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Oil & Gas Stock Roundup: TOT’s Acquisition, ANDV & ECA’s Q3 Numbers, & More

Zacks

It was a week where the price of oil spiked to its highest settlement since June 2015, while natural gas futures rose to a five-month peak.

On the news front, France-based integrated major TOTAL S.A. TOT agreed to buy liquefied natural gas assets from utility company Engie for around $1.5 billion. Meanwhile, downstream operator Andeavor ANDV and Canadian natural gas firm Encana Corp. ECA came up with weaker-than-expected earnings reports.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained about 2.3% to close at $56.74 per barrel, while natural gas prices jumped 7.7% to $3.213 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Shell, EOG, Concho Report Strong Q3)

The U.S. oil benchmark rallied on expectations that OPEC and other major producers will agree to expand their output-cut deal beyond March when they meet at the end of the month. The agreement, already renewed once, keeps 1.8 million barrels a day off the market in an attempt to clear a supply glut.


Further support came from the U.S. Energy Department's inventory release, which showed steep declines in domestic gasoline and distillate inventories.

Political turmoil in Saudi Arabia, where the kingdom’s 32-year old crown price – Mohammed bin Salman – ordered the arrest of much of the country’s top leadership, was also bullish for oil prices.

Meanwhile, natural gas futures logged a big gain following strong power burn consumption from residential/commercial customers. Despite the commodity’s Lower 48 production being at its highest level on record, colder-than-normal weather forecasts over the next two weeks are expected to drive natural gas demand.

Recap of the Week’s Most Important Stories

1. French energy giant TOTAL S.A. announced that it has entered into a definite agreement to acquire the upstream liquefied natural gas (LNG) assets of compatriot gas utility Engie for $1.49 billion. The decision to buy the assets and expand footprint in the LNG business is expected to benefit the company significantly.

Per the agreement, TOTAL will have control over Engie’s interest in the Cameron LNG project in the United States, long-term LNG sales and purchase agreements, and an LNG tanker fleet. It will also have access to regasification capacities in Europe. TOTAL might pay another $550 million to Engie, subject to improvement in oil markets in the coming year. This transaction is expected to close by mid-2018.

This deal, scheduled to be closed in 2018, will expand TOTAL’s total volume of LNG sales to 40 million tons per year in 2020. So, the decision to acquire Engie’s assets will expand TOTAL’s operation in LNG and increase revenue contribution from this space. (Read more: TOTAL to Acquire LNG Assets From Engie for $1.49B)

2. Independent refiner and marketer Andeavor reported third-quarter 2017 adjusted earnings from continuing operations of $2.70 per share, which missed the Zacks Consensus Estimate of $3.03. A 24% decline in Retail and Branded fuel margins and increased operating expenses resulted in the earnings miss.

The bottom line, however, increased from the year-ago quarter figure of $1.43 per share on strong performance of the refining segment. Refining margin increased 66.2% year over year to $15.09 per barrel. Region-wise, refining margin was up almost 44.7% to $13.37 per barrel in California, 109.6% to $15.03 in the Pacific Northwest and about 57.9% to $17.27 in Mid-Continent on a year-over-year basis.

Andeavor expects throughput level for the fourth quarter between 1,070 MBbl/d and 1,125 MBbl/d. Region wise, California expects throughput volumes between 520 and 545 MBbl/d. Pacific Northwest and Mid Continent expects throughput levels within 165–175 MBbl/d and 385–405 MBbl/d, respectively. The company expects total capital expenditures to be around $1.3 billion in 2017. Turnaround expenditures for full year 2017 are expected to be $540 million. (Read more Andeavor's Q3 Earnings, Revenues Miss Estimates)

3. Canadian energy exploration and production company, Encana Corporation reported third-quarter 2017 operating earnings of 2 cents per share, missing the Zacks Consensus Estimate of 5 cents. Further, the bottom line declined from 4 cents per share reported in the year-ago quarter. Lower production adversely impacted results.

Quarterly natural gas production declined approximately 29% year over year to 939 million cubic feet per day, while liquids production rose 9% year over year to 127.5 thousand barrels per day. Total production declined 16% to 284 thousand barrels of oil equivalent per day (MBOE/d).

Revenues of $861 million, however, beat the Zacks Consensus Estimate of $827 million due to a rise in realized commodity prices. However, revenues were 12.1% lower than the prior-year figure of $979 million.

Encana's realized natural gas price was $2.23 per thousand cubic feet, up 10.4% from the year-ago quarter level of $2.02. Meanwhile, liquids price rose marginally to $41.86 per barrel from $41.82 in the third quarter of 2016. (Read more Encana Q3 Earnings Miss Estimates on Lower Production)

4. One of the world's largest independent oil producer ConocoPhillips COP released a summary of its 2018-2020 operating plan and strategy for long-term value creation. Based on a flat real West Texas Intermediate (WTI) price of $50 per barrel, annual capital expenditure is expected to average $5.5 billion in the next three years.

The Zacks Rank #1 (Strong Buy) company anticipates cash return on capital employed to be more than 20% by 2020 and sustaining capital of about $3.5 billion. The average sustaining price is estimated at less than $40 per barrel. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ConocoPhillips proposes to distribute more than 30% of cash from operating activities to shareholders annually, through dividends and share buybacks. The company has also extended $1.5 billion per year of share repurchases through 2020, taking the total amount of buybacks to $7.5 billion.

In 2019, debt is expected to decline to $15 billion. In fact, total share buybacks of $7.5 billion and decrease in debt to $15 billion will result in a 20% drop in debt-adjusted share count by 2020-end. (Read more ConocoPhillips (COP) Summarizes Operating Plan for 2018-2020)

5. Oil and gas producer Noble Energy, Inc. NBL announced that it has signed an agreement to divest approximately 30,200 net acres of company’s non-core DJ Basin portion to Denver, CO-based independent operator SRC Energy Inc., for a sum of $608 million.

The acreage located in Weld County, CO, include Non-operated production of 2,500 barrels of oil equivalent per day (BOE/d) and operated production of 1,600 BOE/d. Notably, the initial closing is anticipated to conclude by the end of 2017 and is predicted to include mainly non-operated production acreage, followed by a second closing that is expected by mid-2018 and will include mainly producing properties.

Noble Energy is currently making optimum use of its non-core properties and utilizing the proceeds to lower debt levels. Additionally, it is undertaking investments to further strengthen its core operation. (Read Noble Energy Sells Non-Core DJ Basin Portion For $680M)

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

-0.7%

+0.4%

CVX

+1.6%

+10.6%

COP

+1%

+11.9%

OXY

+0.4%

+11.6%

SLB

+3.9%

-8.4%

RIG

+9%

+5.8%

VLO

-0.3%

+21.4%

ANDV

-2.3%

+31.3%

Reflecting the bullish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +1.7% return last week. The best performer was offshore drilling rig operator Transocean Ltd. RIG whose stock rose by 9%.

Longer-term, over 6 months, the sector tracker is up 2.2%. Downstream operator Andeavor was the major gainer during this period, experiencing a 31.3% price appreciation.

What’s Next in the Energy World?

As usual, market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas, one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count.

The 2017 Q3 earnings will again garner some attention this week, with the final few energy companies coming out with quarterly results.

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