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Oil & Gas Stock Roundup: TOTAL's Stake Sale, Suncor & Phillips 66's Capex & More

It was a week where both oil and natural gas finished lower.

On the news front, French oil and gas major TOTAL S.A. TOT announced it was paring its stake in the Ichthys liquefied natural gas project, while energy biggies Suncor SU and Phillips 66 PSX set their investment budgets for 2019.

Overall, it was a dismal week for the sector. While West Texas Intermediate (WTI) crude futures lost 2.7% to close at $51.20 per barrel, natural gas prices plunged some 14.7% to $3.827 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Chevron's Capex Boost, Schlumberger's Revenue Warning & More)

The U.S. crude benchmark fell last week, signaling that industry observers are skeptical about the effectiveness of OPEC+ coalition’s production cuts in tightening the market. EIA's inventory release showing a weekly draw in crude stockpiles that was well below expectations also contributed to the losses.

Meanwhile, natural gas prices recorded their biggest weekly fall in almost three years after forecasts of bearish weather outlook raised some red flags regarding heating demand.

Recap of the Week’s Most Important Stories

1.    TOTAL announced that it has decided to sell 4% interest in the Ichthys liquefied natural gas (“LNG”) project to its operating partner INPEX for $1.6 billion. This decision is subject to Australian regulatory approvals and will lower the company’s stake in the Ichthys project to 26%.

The primary reason behind the decision to sell interest in Ichthys is to mitigate the impact of cost overruns. The final capital expenditure of the project is estimated to be $45 billion, up 12.5% from the estimates provided in 2017. The decision to sell 4% interest is to control its capital employed in Ichthys.

Notwithstanding the Ichthys stake sale, TOTAL has been working to expand its presence in the LNG market through acquisitions and partnerships, given the fact that demand for the clean burning fuel is rising across the globe. TOTAL’s decision to acquire Engie’s LNG portfolio for $1.5 billion, coupled with the 26% interest it still holds in Ichthys, will continue to support the company’s LNG business. (Read more TOTAL to Sell 4% Interest in Ichthys to Offset Cost Overruns)

2.    Suncor Energy recently announced its corporate guidance and estimated capital budget in the range of C$4,900-C$5,600 million for 2019, higher than C$4,500-C$5,000 million guided for 2018. The integrated energy player used C$4,131 million for capital and exploration in the first nine months of 2018. Notably, 63% of the company’s total capital budget for 2019 will be directed toward planned sustaining and maintenance activities, while the rest can be invested in value creating projects with low capital intensity.

Suncor‘s capital expenditure program incorporates its initiatives to expand the infrastructure of midstream logistics, improve margins and reduce cost over the 2020-2023 time period. These are expected to positively impact the company’s operations, enabling it to increase dividends, buy back shares and further strengthen its balance sheet, which currently has a debt-to-capitalization of 22.6%.

Suncor intends to allot C$3,050-C$3,400 million for upstream oil sands expenditures, and C$1,000-C$1,200 million for upstream exploration and production. This leads to a total upstream capital budget of C$4,050-C$4,600 million compared with 2018 guided range of C$3,650-C$4,050 million. The company spent C$3,544 million in the first nine months of 2018. (Read more What Does Suncor's 2019 Capital Expenditure Plan Reveal?)

3.    Phillips 66 has released 2019 capital budget of an estimated $2.3 billion, unchanged from the estimated capex for 2018. Of the total, $1.4 billion will be allocated to growth capital and the remaining $900 million will be allocated to sustaining capital.

Phillips 66 has apportioned $1 billion toward the Midstream segment, of which $847 million is for growth capital and the rest is for sustaining capital. The company plans to invest $923 million in the Refining segment, with $512 million allocated toward consistency, security and environmental projects. Phillips 66 has allocated $161 million of the total capital spending to Marketing and Specialties. The Zacks Rank #3 (Hold) company also intends to fund $177 million in the Corporate and Other projects, related to information technology and facilities.

