It was a week where oil prices regained the psychologically important $50-a-barrel level but natural gas plunged to its lowest in 32 months. However, with earnings taking center stage yet again, the major headlines came from BP plc (BP) and Suncor Energy Inc.’s (SU) fourth quarter underperformance, where they were felled by plunging oil prices to miss estimates.
Overall, it was a mixed week for the sector. While a resurgent West Texas Intermediate (WTI) crude futures climbed 7.2% to close at $51.69 per barrel, natural gas prices slumped around 4.2% to $2.58 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon Mobil, Chevron Beat Earnings Despite Collapsing Crude Prices.)
Crude prices gained for just the third time in 11 weeks, encouraged by the Baker Hughes report that showed another massive 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. An upbeat U.S. jobs data added to the optimism.
Natural gas though fared badly, hitting the lowest level since June 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 few days.
Recap of the Week’s Most Important Stories
1. British energy giant BP plc reported disappointing fourth quarter earnings and sales on dipping volumes and lower crude prices. While total production of 2.187 million barrels of oil equivalent per day was down 2.6% year over year, the company could sell liquids for just $69.03 per barrel during the period (versus $98.26 in the year-earlier quarter).
Looking ahead, BP expects production for full-year 2015 to be higher than 2014. However, the company anticipates a weaker refining environment due to narrowing crude differentials in the low crude price environment. It expects the financial impact of refinery turnarounds to remain at similar levels as 2014 and the petrochemicals margin environment to gradually improve. (See More: BP Misses Earnings Estimates in Q4, Revenues Decline Y/Y.)
2. Canada’s biggest energy firm and the largest oil sands outfit Suncor Energy Inc. also fell prey to lower production levels and weak crude pricing environment. The company’s fourth quarter earnings and revenue both came below the Zacks Consensus Estimate.
Looking to stem the rot from plunging oil prices, Suncor lowered its 2015 capital spending projection by C$1 billion to C$6.2–C$6.8 billion. The company also plans to reduce operating expenses by C$600–C$800 million over the next two years. (See more: Suncor Energy Q4 Earnings Miss as Production, Pricing Fall.)
3. Ohio-based independent oil refiner and marketer Marathon Petroleum Corp. (MPC) reported strong fourth-quarter results, owing to higher product price realization and increased contribution from the Speedway segment.
Marathon Petroleum announced plans of investing $2.53 billion in 2015. A major portion of the capex – $1.28 billion – will be directed toward its Refining and Marketing segment. For its Speedway and Pipeline Transportation segments it projects investment of $452 million and $659 million respectively. (See more: Marathon Petroleum Beats on Q4 Earnings, Revenues.)
4. Chevron Mauritania Exploration Ltd., a fully owned affiliate of U.S. energy giant Chevron Corp. (CVX), has entered into a deal with upstream energy player Kosmos Energy Ltd. (KOS). Per the agreement, Chevron subsidiary will acquire a 30% non-operated working interest in Blocks C8, C12 and C13 located off the coast of Mauritania.
The three blocks are situated below water at a depth of 5,249−9,842 feet where it is spread over an area of 6.6 million gross acres. Investors should note that Chevron hopes to be the operator if there is any commercial discovery during exploration of the area. Following the closure of the deal, Chevron will expand its presence in West Africa. (See more: Chevron Arm to Buy Interest in Offshore Mauritania Blocks.)
5. After enduring a weak oil pricing environment for over eight months, upstream and midstream energy operator SandRidge Energy Inc. (SD) has decided to significantly lower its rig count in Kansas and Oklahoma this year, going by a Reuters report. Following the news, share price of SandRidge Energy nosedived over 10% on the NYSE.
From the 28 rigs that it has been using for drilling in the northern Oklahoma and southern Kansas based Mississippi Lime formation, the company will reduce its count to only 8 by March end and early April. SandRidge Energy is also considering a cut in its capital expenditure following soft market conditions.
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 |
-0.51% |
-7.26% |
|
CVX |
+1.88% |
-13.53% |
|
COP |
+0.24% |
-16.03% |
|
OXY |
-0.45% |
-15.13% |
|
SLB |
-0.92% |
-21.42% |
|
RIG |
+11.04% |
-48.34% |
|
VLO |
-0.70% |
+6.68% |
|
TSO |
+2.97% |
+39.64% |
Over the course of last week, most of the market heavyweights witnessed stock price upside with the major gainer being offshore driller Transocean Ltd. (RIG), which rose 11% during the period. The company’s shares took off after global investment firm BlackRock, in a vote of confidence, raised its stake in the Vernier, Switzerland-based firm.
Over the last 6 months, refiner Tesoro Corp. (TSO) has been the chief beneficiary on the bourses with its shares advancing 39.6%. Investors have rewarded the company for its continued focus on shareholder returns. On the other hand, Transocean was the laggard, as it witnessed a 48.3% 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 that on retail sales.
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