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It was a week when both oil and natural gas prices settled higher.
U.S. energy biggie ExxonMobil XOM issued an update on its upcoming Q4 earnings, while refiner HollyFrontier HFC cautioned investors that severe weather, among other factors, will negatively impact its throughput. News related to APA Corporation APA, Enbridge ENB and Petrobras PBR also made it to the headlines.
Overall, it was a good seven-day period for the sector. West Texas Intermediate (WTI) crude futures gained 1.9% to close at $75.21 per barrel, while natural gas prices rose 2.8% to end at $3.73 per million British thermal units (MMBtu). In fact, both the oil and natural gas markets managed to maintain their forward momentum from the previous week.
Coming back to the week ended Dec 31, the positive price action could be attributed to a report from the Energy Information Administration („EIA“) showing draws in crude and fuel stockpiles. Easing concerns about the potential Omicron-related fall in demand also boosted the commodity.
Natural gas notched a weekly gain, buoyed by weather forecasts, indicating bouts of cold temperatures over most of the country in the coming days.
Recap of the Week’s Most-Important Stories
1. U.S. oil and gas behemoth ExxonMobil provided a glimpse of fourth-quarter 2021 results, assuming a sequential increase in profits from oil and gas production.
The price of oil and natural gas has increased significantly in the past year. For the upstream segment, the massive improvement in commodity prices could have increased fourth-quarter 2021 earnings by up to $1.9 billion from the previous-quarter levels.
Per a recent filing, ExxonMobil expects that changes in the natural gas price will increase fourth-quarter earnings by $700 million to $1.1 billion. Moreover, changes in liquid prices will increase earnings by $400 million to $800 million. XOM’s upstream asset divestments, which involve the U.K. North Sea assets, could raise up to $500 million. (ExxonMobil Expects Earnings of Nearly $1.9B in Q4)
2. HollyFrontier’s management sounded a cautionary note, stating that it sees fourth-quarter crude oil throughput at a level lower than previously thought, according to a recent filing with the U.S. Securities and Exchange Commission.
The Zacks Rank #3 (Hold) U.S. fuel refiner has pegged average throughput for the three months ended Dec 31 at approximately 420,000 barrels per day — down nearly 9% from the midpoint of the guidance provided earlier.
You can see the complete list of today’s Zacks #1 Rank stocks here.
In HollyFrontier’s West Region, output was impacted by the newly acquired Puget Sound refinery’s post-purchase downtime, lower crude availability due to floods/landslides along the Trans Mountain Pipeline route, issues with starting the Navajo facility after the planned turnaround, to go with severe weather-related disruptions. Meanwhile, throughput in HFC’s Mid-Continent region was hit by lower runs at the Tulsa Refinery and extreme weather. (HollyFrontier Gives Gloomy Throughput Forecast for Q4)
3 APA Corporation announced that it has agreed to invest $3.5 billion in research, development and manufacturing in Egypt’s Western Desert. Egypt’s parliament recently snapped up a deal to revamp and consolidate its production-sharing contracts with the government.
The African country and the joint venture between APA and China’s Sinopec will benefit from this deal. The updated PSC encourages high investment and production development, thus putting Egypt on top of many attractive investment options in APA’s worldwide portfolio. It also underscores the desert country’s commitment to sustainable development and public-private partnerships.
According to the American oil and gas explorer, the agreement consolidates 90% of gross output into a single concession and renews existing development lease terms for the next 20 years. In Egypt, APA’s joint venture with Sinopec intends to boost gross capital investment by $235 million in 2022, with a 13-15% rise in gross oil output year over year. (APA to Infuse $3.5B Capital Into Egypt Oil Production Per PSC)
4. Enbridge announced the approval of its Normal Course Issuer Bid (“NCIB”) by the Toronto Stock Exchange (“TSX”) to purchase as much as 31 million common shares to an aggregate amount of C$1.5 billion.
Per the terms of the NCIB, Enbridge will be allowed to purchase for cancellation through the facilities of the TSX, the New York Stock Exchange as well as other designated exchanges and alternative trading systems.
Starting from Jan 5, 2022, the energy infrastructure company will purchase the shares over a one-year period. The number of shares authorized for purchase represents 1.5% of the company’s common shares issued and outstanding. Enbridge will limit daily purchases on the TSX under the NCIB to a maximum of 1,929,706 common shares, which is 25% of the average daily trading volume of the common shares. (Enbridge Receives TSX Approval for Share Buyback Program)
5. Petrobras recently decided to sell a group of onshore producing assets and associated infrastructure in the Sergipe Basin to Carmo Energy S.A. for $1.1 billion.
Brazil’s state-run energy giant began divesting 11 mature fields in Sergipe during October 2020. The line-up comprises one of PBR’s oldest and largest onshore assets in the South American country.
The 11 concessions of onshore producing fields, including integrated facilities, are known as the Carmópolis Cluster. All are located in several municipalities around the state of Sergipe. From January to November, the concessions produced 7600 barrels of oil per day, on average, and 43,000 cubic meters of natural gas per day. (Petrobras to Sell Carmopolis Cluster to Carmo Energy)
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 +0.3% +5.7%
CVX +0.8% +15.2%
COP +1.7% +20.6%
OXY +0.5% -2.4%
SLB +1.3% +1.4%
RIG -9.5% -35.6%
VLO +4.7% +0.2%
MPC +1.5% +11.7%
The Energy Select Sector SPDR — a popular way to track energy companies — was up 1.1% last week. Over the past six months, the sector tracker has increased 8.2%.
What’s Next in the Energy World?
As the global oil consumption outlook strengthens amid tightening fundamentals, market participants will closely track the regular releases to watch for signs that could further validate the upward momentum. 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 trends in U.S. crude production, is closely followed. News related to coronavirus vaccine approval/rollout/distribution will be of utmost importance. Last but not least, investors will keep an eye on the potential demand hit from the Omicron variant.
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Exxon Mobil Corporation (XOM): Free Stock Analysis Report
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APA Corporation (APA): Free Stock Analysis Report
Enbridge Inc (ENB): Free Stock Analysis Report
HollyFrontier Corporation (HFC): Free Stock Analysis Report
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