Oil & Gas Stock Roundup: Shell's Acquisition, EQT's Buyback & More

It was a week when both oil and natural gas prices registered declines.

European oil major Royal Dutch Shell (RDS.A) announced the buyout of solar and energy storage player Savion, while the natural gas-focused company EQT Corporation EQT authorized the repurchase of up to $1 billion of its common stock. News related to Cenovus Energy CVE, Suncor Energy SU and Imperial Oil IMO also made it to the headlines.

Overall, it was a bearish seven-day period for the sector. West Texas Intermediate (WTI) crude futures lost 1.1% to close at $70.86 per barrel, while natural gas prices fell some 6% to end at $3.69 per million British thermal units (MMBtu). In particular, the oil market posted its seventh decline in eight weeks.

Coming back to the week ended Dec 17, the bearish price action could be attributed to the jitters associated with the proliferation of the Omicron variant, which spurred a flurry of renewed curbs by governments to check its spread, posing a risk to consumption.

Meanwhile, natural gas notched another weekly loss, hurt by weather forecasts indicating above-normal temperatures over most of the country in the coming days.

Recap of the Week’s Most-Important Stories

1.  A subsidiary of Royal Dutch Shell has agreed to buy Macquarie's Green Investment Group's 100% stake in Savion LLC, a US developer of solar and energy storage projects. Shell's ambition to establish an integrated power unit as it progresses toward being a net-zero emissions energy business by 2050 is strengthened by the Savion purchase.

This acquisition is part of a $2-3 billion cash capital expenditure budget for Renewables & Energy Solutions in 2021, announced at Shell Strategy Day on Feb 11, 2021. The deal is expected to close by this year-end upon fulfilling all the customary conditions.

The Anglo-Dutch supermajor, which is already involved in the solar developments of other markets around the world, plans to utilize the solar capacity to create renewable energy in the areas where customer demand is high. This is part of its larger ambition to develop an integrated energy firm. (Shell Boosts Solar Market Base With Savion Deal)

2.   EQT recently announced authorization from its board of directors for a $1-billion share repurchase program. The authority is valid through Dec 31, 2023, and is effective immediately. The natural gas producer added that the stock buyback plan is equivalent to almost 13% of its present market capitalization. EQT Corp. plans to finance the repurchases through operating cashflows and available working capital.

The company has also authorized the reinstatement of its regular quarterly cash dividend. The resumption will commence in the first quarter of next year. EQT Corp. will reward shareholders with an annual dividend rate of 50 cents per share, translating into a quarterly dividend of 12.5 cents and a current competitive yield of roughly 2.5%.

The upstream operator projects the generation of roughly $1.9 billion of free cash flow next year. In a flat $3 per MMBtu of natural gas pricing scenario, the energy firm anticipates generating $1.6 billion of free cash flow annually through 2026 from 2023. With the picture of free cash flow generation looking bright, EQT Corp. is expecting ample room to reward shareholders with growth in future dividends. (EQT Corp. to Reward Shareholders With $1B Repurchase)

3   Cenovus Energy entered into an agreement to divest its Tucker thermal asset to an undisclosed buyer for C$800 million. Located in northeastern Alberta, Tucker is one of the four producing oil-sand fields operated by Cenovus. Next year, Tucker is expected to produce an average of 18,000-21,000 barrels per day.

Cenovus will use the proceeds from the transaction to reduce the debt burden and improve its ability to raise shareholder returns. Notably, the Canadian energy firm established an interim net debt target of C$10 billion, which it plans to meet by divesting assets not central to its core operations. The company also has a strong focus on returning capital to its shareholders.

Cenovus mentioned that it expects to generate about C$2 billion from asset divestments in 2021, including the Tucker transaction. In November, Cenovus agreed to divest its retail fuels network and assets in Wembley in two separate deals worth $660 million as part of plans to offload non-core assets to repay debt. (Cenovus Scores Deal to Divest Alberta's Tucker Assets)

4.   Suncor Energy recently released its capital budget and production guidance for 2022, confirming prior pronouncements of doubling the dividend, expanding share buybacks and reducing the capital program by C$300 million. The projection for 2022 includes solid operational performance across all assets as well as the ongoing capital and expense control.

Suncor expects its average upstream production for 2022 in the range of 750,000-790,000 barrels of oil equivalent per day (Boe/d), approximately 5% higher than the 2021 guided range.
    
For 2022, this Alberta-based integrated player’s total capex is envisioned to be C$4.7 billion, 12% higher than the 2021 projection of C$4.2 billion. Suncor estimates a disbursement of C$3.6-C$3.8 billion for the upstream segment. Moreover, SU has plans to spend C$700-C$850 million on its downstream operations while the corporate spending is assumed in the C$200-C$250 million bracket. (Suncor Energy Hikes 2022 CapEx & Production View Y/Y)

5.   Imperial Oil updated its corporate guiding prediction for 2022. The company's business strategy is still centered on improving the productivity of existing assets, enhancing shareholder returns, and advancing major environmental projects.

The Canada-based Zacks Rank #2 (Buy) energy player's capital expenditure for 2022 is estimated at C$1.4 billion, 27.3% higher than the 2021 projection of C$1.1 billion. It anticipates disbursing 2022 capex for ramping up the in-pit tailing project at the Kearl oil sands plant. Further, the company is planning to spend on the completion and commissioning of the Sarnia product pipeline in southern Ontario along with its ongoing investment in Kearl's autonomous fleet and the application of solvent technologies at Cold Lake.

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

Imperial Oil expects average upstream production of 425,000-440,000 barrels of oil equivalent per day (Boe/d) for 2022, approximately 4% higher than the 2021 guidance. This is supported by good operating performance in its key oil sands assets and the ongoing production expansion at Kearl. (Imperial Oil Increases 2022 CapEx & Production View)

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               -4.7%                +1.6%
CVX               -4%                    +13.2%
COP              -6.6%                 +24.6%
OXY               -8.9%                 +1.4%
SLB               -6.5%                 -5.1%
RIG               -7.3%                 -24.5%
VLO              -3%                     -9.6%
MPC             -1.9%                  +6.6%

The Energy Select Sector SPDR — a popular way to track energy companies — was down 5% last week. But over the past six months, the sector tracker has increased 5.9%.

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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Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
EQT Corporation (EQT) : Free Stock Analysis Report
 
Suncor Energy Inc. (SU) : Free Stock Analysis Report
 
Imperial Oil Limited (IMO) : Free Stock Analysis Report
 
Cenovus Energy Inc (CVE) : Free Stock Analysis Report
 
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