It was a week where oil prices tallied a small loss, while natural gas futures booked a handsome gain.
On the news front, integrated major Chevron Corp. CVX and oilfield services provider Baker Hughes Inc. BHI both reported weak fourth quarter results. Meanwhile, downstream operator Valero Energy Corp. VLO raised its quarterly dividend.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures inched down 0.1% for the week to close at $53.17 per barrel, natural gas prices gained 5.8% to $3.391 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Schlumberger & Halliburton's Q4 Earnings, Permian Deals and More.)
Oil prices were essentially unchanged as the tug-of-war over two powerful, opposing supply narratives continue. A portion of investors and analysts remain upbeat that producers are adhering to their agreed output cut quotas, which will reduce the global inventory glut next year. However, a third-consecutive weekly rise in domestic oil supplies and a burgeoning rig count – pointing to the resurgence in shale drilling activities – kept prices in check.
Meanwhile, natural gas turned sharply higher as withdrawal matched expectations. The heating fuel was further buoyed by forecasts of cold weather that translates into strong demand.
Recap of the Week’s Most Important Stories
1. Shares of Chevron Corp. slumped 2.62% in pre-market trade, after the U.S. energy giant reported weak fourth quarter results, dragged down by lower refining margins. The company reported earnings per share of 22 cents, sharply lower than the Zacks Consensus Estimate of 63 cents.
However, the bottom line compared favorably with the year-ago loss of 31 cents amid the recovery in commodity prices and the success of its cost savings initiatives.
Chevron’s total production of crude oil and natural gas remained essentially unchanged from the year-earlier level at 2,669 thousand oil-equivalent barrels per day (MBOE/d). Despite flat production volumes, Chevron’s upstream segment had a massive turnaround – from a loss of $1,361 million in the year-earlier quarter to a profit of $930 million. This was mainly on account of a leaner cost structure and higher realizations.
Chevron’s downstream segment achieved earnings of $357 million, 65% lower than the profit of $1,011 million last year. The results were dragged down by lower margins on refined product sales. (Read more: Chevron's Stock Drops After Q4 Earnings, Sales Miss.)
2. Oilfield services player Baker Hughes Inc. incurred wider-than-expected loss in fourth-quarter 2016. Postponement of projects and lesser work in the North Sea and Brazil were responsible for the quarterly loss. Cost-reduction initiatives partially limited the downside.
Along the results, Baker Hughes also sounded optimistic in its view that the North American land market is improving and appears to be past the worst. As it is, rig counts have generally been rising during the last seven months since plunging to an all-time low of 404 in May 2016, with the addition of a flood of new units. As a proof of the recovery, Baker Hughes reported a sequential increase in North American revenues, while operating losses narrowed.
However, the international market recovery is set to start slower, with lower capex spend for the third successive year affecting economics across deepwater and mature field markets. Baker Hughes sees a turnaround in the in the international markets not before the second half of 2017. (Read more: Baker Hughes Incurs Wider-Than-Expected Loss in Q4.)
3. Leading refiner Valero Energy Corp. announced that it has received approval from board of directors to increase its quarterly dividend. Valero currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The new dividend of 70 cents per share is 16.7% higher than the prior figure of 60 cents. The increased dividend will be paid on Mar 7, to shareholders of record as on Feb 15, 2017. Based on closing price of $67.37 per share on Jan 26, 2017, the stock has a dividend yield of 4.2%.
The company has a solid track record of increasing quarterly dividend, which reflects its financial strength. In fact, Valero’s Current Ratio, which reflects a company’s liquidity, is better than other refining companies. (Read more: Valero Energy Rewards Investors with Quarterly Dividend Hike.)
4. Energy producer Hess Corp. HES reported adjusted fourth-quarter 2016 loss from continuing operations of $1.01 per share, narrower than the Zacks Consensus Estimate of loss of $1.08. The company had incurred a loss of $1.40 per share in the year-ago quarter. Higher oil price realizations as well as improved total production unit costs resulted in the narrower loss.
Worldwide crude oil realization per barrel of $45.97 (including the impact of hedging) increased over 5% year over year. Importantly, Hess continues to improve its drilling and completion performance with fourth quarter expenses coming down 10% year over year to $4.6 million.
Hess has increased its 2017 capital expenditure to $2.25 billion from $1.9 billion in 2016. Oil and gas production, excluding Libya, is estimated in the range of 300,000–310,000 barrels of oil equivalent per day (BOE/d) compared with full-year 2016 net production of 321,000 BOE/d. (Read more: Hess Q4 Loss Narrower than Expected; View Raised.)
5. Houston, TX-based midstream energy player Targa Resources Corp. TRGP announced that it has inked an agreement to acquire pipeline assets from Denver, CO-based Outrigger Energy for up to $1.5 billion. The transaction is scheduled for completion by the end of March, subjected to regulatory approvals and conditions.
As part of the deal, Targa will acquire the midstream properties by making an initial payment of $565 million to Outrigger. The total transaction costs, however, is likely go up to $1.5 billion based on the performance measures.
The deal will broaden Targa’s reach into the Permian Basin by acquiring oil and gas gathering and processing assets in Delaware and Midland basin. With the acquisition, Targa will own 5,000 and 5,500 miles of pipelines in Delaware and Midland basin respectively. The gross processing capacity is estimated to rise around 2 billion cubic feet per day by the end of the year. (Read more: Targa Resources Inks Pipeline Agreement for $1.5B.)
Price Performance
The following table shows the price movement of some the major oil and gas players over the past week and during the last 6 months.
|
Company |
Last Week |
Last 6 Months |
|
XOM |
-0.80% |
-1.16% |
|
CVX |
-1.88% |
+12.82% |
|
COP |
-2.10% |
+19.87% |
|
OXY |
-0.65% |
-7.76% |
|
SLB |
-3.41% |
+1.99% |
|
RIG |
-1.58% |
+35.12% |
|
VLO |
+1.60% |
+32.15% |
|
TSO |
+1.18% |
+11.85% |
Over the course of last week, ‘The Energy Select Sector SPDR’ was down 1.07%. Consequently, investors witnessed selling in most market heavyweights. The worst performer was oilfield services major Schlumberger Ltd. SLB whose stock price fell 3.41%.
But longer-term, over the last 6 months, the sector tracker gained 11.83%. Offshore rig supplier Transocean Ltd. RIG was one of the major beneficiaries during this period, experiencing a 35.12% price increase.
What’s Next in the Energy World?
As usual, market participants will be closely tracking the regular releases i.e. the U.S. government data on oil and natural gas. Energy traders will also be focusing on the Baker Hughes data on rig count. However, the 2016 Q4 earnings remain the primary focus this week, with a number of S&P 500 members coming out with quarterly results.
Now See Our Private Investment Ideas
While the above ideas are being shared with the public, other trades are hidden from everyone but selected members. Would you like to peek behind the curtain and view them? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trades >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment