Weekly Oil & Gas Notes: Chevron, ConocoPhillips and Petrobras
Oil and gas stocks continued to trend lower this week, as benchmark crude oil prices continued to decline on rising supplies and expectations of slower demand growth. Reuters reported recently that OPEC’s (Organization of the Petroleum Exporting Countries) crude oil supply last month rose to its highest point since November 2012 on a recovery in Libya and higher output from Saudi Arabia, the world’s main producer for crude oil. [1] Global benchmark crude oil prices reacted sharply to the news, as it came at a time when the tight oil revolution in the U.S. is already causing a supply glut in one of the world’s largest importer of the black gold. Moreover, earlier last month, the International Energy Agency (IEA) in its latest monthly report also cut its forecast for the growth in global oil demand this year. [2] It now expects global oil demand, which stood at around 90.5 million barrels per day last year, to increase by just around 0.9 million barrels per day this year. The price of front-month Brent crude oil futures contract on the ICE has declined by around 2.5% so far this week and is currently trading at around $89.25/barrel. The NYSE Arca Oil & Gas Index (^XOI) has also declined by around 3.5% this week. [3]
Below, we provide an update on some of the key events that occurred last week related to the oil and gas companies we cover.
Chevron Reduces Stake In Canadian Shale Play
Chevron (NYSE:CVX) recently announced a partial sale of its interest in Canadian oil shale holdings to Kuwait’s state-owned oil company for $1.5 billion. As part of the deal, Chevron’s wholly-owned subsidiary, Chevron Canada Limited, will sell a 30% interest of its 330,000 net acres in the Duvernay shale play to Kuwait Foreign Petroleum Exploration Company’s wholly-owned subsidiary, KUFPEC Canada Inc. for $1.5 billion. The deal price also includes a portion of Chevron’s share of future capital costs for the joint venture. Chevron Canada will remain the operator of the project with a 70% interest after the deal closes later this year. We believe that this divestment will allow Chevron to mitigate financial risks associated with the appraisal and development of tight reserves by sharing capital costs. It will also help the company reduce some pressure on its operating cash flows while continuing to progress the development of its long-term growth projects. [4]
- We currently have a $126/share price estimate for Chevron, which is around 10% above its current market price. The company’s share price has decreased by around 2.7% this week.
- We currently estimate Chevron’s 2014 Non-GAAP diluted EPS to be at $11.02, compared to the consensus estimate of $10.55 reported by Reuters.
See Our Complete Analysis For Chevron
ConocoPhillips’ New Start-up In Malaysia
ConocoPhillips (NYSE:COP) recently reported the start-up of oil production from the Gumusut-Kakap project, located approximately 75 miles offshore Sabah, Malaysia. The Gumusut-Kakap field is located in water depths of up to 4,000 feet. The field is being developed using 19 subsea wells with oil exported via a pipeline to the new Sabah oil and gas terminal in Kimanis, Sabah. The production system is expected to have a peak production capacity of 135 thousand barrels per day. Shell (NYSE:RDS.A), with a 33% interest is the operator, while ConocoPhillips holds a 33% non-operating interest in the project. Other stakeholders in the project include Malaysia’s state-owned oil and gas company, Petronas (20% interest) and El Dorado, Arkansas-headquartered Murphy Oil (14% interest). [5]
- We currently have a $85/share price estimate for ConocoPhillips, which is around 20% above its current market price. The company’s share price has decreased by around 3.5% this week.
- We currently estimate ConocoPhillips’ 2014 Non-GAAP diluted EPS to be at $6.62, compared to the consensus estimate of $6.42 reported by Reuters.
See Our Complete Analysis For ConocoPhillips
Petrobras’ New Ultra Deepwater Discovery
Petrobras recently announced an ultra deepwater oil discovery in the Espirito Santo Basin post-salt cluster, off the coast of Espirito Santo state. The company struck “good quality” oil at a depth of about 3,550 meters while drilling the well “Pudding” around 121 km off the coast of the city of Vitoria, Espirito Santo. Petrobras is the operator of the well with a 65% stake, while Shell and Inpex hold 20% and 15% interest in the project, respectively. [6] Petrobras’ share price rose sharply this week, primarily because of a positive surprise in Brazil’s election results. The country’s incumbent President, Dilma Rousseff, who is widely seen as a leftist, failed to gather the required majority in the first round of elections and will face a runoff vote on October 26th against a more conservative Aecio Neves, who is an economist and believes in free-market philosophy. Neves, who was trailing in the third place in opinion polls, surprised everyone by securing the second place in presidential elections. [7]
- We currently have a $21/share price estimate for Petrobras, which is around 25% above its current market price. The company’s share price has increased by around 20% this week.
- We currently estimate Petrobras’ 2014 diluted EPS to be at $2.1, compared to the consensus estimate of $1.64 reported by Reuters.
See Our Complete Analysis For Petroleo Brasileiro Petrobras
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Notes:- Oil Futures Slide Sharply On Supply Worries, wsj.com [↩]
- Oil Prices Slip On Unexpected Supply Rise, wsj.com [↩]
- Ice Brent Crude Oil Front Month, ft.com [↩]
- Chevron Announces Sale And Joint Venture Partnership For Duvernay Shale Assets In Canada With KUFPEC, chevron.com [↩]
- Production Begins From The Gumusut-Kakap Floating Production Facility In Malaysia, conocophillips.com [↩]
- Ultra deepwater discovery in the Espírito Santo Basin, investidorpetrobras.com [↩]
- Petrobras Leads Brazil Rally as Real Climbs After Neves’s Surge, bloomberg.com [↩]