Oil & Gas Stock Roundup: Shell’s Q2 Update & Chevron’s Acquisition in Focus

It was another week when oil prices moved up while natural gas futures marked a loss.

On the news front, the headline came from energy biggie Shell’s (SHEL) Q2 earnings update and its American peer Chevron’s (CVX) acquisition of an Argentina-based agricultural product company. Developments associated with Patterson-UTI Energy (PTEN), TC Energy (TRP) and Expro Group Holdings 9XPRO) also made it to the headlines.

Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures increased 4.6% to close at $73.86 per barrel, but natural gas prices dropped 7.7% to end at $2.582 per million British thermal units (MMBtu).

In particular, the crude price action continued to be positive, with government data revealing another dent in supplies and OPEC kingpin Saudi Arabia pledging to extend its current 1 million barrel per day production cut through August.

Meanwhile, natural gas found itself on the opposite side after the U.S. Energy Department’s weekly inventory release showed a higher-than-expected increase in supplies.

Recap of the Week’s Most Important Stories

1.  Shell said that maintenance issues in the Gulf of Mexico, Norway, Malaysia, and Brazil resulted in decreased output in the second quarter. The London-based supermajor further sees considerably lower contributions from liquid natural gas trading and loss in its chemicals segment. Shell also predicts writedowns of $3 billion for the second quarter though this will not influence the period’s adjusted earnings.

Shell’s LNG liquefaction volumes are expected in the range of 6.9-7.3 million tons, translating into a decrease of around 1.4% sequentially. Shell’s integrated gas production is expected in the range of 950,000-990,000 barrels of oil equivalent per day (BOE/d) or 970,000 BOE/d at the midpoint. It was 970,000 BOE/d in the January quarter as well.

According to the latest update, Shell’s upstream production fell 9.4% on a sequential basis in the second quarter of 2023 at the midpoint of the guidance. The supermajor is estimating its output in the range of 1,650-1,750 (thousand barrels of oil equivalent per day) MBOE/d compared to 1,877 MBOE/d in the first quarter of 2023, hampered by maintenance activity. Tax charges are expected to hurt earnings in the range of $1.5-2.3 billion. (What Did Shell Reveal in Its Update Pre Q2 Earnings?)

2. Chevron Renewable Energy Group, a subsidiary of energy major Chevron, and renowned global food and agribusiness company Bunge Limited have announced the acquisition of Chacraservicios, a seed business based in Argentina.

This move aims to expand both companies’ supply chains and meet the increasing demand for lower-carbon renewable feedstocks. By adding Chacraservicios to their global operations, Chevron and Bunge are strengthening their commitment to sustainable solutions and contributing to a lower-carbon energy future.

Chevron’s Renewable Energy Group and Bunge’s acquisition of Chacraservicios demonstrate their dedication to sustainable practices and the development of renewable fuels. By adding Chacraservicios’ camelina oilseed cultivation to their supply chains, both companies are contributing to the renewable energy sector’s growth. (Chevron Unit & Bunge Acquire Argentina Oilseed Business)

3.  U.S. oilfield service firm Patterson-UTI Energy has agreed to buy Ulterra Drilling Technologies, a global leader in specialized drill bit solutions. This strategic acquisition aims to enhance Patterson-UTI’s operational capabilities, expand its technology portfolio, and solidify its position as a leading drilling and completions company.

Under the agreement, Patterson-UTI will snap up Ulterra Drilling Technologies for a consideration of $370 million in cash and 34.9 million shares of the PTEN common stock. Ulterra, founded in 2005 and headquartered in Fort Worth, TX, is a renowned provider of PDC (polycrystalline diamond compact) drill bits globally. With operations across active basins in North America, Ulterra has established itself as a leader in the North American PDC drill bit market. The pending transaction, subject to customary closing conditions and regulatory approvals, is expected to be finalized in the third quarter of 2023.

The acquisition of Ulterra will expand Patterson-UTI’s operational and technology portfolio, strengthening its market presence in drilling and completions. The addition of Ulterra’s leading position in the PDC drill bit market will enhance Patterson-UTI’s capabilities, further advancing its 45-year history of operations and innovation. (Patterson-UTI to Buy Ulterra, Strengthen Portfolio)

4.   Canada-based energy infrastructure operator TC Energy recently encountered a significant legal setback when the Delaware Chancery Court ruled against the company in a class action lawsuit related to its acquisition of Columbia Pipeline Group Inc. in July 2016. The court found that the former executives of Columbia breached their fiduciary duties and made material disclosure omissions, and TC Energy was deemed aware of and complicit in these breaches.

The recent court ruling has put TC Energy in a challenging position. Finding the Zacks Rank #2 (Buy) company at fault, the court awarded damages to shareholders in the amount of $1 per share, with the final award expected at around $400 million, plus interest. However, the exact allocation of liability between Columbia’s former executives and TC Energy will be determined in a subsequent proceeding.

While TC Energy strongly disagrees with the ruling, it is currently evaluating its options for appeal once the final judgment is entered and the allocation of liability is determined. The company disputes several findings of fact and law in the ruling. However, an appeal process is anticipated to take around one year, prolonging the resolution of this legal matter. It is important for investors and stakeholders to monitor the progress of the appeal and its potential impact on TC Energy’s financial standing and operations. (TC Energy Hit With Setback in Adverse Court Ruling)

5.   Energy services provider Expro Group Holdings N.V. recently announced a significant contract win for the deployment of its groundbreaking single shear and seal high-debris 15K ball valve assembly. This contract marks the first utilization of Expro’s innovative technology by a major operator in the industry.

Expro’s single shear and seal mechanism will be an integral part of a comprehensive subsea deepwater completion/intervention system being designed for a valued customer in the Gulf of Mexico. The system will be utilized in a deepwater subsea field located approximately 6,600 feet (2,000 meters) below the surface.

The three-year contract, valued at over $15 million, reinforces Expro’s position as a leading provider of rental and customized subsea well access solutions. The company’s expertise in primary well-control and disconnect options during well testing, completion, and intervention-subsea operations has earned its industry-wide recognition. (Expro’s Unique Subsea Technology Gets 3-Year Contract)

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.

With oil and gas moving in different directions, stocks were mixed. The Energy Select Sector SPDR — a popular way to track energy companies — edged down 0.5% last week. Over the past six months, the sector tracker has decreased 7.6%.

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.

Chevron Corporation (CVX): Free Stock Analysis Report

Patterson-UTI Energy, Inc. (PTEN): Free Stock Analysis Report

TC Energy Corporation (TRP): Free Stock Analysis Report

Expro Group Holdings N.V. (XPRO): Free Stock Analysis Report

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

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