With earnings remaining front and center in the week, the major headlines came from Exxon Mobil Corp. (XOM) and Chevron Corp.’s (CVX) third quarter outperformance, where they saw off plunging oil prices to beat estimates on refining strength.
Overall, it was a mixed week for the sector. West Texas Intermediate (WTI) crude futures declined by 1% – the seventh decrease in 8 weeks – to close at $80.24 per barrel. Natural gas prices gained 7.7% to $3.90 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Chevron Strikes Oil in GoM, Shell Offloads Nigeria Assets.)
Oil prices posted another weekly loss on plentiful supplies and lackluster demand expectations. Moreover, a stronger dollar has made the greenback-priced crude dearer for investors holding foreign currency. Oil traders got further spooked after Saudi Arabia cut its supply price to U.S. customers in the face of abundant North American output.
Natural gas, on the other hand, recovered from its 11-month low, as it shrugged off another above-average supply increase. The commodity was helped by expectations of strong heating demand with forecasts of chilly winter weather.
Recap of the Week’s Most Important Stories
1. Integrated supermajors like Exxon Mobil Corp. and Chevron Corp. must be glad they did not let go their refineries. Both the companies reported strong third quarter earnings on improved downstream results that saw refining margins climb on lower input costs. But worryingly, the big firms continue to struggle to grow production despite spending billions in capital expenditures. Both the companies reported year-over-year decline in third quarter volumes.
2. Even as crude prices fell, ConocoPhillips (COP) – the largest U.S. independent oil and gas producer – reported better-than expected third quarter earnings. The outperformance validates ConocoPhillips’ strategy realignment to get rid of non-core slow-growth assets in favor of acreage that they believe will give better returns over time.
The company’s daily production averaged 1.481 million barrels of oil equivalent (MMBOE) in the quarter, up from 1.470 MMBOE in the year-ago quarter. ConocoPhillips plans to trim its next year capex by more than 4% from 2014 levels, while still managing to grow production by 3-5%. (See More: ConocoPhillips Q3 Earnings Beat Estimates, Revenues Miss.)
3. Downstream operator Phillips 66 (PSX) posted adjusted third-quarter 2014 earnings of $2.02 per share, substantially ahead of the Zacks Consensus Estimate of $1.69 and the year-ago earnings of 85 cents per share. Marked improvement in the company’s refining segment and higher marketing margins led to the outperformance.
Phillips 66 announced that it has entered into two joint venture agreements with Energy Transfer Equity, L.P. and Energy Transfer Partners, L.P. to develop the Dakota Access Pipeline (DAPL) and Energy Transfer Crude Oil Pipeline (ETCOP) projects. The company, with 25% stake in the projects, will bear $1.2 billion in costs. These pipelines are expected to commence operations in the final quarter of 2016. (See More: Phillips 66 Earnings Beat Q3 Estimates on Higher Margins.)
4. Last week was an eventful one for contract driller Noble Corp. (NE), which not only posted upbeat third quarter profits but also announced its intention to form a master limited partnership (MLP) to enhance financial flexibility, plus expansion to its share buyback program.
The U.K.-registered firm rode higher dayrates to come out with earnings from continuing operations of 57 cents, surpassing the Zacks Consensus Estimate of 54 cents. Separately, the company outlined plans to pursue the formation of an MLP that would consist of certain rigs from its existing fleet. Noble expects to file a registration statement for an IPO in the U.S. by mid-2015. Further, the company is seeking approval from stockholders to repurchase up to 37 million shares. (See More: Noble Corp (NE) Q3 Earnings Beat, Revenues Miss Estimates.)
5. U.S. independent Anadarko Petroleum Corp. (APC) reported third-quarter 2014 adjusted earnings of $1.16 per share, missing the Zacks Consensus Estimate of $1.30 amid lower crude oil prices.
However, the company’s mainstay – its oil and gas business – reported solid results, growing production 9.5% from the year-ago period on strong contribution from its domestic onshore assets. As a result, Anadarko’s total revenues of $5,010 million surpassed the Zacks Consensus Estimate of $4,308 million and shot up 30.0% from a year ago. (See More: Anadarko Petroleum Misses Q3 Earnings, Revenues Beat.)
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 |
+0.94% |
-7.43% |
|
CVX |
+0.61% |
-6.84% |
|
COP |
+2.16% |
-8.23% |
|
OXY |
-0.15% |
-7.98% |
|
SLB |
+2.94% |
-4.53% |
|
RIG |
+0.38% |
-32.63% |
|
VLO |
+3.56% |
-13.59% |
|
TSO |
+10.85% |
+33.13% |
Refiner Tesoro Corp. (TSO) was the week's best performer among the market heavyweights, adding 10.9% to its stock price after reporting solid third quarter profits. On the other hand, U.S. energy explorer Occidental Petroleum Corp. inched down 0.2% during the period in the face of continued drop in oil prices.
Over the last 6 months, Tesoro was again the leader of the pack with its shares advancing 33.1%. Investors have rewarded the company for its continued focus on shareholder returns. On the other hand, offshore driller Transocean Ltd. was the laggard, as it witnessed a 32.6% price decline over the same time frame on the back of rig oversupply that has led the industry into a cyclical downturn.
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. This includes data on factory orders and jobless claims.
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