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Oil & Gas Stock Roundup: BP Agrees to Record Oil Spill Fine, Suncor Launches Hostile Bid

It was a week where oil prices fluctuated wildly to maintain status quo and natural gas plummeted to its lowest settlement since June 2012. On the news front, BP plc (BP - Analyst Report) will pay a record $20.8 billion as penalties for the deadly oil spill of 2010, while Suncor Energy Inc. (SU - Analyst Report) launched a hostile bid to acquire Canadian Oil Sands Ltd. for C$4.3 billion.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures remained essentially unchanged at $45.54 per barrel, natural gas prices plunged 6.8% to $2.45 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Energy Transfer to Buy Williams, Shell Stops Arctic Drilling.)

The disappointing jobs report put a big question mark over the health of the U.S. economy and clouded the demand outlook for oil, in the process dragging down the commodity. However, crude recovered most of its losses by Friday, buoyed by the Baker Hughes rig count data that showed another drop in oil-directed rigs – now at their lowest level in more than five years – indicating a break in shale drilling activities.

Natural gas though fared badly and dropped to a 3-year low on predictions of waning heating requirement with the imminent arrival of colder autumn temperatures. Speculation is also rife that benign weather will delay the onset of peak heating demand season.

Recap of the Week’s Most Important Stories

1. In the largest settlement in history of U.S. Justice Department, British energy major BP plc – the company responsible for the disastrous 2010 Gulf of Mexico oil spill – will have to shell out a record $20.8 billion to resolve almost all claims associated with the accident. The amount is considerably higher than the $18.7 billion BP was supposed to pay as per the previously announced deal.

To be paid in installments over an 18-year period, the new total includes $7.1 billion in natural resource damage claims under the Oil Pollution Act, $5.5 billion in Clean Water Act penalties, and $4.9 billion in payments to the affected states.

2. Canada’s biggest energy firm and the largest oil sands outfit Suncor Energy Inc. has made an unsolicited offer to Canadian Oil Sands Ltd. to buy all the outstanding shares of the latter. The deal is valued at approximately C$4.3 billion. The deal would also entail the assumption of Canadian Oil Sands’ outstanding debt of about C$2.3 billion as of Jun 30, 2015.

Per the proposal, Canadian Oil Sands’ shareholders will receive 0.25 Suncor shares for each share they hold. The offer represents a 43% premium based on the closing prices of Canadian Oil Sands and Suncor as on Oct 2. Canadian Oil Sands has till Dec 4, 2015 to accept the offer unless the bid is extended or cancelled. The deal requires approval from two-third of Canadian Oil Sands’ shareholders.

3. The largest U.S. energy company by market value, Exxon Mobil Corp. (XOM - Analyst Report) announced its decision to sell its Southern California refinery to New Jersey-based energy company – PBF Energy Inc. – for $537 million. Spread over an area of 750 acres, the refinery yields 1.8 billion gallons of gasoline per year. Other storage facilities and pipelines are also up for sale.

The refinery had been crippled by an explosion over six months ago, which wounded four contractors, caused heavy damage at the plant and shocked nearby residents. Exxon Mobil was charged over $566,000 by California regulators for workplace safety and health violations.

The Southern California refinery, which is known as the Torrance plant, remained shut ever since. This resulted in substantial gas deficiency and hence, an increase in gas prices in California. The Torrance plant has a capacity to process 155,000 barrels of crude oil per day. (See More: Exxon Mobil to Sell its Torrance Plant to PBF Energy for $537M.)

4. Europe’s largest energy company Royal Dutch Shell plc (RDS.A - Analyst Report) has commenced the third stage of operations from its massive Bonga oil field, located off the coast of Nigeria. In this phase, Shell has roughly 50,000 barrels oil equivalent of peak production capacity.

It is to be noted that the floating production and storage vessel assisting the third phase of the development has a production capacity of more than 200,000 barrels of oil and 150 million standard cubic feet of natural gas every day.

Shell is the operator of the Bonga field with a 55% stake. Looking back, it was during 2005 that the Bonga field had started producing oil and natural gas. This is also the first deep water project – 1,000 meters deep – in Nigeria. Most importantly, the field has generated more than 600 million barrels of oil so far.

5. Oil and gas producer Chesapeake Energy Corp. (CHK - Analyst Report) became the latest among a string of energy companies to cut jobs, as it focuses on controlling costs amid plummeting commodity prices. Per the regulatory filing, Chesapeake will have to pay a one-time charge of about $55.5 million in third-quarter 2015 due to these layoffs. These expenses will include employer payroll taxes and will be paid in cash.

560 employees out of the total of 740 fired are from the company’s headquarters in Oklahoma City. The personnel who lost their jobs will get 13 to 52 weeks of pay in accordance with their age, pay level and years of service with the company. The company will also provide them health insurance and job placement assistance. (See More: Chesapeake Cuts 740 Positions for Better Cost Efficiency.)

Price Performance

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

Company- Last Week- Last 6 Months-

XOM +5.10% -9.77%

CVX +9.88% -21.41%

COP +14.57% -18.98%

OXY +11.28% -7.66%

SLB +3.06% -16.09%

RIG +16.80% -11.02%

VLO +10.55% +8.48%

TSO +4.14% +21.00%

Over the course of last week, ‘The Energy Select Sector SPDR’ posted a jump of 9.85% as investors witnessed heavy buying in major companies. Among the heavyweight stocks, the best performer was offshore driller Transocean Ltd. (RIG - Analyst Report) that added 16.8% to its stock price.

Longer-term, over the last 6 months, ‘The Energy Select Sector SPDR’ lost 15.4% of its value. U.S. supermajor Chevron Corp. (CVX - Analyst Report) was the main laggard, as it witnessed a 21.4% price decline. However, downstream operator Tesoro Corp. was able to buck the trend and was the chief beneficiary on the bourses with its shares advancing 21% during this period.

What’s Next in the Energy World?

Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking a series of crucial economic reports, including those on ISM Services Index and trade balance. Minutes of the FOMC’s meeting is also expected to play a crucial role.

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