to its mission to fuel the country’s economic advancement while meticulously navigating the complexities of the energy transition, led by the capable stewardship of Malaysia Petroleum Management, PETRONAS.

3.  Natural gas exporter Cheniere Energy recently announced a long-term sale and purchase agreement with BASF, a well-known company in the chemical sector. The deal is a significant boost for Zacks Rank #3 (Hold) Cheniere Energy, as it secures long-term demand for its liquefied natural gas exports. It is also a sign of Europe’s growing reliance on gas imports, as the continent seeks to reduce its dependence on Russian gas. This strategic collaboration is poised to reshape the energy supply chain and contribute to Europe’s sustainable and secure energy future.

According to the terms of the SPA, Cheniere Energy’s subsidiary, Cheniere Marketing, LLC, has made a deal with BASF to supply up to 800,000 metric tons of liquefied natural gas annually for 20 years, starting mid-2026, on a free-on-board basis. The purchase price of the export will be indexed to the Henry Hub price, augmented by a fixed liquefaction fee.

The aforementioned collaboration has far-reaching implications for Europe’s energy security. The agreement reflects the critical role that U.S. natural gas is poised to play in providing Europe with secure, sustainable and affordable energy.

4.   Crescent Point Energy, a Canadian oil and gas producer, recently unveiled its decision to sell its North Dakota assets to a private operator for C$675 million ($500 million) in cash. This move, expected to be finalized in the fourth quarter of 2023, is part of Crescent Point’s strategy to optimize its portfolio and alleviate its debt burden.

The North Dakota assets had gross daily production of around 23,500 barrels of oil equivalent/boe (89% oil and liquids) in the second quarter of 2023. However, due to limited drilling inventory, this production was anticipated to decline over the coming years. By 2027, Crescent Point projected a decrease to 18,000 boe per day, with further drops in subsequent years.

Notably, this transaction will enable Crescent Point to expedite its debt repayment plans. The company anticipates its net debt to be under C$2.2 billion ($1.62 billion) by the end of the year, a notable drop from the C$3 billion outstanding at the close of the second quarter.

5. Matrix Service Company, a leading provider of engineering and construction solutions to North America’s energy and industrial markets, recently revealed that has received a substantial $464 million in awards during the fiscal fourth quarter. The latest contract wins also boosted its backlog to an impressive $1.1 billion as of Jun 30, 2023 – the largest in five years.

The success story behind this substantial, multi-year backlog is attributed to the company’s strategic actions, focusing on core markets that align with its expertise, skills, and well-established brand. Further, this burgeoning backlog is a testament to steady demand from Matrix Service Company’s customers and offers long-term earnings and cash flow visibility.

Notably, Matrix Service Company’s fiscal year 2023 (ending Jun 30, 2023) witnessed total awards surpassing $1.3 billion, marking the highest annual total since 2018. Entering fiscal 2024, the impact of evolving global energy markets, the shift toward eco-friendly practices, and the resurgence of industrial activities are set to drive growth in the company’s backlog.

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               -1.6%               -1.6%
CVX                -1.1%               -1.1%
COP               -0.7%               +10.6%
OXY                -3.5%               +4.2%
SLB                -2.7%               +5.4%
RIG                 -6.1%               +9%
VLO                -0.3%               -5.5%
MPC               -0.4%               +10.7%

With oil and gas moving down for the week, stocks were mostly negative. The Energy Select Sector SPDR — a popular way to track energy companies — fell 1.4% last week. But over the past six months, the sector tracker has increased 3.3%.

What’s Next in the Energy World?

As usual, market participants will closely track the regular releases to look for guidance on the direction of the commodities. 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.
Matrix Service Company (MTRX): Free Stock Analysis Report

Cheniere Energy, Inc. (LNG): Free Stock Analysis Report

Crescent Point Energy Corporation (CPG): Free Stock Analysis Report

Shell PLC Unsponsored ADR (SHEL): Free Stock Analysis Report

Permian Resources Corporation (PR): Free Stock Analysis Report

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