It was a week where oil prices rebounded from their 6-year lows but natural gas plunged to its lowest in 28 months. However, with earnings remaining front and center, the major headlines came from Exxon Mobil Corp. (XOM) and Chevron Corp.’s (CVX) fourth quarter outperformance, where they saw off plunging oil prices to beat estimates on refining strength.
Overall, it was a mixed week for the sector. While a resurgent West Texas Intermediate (WTI) crude futures climbed 5.8% to close at $48.24 per barrel, natural gas prices slumped around 10% to $2.69 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Crude Dives Again; Energy Transfer Partners-Regency in $18B Mega-Deal.)
Crude prices gained for just the second time in 10 weeks, encouraged by the Baker Hughes report that showed a record drop in oil-directed rigs, indicating a brake in shale drilling activities. This is seen as a precursor to a slowdown in oil production leading to a subsequent drop in the commodity’s bloated supply level.
Natural gas though fared badly, hitting the lowest level since 2012 as it was weighed down by a below-average supply drawdown. Things were made worse by expectations of soft heating demand with forecasts of higher temperatures across certain regions of the U.S. during the next two weeks.
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 better-than-expected fourth 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. Houston-based independent exploration and production company ConocoPhillips (COP) reported disappointing fourth quarter earnings and sales on sharply lower oil realizations. Average realized price for oil was $71.31 per barrel compared with $100.83 in the year-earlier quarter. However, on a positive note, daily production averaged 1.589 million barrels of oil equivalent (MMBOE) in the quarter, up from 1.473 MMBOE in the year-ago quarter.
ConocoPhillips expects to deliver 2–3% production growth in 2015. For the first quarter of 2015, production from continuing operations is expected at 1,570–1,610 MBOED, excluding Libya. (See more: ConocoPhillips Q4 Earnings Miss Estimates, Revenues Beat.)
3. Refiner Valero Energy Corp. (VLO) came out with strong fourth quarter earnings on the back of higher refining throughput margins and lower refining operating expenses.
Throughput margins increased to $12.48 per barrel from the year-ago level of $11.20 per barrel. Total operating cost per barrel was $5.31 during the quarter, 1.7% lower than the year-earlier figure of $5.40. Refining operating expense per barrel was $3.76 compared with $3.79 in the year-ago quarter. (See more: Valero Beats on Q4 & Full Year Earnings, Revenues.)
4. Contract drilling services provider Helmerich & Payne Inc. (HP) reported better-than-expected earnings for the first quarter of fiscal 2015 (three months ended Dec 31, 2014), aided by strong results from its U.S. Land Operations and Offshore Operations segments.
Average rig revenue per operating day for the land segment was $29,457, which was 3.5% above the year-ago period. Also, rig utilization levels rose to 89%, increasing the segment operating income by 26.8% from the year-earlier quarter to $318.1 million.
On the other hand, Helmerich & Payne’s offshore operations’ rig utilization was up 98% from the year-ago quarter level of 89%. This helped the segment operating income improve by 16.1% from the year-ago period to $21.5 million. (See more: Helmerich & Payne Beats Q1 Earnings Estimates, Revenues.)
5. Oil refiner and marketer Western Refining Inc. (WNR) provided an interim update on fourth-quarter 2014 results and gave an operational guidance for first-quarter 2015.
The company expects fourth-quarter earnings, excluding items like hedging gains, market inventory and asset sale adjustments, to range between $1.08 and $1.14. This marks a substantial improvement from the year-ago quarter adjusted earnings of 60 cents.
Moreover, the company added that for first-quarter 2015, it expects throughput from the El Paso refinery to be between 133,000 barrels per day (Bbl/d) and 137,000 Bbl/d. Meanwhile, Gallup refinery throughput is anticipated to be between 26,500 Bbl/d and 28,500 Bbl/d.
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 |
-1.72% |
-10.54% |
|
CVX |
-2.15% |
-17.25% |
|
COP |
+0.44% |
-19.77% |
|
OXY |
+0.31% |
-17.10% |
|
SLB |
+1.37% |
-22.82% |
|
RIG |
+2.93% |
-56.24% |
|
VLO |
+6.29% |
+7.97% |
|
TSO |
+2.00% |
+34.82% |
Over the course of last week, most of the market heavyweights witnessed stock price upside with the major gainer being downstream operator Valero Energy Corp., which rose 6.3% during the period. The refiner took full advantage of cheap crude to beat fourth quarter profit estimates.
Over the last 6 months, another refiner Tesoro Corp. (TSO) was the major beneficiary on the bourses with its shares advancing 34.8%. Investors have rewarded the company for its continued focus on shareholder returns. On the other hand, offshore driller Transocean Ltd. (RIG) was the laggard, as it witnessed a 56.2% 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, including those on manufacturing, services, personal spending, factory orders and unemployment rate.
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