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Oil & Gas Stock Roundup: Earnings Beats & Dividend Hikes from TOTAL, Anadarko & Suncor

Zacks

It was a week where oil prices settled under $60 a barrel for the first time this year and natural gas logged its lowest closing since February 2017.

On the news front, energy biggies TOTAL S.A. TOT, Anadarko Petroleum Corporation APC and Suncor Energy Inc. SU came up with stronger-than-expected earnings reports, driven by higher oil prices. Moreover, all the companies awarded shareholders with dividend increases.

Overall, it was another dismal week for the sector. West Texas Intermediate (WTI) crude futures lost about 9.6% to close at $59.20 per barrel, while natural gas prices dived 9.2% to $2.584 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon & Chevron's Q4 Earnings Miss, Shell Reports Strong Numbers)

The U.S. oil benchmark recorded its third decrease in four weeks. The major culprit was the steady trend of rising domestic oil production that continues to be the biggest headwind for the market.


As per EIA’s latest data, U.S. output rose by 332,000 barrels per day last week to more than 10.2 million barrels per day – the most since the EIA started maintaining weekly data in 1983 and the first time in nearly 50 years that oil production broke through the 10 million barrels a day threshold. This has refueled concerns that the domestic supply glut is cancelling out cuts from OPEC and its allies.

Data showing the number of U.S. oil rigs climbing for a third straight week – this time by 26, the most in more than a year – brought further downside.

Meanwhile, natural gas had a forgettable week of its own following a smaller-than-average decrease in supplies. The 119 billion cubic feet (Bcf) withdrawal was less than last year’s drop of 142 Bcf and the five-year (2013-2017) average net shrinkage of 151 Bcf for the reported week. Investors were also spooked by forecasts of warmer weather, leading to the heating fuel’s tepid demand.

Recap of the Week’s Most Important Stories

1. France-based supermajor TOTAL S.A. reported fourth-quarter 2017 operating earnings of $1.10 per share, which beat the Zacks Consensus Estimate of $1.06 by 3.8%. The outperformance was due to solid operational performance, steadily decreasing production costs, improvement in the realized prices of commodities and new projects ramp ups, which boosted production.

Operating income was $3,359 million, up 26% from the year-ago period. Higher contribution from Exploration & Production and Gas, Renewable & Power segments boosted operating income. Adjusted net income in the reported quarter was $2,872 million, up 19% from the year-ago quarter. The cost-reduction initiatives have resulted in cost savings of $3.7 billion in 2017.

Cash and cash equivalents as of Dec 31, 2017 were $33.18 billion compared with $24.59 billion as of Dec 31, 2016. Net debt-to-equity ratio was 13.8% at the end of the quarter, down from 27.1% at the end of fourth-quarter 2016. Coupled with strong cash flows, TOTAL has decided to lift its dividend by 10% over the next three years, while planning to repurchase about $5 billion in shares.

TOTAL’s upstream production is expected to increase 6% in 2018, in sync with its objective to grow 5% per year on average between 2016 and 2020. The company continues to work on its cost-management initiatives and expects to generate cost savings of $4 billion in 2018. Organic capital expenditure is expected to be $14 billion in 2018. (Read more TOTAL Tops Q4 Earnings on Higher Oil Prices & Output)

2. The Woodlands, TX-based upstream operator Anadarko Petroleum Corporation reported fourth-quarter 2017 earnings of 18 cents per share, beating the Zacks Consensus Estimate of 3 cents by a whopping 500% thanks to solid production and pricing.

The company’s total costs and expenses in fourth quarter dropped 13.5% year over year to $2,591 million, primarily due to lower exploration and Oil and gas transportation expenses.

