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    Oil & Gas Stock Roundup: Equinor's Discovery, Shell's Jackdaw Approval in Focus

    June 16, 2022 - Nilanjan Choudhury


      It was a week when both oil and natural gas prices settled higher.

      On the news front, Norwegian energy behemoth Equinor ASA EQNR made a hydrocarbon discovery in the Barents Sea, while London-based peer Shell plc SHEL was given a thumbs up to go ahead with the Jackdaw gas-condensate field in the U.K. Developments associated with Tullow Oil TUWOY, Devon Energy DVN and Northern Oil & Gas NOG also made it to the headlines.

      Overall, it was a good seven-day period for the sector. West Texas Intermediate (WTI) crude futures gained 1.5% to close at $120.67 per barrel, while natural gas prices increased 3.8% to end at $8.85 per million British thermal units (MMBtu). In particular, the oil market managed to maintain its forward momentum from the previous six weeks.

      Coming back to the week ended Jun 10, the positive oil price action could be attributed to growing fuel demand during the summer driving season in the United States. The Energy Information Administration's ("EIA") latest report showed another drawdown in gasoline stockpiles -- the tenth in as many weeks -- that further pointed to strained market fundamentals and propped up prices. As it is, the uptick reflected concerns about supplies from Russia, which is one of the world's largest producers of the commodity.

      Natural gas notched a healthy weekly gain, too, buoyed by a spike in load demand to run air conditioners, lower domestic output and strong LNG shipments.

      Recap of the Week's Most-Important Stories

      1. Stavanger, Norway-headquartered integrated major Equinor made an oil discovery in the Skavl Sto 7220/8-3 exploration well, situated at the Johan Castberg field in the Barents Sea. This is the company's second hydrocarbon discovery in recent weeks near the Johan Castberg area. The 7220/8-3 well was drilled 5 kilometers southwest of the 7220/8-1 discovery well on the Johan Castberg field and 210 kilometers northwest of Hammerfest.

      In March 2022, EQNR was awarded a drilling permit by the Norwegian authorities for the 7220/8-3 well in production license 532. This Zacks Rank #2 (Buy) company is the operator of the production license 532, which was awarded in the 20th licensing round in 2009. Var Energi ASA and Petoro are the other license holders.

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

      Notably, this is the 13th exploration well drilled in production license 532. Using the Transocean Enabler semi-submersible drilling rig, the well was drilled 352 meters below the water surface. It will be permanently plugged and abandoned now. ( Equinor Makes New Oil Discovery in Johan Castberg Field)

      2. Europe's largest oil company Shell recently got the necessary regulatory approvals to go ahead with its revised plan to develop the Jackdaw gas-condensate field in the U.K. Central North Sea. Shell can invest about $500 million in the project, with the output anticipated to start in the second half of 2025. The Jackdaw field, at its peak, has the capacity to produce approximately 6.5% of Britain's total gas output.

      Both watchdogs -- the North Sea Transition Authority ("NSTA") and the Offshore Petroleum Regulator for Environment & Decommissioning -- gave the go-ahead to Shell. This announcement came after NSTA disallowed the company's initial plan last year and asked for a tieback of Jackdaw to its offshore Shearwater processing center.

      The regulatory approval for Jackdaw comes at a time when the U.K. government is pushing to augment domestic energy production as it looks to find substitutes for Russian imports following Moscow's military actions in Ukraine. Currently, the production in the North Sea caters to less than 40% of the United Kingdom's gas demands, with the rest procured from imports. ( Shell Receives Regulatory Nod to Develop Jackdaw Field)

      3 U.K.-based, West Africa-focused Tullow Oil agreed to take over its British competitor -- Capricorn Energy -- in an all-stock deal worth around 656.9 million pounds ($826.7 million). This deal will lead to the creation of an Africa-focused energy firm with a market value of more than £1.4 billion.

      As part of the all-stock deal, Capricorn shareholders will receive 3.8068 Tullow shares for each share they own and have a 47% stake in the merged group, which will be headed by Tullow's chief executive officer, Rahul Dhir.

      The combined entity will own 1 billion barrels of resources across Africa and is expected to produce around 100,000 barrels of oil equivalent per day. However, by 2025, the output is anticipated to reach 120,000 barrels a day. ( Tullow Oil to Acquire Rival Capricorn for $827 Million)

      4 U.S. upstream operator Devon Energy announced that it has entered into a definitive agreement to acquire leasehold interest and related assets of RimRock Oil and Gas, LP, in Williston Basin for $865 million. This acquisition is expected to close in the third quarter of 2022, after necessary approvals.

      This acquisition will expand Devon's Williston Basin acreage by 38,000 acres to 123,000 acres. RimRock will add nearly 15,000 barrels of oil equivalents (Boe) per day to DVN's Williston Basin production, taking volumes to 63,000 Boe per day. Production volumes are expected to increase to 20,000 Boe per day next year. About 78% of the current production from RimRock Oil and Gas is oil.

      This Williston deal will add more than 100 economic undrilled inventory locations, assisting Devon to maintain its high-margin production and strong cash flow for several years. ( Devon to Buy RimRock Oil and Gas, Expand in Williston)

      5. Minnetonka, MN-based independent energy explorer, Northern Oil & Gas, recently declared that it has signed an acquisition agreement to take over high oil-cut assets in the Williston Basin. The initial consideration, which is worth around $170 million in cash, is subject to closing adjustments.

      The acquired properties are mainly situated in Dunn, McKenzie and Williams Counties in North Dakota and include about 3,500 acres, 9.2 net producing wells, 2.6 net wells in-process and 14.9 net engineered economic undeveloped locations. These assets are operated by Marathon Oil, Continental Resources and ConocoPhillips. However, Northern Oil owns an existing stake in roughly 50% of the takeover property value.

      The company anticipates spending around $15 million in capital expenditure after the deal is expected to be closed in August 2022. ( Northern to Snap Up Williston Basin Assets for $170M)

      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 +1.4% +63%

      CVX -1.2% +51.4%

      COP -1.1% +64.5%

      OXY -9% +118.5%

      SLB - 0.5% +58.3%

      RIG +4.5% +55.6%

      VLO +3.8% +106%

      MPC +2.6% +75.3%

      While oil was green for the week, stocks were not so much. In fact, the Energy Select Sector SPDR -- a popular way to track energy companies -- edged down 0.9% last week. But over the past six months, the sector tracker has increased 51.1%.

      What's Next in the Energy World?

      Oil prices breached the $120 mark last week, primarily reaffirming the view that the OPEC+ decision to produce more of the commodity will fall short of compensating for the output loss from Russia and demand boosts from the summer driving season, plus the potential return of consumption in China. The elevated crude prices, surging demand for motor fuels and the effect of the Russian invasion of Ukraine have also resulted in gasoline and diesel prices reaching record highs.

      Amid this backdrop, market participants will closely track the regular releases to look for further guidance on the direction of prices. 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 production, is closely followed too. News related to the ongoing Russia-Ukraine geopolitical conflict and the potential demand loss from fresh coronavirus curbs in China will be the other factors that will dictate the near-term price movement for oil.

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      Devon Energy Corporation (DVN): Free Stock Analysis Report

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