It's been a big week for local oil and gas investors.
The recent increase in the price of oil has sparked a surge in activity and investor interest. To help you catch up on the action here are three big highlights to know:
1. Shell finally parts from Woodside Petroleum Limited… sort of
The first big news this week was that Royal Dutch Shell had sold its 13.3% stake in Woodside Petroleum Limited (ASX:WPL) for $31.10 per share.
Shell no longer owns a stake in Woodside, but the two remain key partners on the important Browse LNG joint venture.
Shell's floating LNG processing technology is an important development option for the project's off-shore gas fields, but was shelved last year as the LNG market tightened up.
The engineering behind the technology is incredible and I can highly recommend checking out some of the videos on Shell's Youtube channel.
Shell is about to begin using floating LNG production in the Browse Basin at the near-by Prelude joint venture.
2. Could Woodside be interested in Santos?
Woodside's core competency is extracting oil and gas from off-shore, deep water reserves, but the company could consider making a bid for onshore producer Santos Ltd (ASX: STO) according to Morningstar Inc.
This comes in response to the week's other big news that Santos had rejected an earlier takeover bid from Harbour Energy, a company related to energy group EIG Partners.
Bloomberg Markets quoted a Morningstar research note which mused "an opening offer is rarely the best or last action and could also awaken any number of interested parties".
I think it would be a long-shot and Morningstar notes other potential parties could emerge, including current Santos share holder ENN.
Regardless, it's positive to see Santos investors getting redemption after years of gut-wrenching wealth destruction.
3. How to pick a winning oil and gas producer
If you're taking the time to look at oil and gas stocks for your own portfolio this weekend, here are three important points I would suggest:
- Build a view of where we are in the commodity cycle for oil and gas.
- Know how much energy a company has and how costly it is to get out of the ground.
- Know how the company is going to fund its growth plans
Understanding these three elements will give you a sense of a company's opportunity, risk and potential value when picking a winner from ASX listed energy companies.