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

Taking into consideration the total capex allocation for Phillips 66 Partners L.P. the total capex for 2019 would be $2.9 billion. Phillips 66 Partners’ total capital allocation of $601 million will be completely directed towards the Midstream segment. (Read more Phillips 66 Sets 2019 Capital Expenditure at $2.3 Billion)

4.    Bringing in pleasant news for investors, TechnipFMC plc FTI recently boosted its stock-buyback program by an additional $300 million, over and above its existing authorization of $500 million.

In addition to boosting the repurchase program, it also outlined its financial guidance and capex budget for 2019. TechnipFMC projected its 2019 capex at $400 million, up from this year’s estimated level of $300 million.

Importantly, TechnipFMC forecasts its subsea revenues within $5.4-$5.7 billion, reflecting an increase from this year’s guided range of $5-$5.3 billion. Moreover, the Surface Technologies segment is expected to generate revenues within $1.7-$1.8 billion in 2019, up from this year’s forecast of $1.5-$1.6 billion.

While the 2019 revenue forecast for these two segments is higher than this year’s estimated levels, the company expects offshore/onshore revenues for the next year in the band of $5.7-$6 billion, which is a tad lower than $5.8-$6.1 billion projected for 2018. (Read more TechnipFMC Boosts Buyback: What Else Should You Know?)

5.    The Federal Energy Regulatory Commission (or the FERC) recently approved Williams Companies Inc.’s WMB Gateway project, which is an expansion of the firm’s Transco pipeline. Notably, the Transco pipeline delivers almost half of the natural gas consumed in New York and New Jersey. With the existing Transco pipeline capacity being fully utilized, the expansion will allow additional gas volumes to be delivered to the northeastern markets.

Notably, the company had applied for the Gateway expansion project’s FERC permit in late 2017. In July 2018, FERC released its Environmental Assessment for the Gateway project, citing that it meets the requirements of the National Environmental Policy Act and the approval of the project is not likely to prove detrimental to the environment. Very recently, the FERC completed its review process and gave the final go-ahead to the project.

Upon the receipt of the required regulatory approvals, the company is scheduled to commence the construction of the project in spring 2019. The Gateway expansion project is expected to come online by November 2020.

With the Gateway expansion project, Williams will be able to fulfill its commitment to supply an incremental 65,000 dekatherms per day of firm transportation capacity and the mounting natural gas needs of customers in the Northeast during the winters of 2020 to 2021. (Read more Petrobras Ups Investment, Divestment Goals in New 5-Year Plan)

Price Performance

The following table shows the price movement of some the major oil and gas players over the past week and during the last 6 months.

Company

Last Week

Last 6 Months

XOM

-2.7%

-9%

CVX

-1.4%

-10.1%

COP

-2.1%

-4.7%

OXY

-2.2%

-23.1%

SLB

-9.2%

-41.4%

RIG

-8.9%

-42.4%

VLO

-3.5%

-35.3%

MPC

-2.7%

-21.3%

 

The Energy Select Sector SPDR – a popular way to track energy companies – generated a -3.1% return last week. The worst performer was oilfield services major Schlumberger SLB whose stock slumped 9.2%.  

Longer-term, over six months, the sector tracker is down 18.9%. Offshore driller Transocean Ltd. RIG was the major loser during this period, experiencing a 42.4% price decline.

What’s Next in the Energy World?

In this week, market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas - one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count.

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TechnipFMC plc (FTI): Free Stock Analysis Report
 
Phillips 66 (PSX): Free Stock Analysis Report
 
Suncor Energy Inc. (SU): Free Stock Analysis Report
 
Schlumberger Limited (SLB): Free Stock Analysis Report
 
TOTAL S.A. (TOT): Free Stock Analysis Report
 
Transocean Ltd. (RIG): Free Stock Analysis Report
 
Williams Companies, Inc. (The) (WMB): Free Stock Analysis Report
 
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