Importantly, Anadarko Petroleum raised its quarterly dividend to 25 cents from 5 cents, reflecting an increase of 400%. The board of directors authorized a $500-million increase to its previously announced $2.5 billion share repurchase program, bringing the total program to $3.0 billion. As of Feb 5, 2018, the company bought back 30 million shares using $1.6 billion from the repurchase program. (Read more Anadarko Tops Q4 Earnings Estimates, Issues Guidance)

3. Canadian energy giant Suncor Energy Inc. reported fourth-quarter 2017 operating earnings per share of 63 cents, surpassing the Zacks Consensus Estimate of 55 cents. Strong refined product sales, reduced total expenses and higher crude price realizations drove the company’s earnings. In the year-ago quarter, the Zacks Rank #1 (Strong Buy) company posted earnings of 29 cents a share. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Quarterly operating earnings came in at C$1,310 million compared with C$636 million in the year-ago quarter, reflecting an increase of 106%. Meanwhile, quarterly revenues of C$3,941 million increased from C$3,352 million in the year-ago quarter.

As of Dec 31, 2017, Suncor had cash and cash equivalents of C$2,672 million and total long-term debt of C$13,372 million. The total debt-to-capitalization ratio was approximately 25.6%. The company incurred capital expenditures of C$1,444 million in the quarter under review.

The company’s board members have approved a 12.5% hike in its quarterly dividend. Suncor will now reward shareholders with a dividend of 36 cents per share. This translates to an annualized dividend of $1.44 per share. The increased dividend will be paid on Mar 26, 2018 to shareholders of record as of Mar 5. (Read more Suncor Q4 Earnings Surpass Estimates, Revenues Up Y/Y)

4. Leading upstream energy company Pioneer Natural Resources PXD reported fourth-quarter 2017 earnings, excluding one-time items, of $1.22 per share. The bottom line beat the Zacks Consensus Estimate of 76 cents. Higher oil and liquids price realizations and production along with Spraberry/Wolfcamp horizontal drilling program drove fourth-quarter results.

Total production in the reported quarter averaged approximately 305 thousand barrels of oil equivalent per day (MBOE/d), up 26.1% year over year and surpassed the Zacks Consensus Estimate of 298 MBOE/d. The upside can be attributed to the Spraberry/Wolfcamp horizontal drilling program.

Pioneer Natural raised dividend by 300% to 16 cents per share from 4 cents. The dividend is payable on Apr 12 to stockholders of record at the close of business on Mar 29.

For 2018, Pioneer Natural intends to spend $2.9 billion. Of this, the company will allocate $2.65 billion for drilling and completion and $260 million for water infrastructure, vertical integration and field facilities. An amount of $2.63 billion has been allocated for the Permian Basin and $20 million for other assets. (Read more: Pioneer Natural Q4 Earnings Beat, Reserves Increase)

5. Energy giant ExxonMobil Corp. XOM recently announced that its oil and gas reserves increased 19% in 2017 owing to growth in several places like the U.S. shale, the United Arab Emirates and Guyana.

In 2017, the company added 2.7 billion barrels of oil equivalent (BOE) to its reserves, which marks 183% production replacement. It brings the company's total proved reserves to 21.2 billion BOE. Of the total proved reserves, 57% was liquids, which increased by 4% from 53% in 2016. At the current production rate of the company, its reserves are expected to last for 14 years. The company, with higher profitability ratios and lower leverage than the industry, is poised to yield higher values in the long run.

ExxonMobil spent more than $6 billion in 2017 to increase its presence in the Permian Basin. The company added more than 800 million BOE to its reserves in the basin. The Upper Zakum field in the United Arab Emirates contributed another 800 million BOE. The company's Guyana assets provided proved reserves of 3.2 billion BOE. (Read more ExxonMobil Announces 2017 Proved Reserve Growth of 19%)

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

-14.9%

-2.3%

CVX

-9.6%

+4.3%

COP

-12.3%

+19.3%

OXY

-10.4%

+14.3%

SLB

-13.7%

+4.7%

RIG

-15.1%

+13.9%

VLO

-6.8%

+34.3%

ANDV

-8.9%

+3.4%

In line with the week’s bearish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated an -11.8% return last week. The worst performer was offshore drilling powerhouse Transocean Ltd. RIG whose stock slumped 15.1%.

Longer-term, over 6 months, the sector tracker is up 6%. Independent refiner Valero Energy Corp. VLO was the major gainer during this period, experiencing a 34.3% 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.

However, the 2017 Q4 earnings again remain the primary focus this week, with a number of S&P 500 members coming out with quarterly results.

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