Weekly Oil & Gas Notes: Chevron’s Myanmar Deal and Shell’s Nigerian Asset Sale

Oil and gas stocks slightly declined last week despite an increase in benchmark crude oil prices. This could be because oil prices pushed higher mostly because of an increase in the geopolitical risk premium, with Saudi Arabia launching a military campaign against its neighbor, Yemen, which has become a crucial front in the world’s largest crude oil producing nation’s region-wide rivalry with Iran. This led to concerns regarding the security of crude oil supplies because although Yemen itself is a small producer of crude oil, it lies at the heart of some of the most important energy routes, with almost 7% of global maritime trade passing by its coast. ^[1] However, the fundamental demand-supply scenario remained largely unchanged last week, as the U.S. Energy Information Administration (EIA) data showed that commercial crude oil inventories in the U.S. increased by 8.2 million barrels during the week ended March 20th, 2015. At 466.7 million barrels, U.S. crude oil inventories currently stand at their highest level for this time of the year in at least 80 years, reflecting still robust production growth from tight oil plays in the U.S. ^[2] This, despite the recent decline in oil prices and drilling activity, is a cause of concern for oil-linked equities, as it could prolong the recovery in oil prices. The price of the front-month Brent crude oil futures contract on the ICE increased by around 1.6% last week and is currently trading around $56 per barrel. The NYSE Arca Oil & Gas Index (XOI) fell by almost 0.9% last week.

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’s Myanmar Deal

Chevron (NYSE:CVX) recently announced that its subsidiary, Unocal Myanmar Offshore Co. Ltd., has entered into a Production Sharing Contract (PSC) in Myanmar with the national oil and gas company, Myanmar Oil & Gas Enterprise (MOGE), to explore for hydrocarbons in the Rakhine Basin. The company that reported net natural gas production of 99 million cubic feet per day (MMCFPD) or around 16 thousand barrels of oil equivalent per day (MBPD) from the Southeast Asian country, announced that the new contract covers an offshore area known as Block A5, which lies 200 kms (124 miles) northwest of Yangon and spans more than 10,600 square kilometers. According to the terms of the deal, Chevron’s subsidiary, Unocal Myanmar Offshore, will be the operator of the block with a 99% interest in the exploration project, while a local company, Royal Marine Engineering Co. Ltd., will hold the remaining share. ^[3]

• We currently have a $114/share price estimate for Chevron, which is around 8% above its current market price. The company’s share price decreased by around 2.6% last week.

See Our Complete Analysis For Chevron

Shell’s Nigerian Asset Sale

Anglo-Dutch oil major, Shell (NYSE:RDSA), recently completed the sale of its interest in a Nigerian oil field and related infrastructure for total cash proceeds of around $1.7 billion as a part of its ongoing divestiture program. The company sold its 30% operating stake in the oil mining lease (OML) 29 and the 62-mile long Nembe Creek pipeline to Aiteo Eastern E&P Co., a Nigerian company. Aiteo Eastern also acquired French oil major, Total’s, 10% stake and Nigerian Agip Oil Company’s 5% stake in the project, giving it a total 45% holding, with the remaining 55% being held by the state-owned oil company, Nigerian National Petroleum Corporation (NNPC). The project produced an average 43,000 barrels of oil equivalent per day last year. Shell announced its intent to offload some of its oil producing assets in the Niger Delta in June 2013, primarily because of rising operational challenges, including theft of crude oil by organized gangs, and pipeline  attacks by vandals.  In addition to the most recent sale, the company has offloaded assets worth almost $6 billion in the region since then. ^[4]

• We currently have a $67 per share price estimate for Shell, which is around 10% above its current market price. The company’s share price decreased by around 1.7% last week.

See Our Complete Analysis For Shell

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1. Oil Rallies After Saudi Campaign Escalates Crisis in Yemen, wsj.com [↩]
2. Summary of Weekly Petroleum Data for the Week Ending March 20, 2015, eia.gov [↩]
3. Chevron Subsidiary Signs Production Sharing Contract in Myanmar, chevron.com [↩]
4. SPDC Completes Sale of Oil Mining Lease 29 and Nembe Creek Trunk Line in Nigeria, shell.com [↩]