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Oil & Gas Stock Roundup: Exxon & Chevron’s Strategy Updates, Hess’ Buyback Plan & More

Zacks

It was a week where both oil and gas prices logged gains.

On the news front, integrated majors ExxonMobil XOM and Chevron CVX earmarked their growth actions in respective annual analyst meetings. Meanwhile, energy explorer Hess Corporation HES announced a new $1 billion share repurchase program.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained about 1.3% to close at $62.04 per barrel, while natural gas prices increased 1.4% to $2.732 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Marathon's Libya Sale, SeaDrill's Restructuring, Canadian Natural's Q4 & More)

Oil rebounded from its mid-week slump, with the U.S. benchmark rising more than 1%. The commodity declined in earlier sessions after the Energy Department's inventory release revealed that crude stockpiles recorded another weekly build. Crude was further pressured by soaring U.S. production, wherein output rose to 10.4 million barrels per day — the most since the EIA started maintaining weekly data in 1983.


However, a strong jobs report, falling U.S. oil rig count and news of more countries likely to be excluded from Trump administration’s planned tariffs on imported steel and aluminum, helped turn things around. Oil’s recovery was further facilitated by weakness in the U.S. dollar and reduced geopolitical fears on the back of reports that President Trump has agreed to meet North Korean leader Kim Jong Un.

Meanwhile, natural gas prices moved higher last week on strong demand and a supportive weather outlook.

Recap of the Week’s Most Important Stories

1. ExxonMobil has outlined its growth strategy, which intends to more than double earnings and cash flow from operations by 2025 based on current oil prices. Per the growth plans, the company expects earnings of $31 billion by 2025, up more than 100% from last year’s adjusted profit of $15 billion. The figure does not include the impact of U.S. tax reform and impairments.

ExxonMobil has set capital spending at $24 billion for 2018, $28 billion for 2019 and $30 billion from 2023 to 2025, to meet its target to achieve high growth. However, its peers including Chevron are cutting down on spending and keeping budgets unchanged.

Darren W. Woods, chairman and chief executive officer of ExxonMobil, also emphasized that the plan estimates double-digit rates of return in all three segments of ExxonMobil’s business — upstream, downstream and chemical.

Overall, ExxonMobil’s growth strategy aims to fully leverage competitive advantages to boost shareholder value in three of its world-class businesses. The increased investments are expected to enhance and boost returns on capital employed to about 15% by 2025.(Read more ExxonMobil's Growth Strategies to Double Earnings by 2025)

2. Chevron recently issued a statement at its latest annual analyst day, bringing in pleasant news for its investors. The California-based supermajor highlighted its commitment toward dividend growth as its top priority. It also laid emphasis on prudent reinvestment in the business, strengthening of financials and cash flow generation. It updated its guidance related to capex, production, margins and other details along with emphasizing on its growing free cash flows.

While dividend growth remains the topmost priority for management, Chevron still emphasizes the need of operational efficiency and capital discipline to strengthen its cash flows. The company now plans to spend $18-$20 billion per annum through the end of the decade versus the prior guidance of $17-$22 billion per annum.

Despite the capital discipline, the supermajor forecasts a year-over-year increase in net production of 4-7% in 2018, with 2-3% output gain from the base and shale/tight oil assets. This compares with the 5% net production growth achieved by the company in 2017 on a yearly basis.

Chevron also targets asset disposal worth $5-$10 billion through 2018-2020 in an attempt to exit the non-core holdings and strengthen its cash flows. The company also plans to tap strategic acquisition opportunities to streamline and high grade its portfolio, thereby increasing shareholder value. (Read more: Chevron Sets Dividend Growth & Other Priorities for 2018)

3. Hess announced a new share repurchase plan after receiving authorization from its board of directors. Through 2018, the explorer will likely buy back shares worth $1 billion. Late 2017, the company declared a $500-million stock buyback plan. The recent announcement reflects the firm’s strong commitment toward returning cash back to stockholders on a regular basis.

The company foresees higher oil and gas production which when combined with healthy oil prices will likely boost cashflow. Hess added that with the new buyback program, it will not compromise with its potential to invest in key developments like Guyana and Bakken.

Earlier, the Zacks Rank #3 (Hold) company had announced that majority of its 2018 capital budget will likely get allotted toward low-cost resources in Bakken and projects located off the coast of Guyana. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Overall, with the robust business outlook, the management might think the company’s shares are undervalued and hence is the right time to boost share buyback.(Read more Hess Boosts Buyback Plan on Favorable Business Scenario)

4. Devon Energy Corp. DVN announced that it has entered into a definitive agreement to sell the southern portion of its Barnett Shale position for $553 million. This deal is part of the company’s plan to divest more than $5 billion of its non-core assets in the next three years under its Vision 2020 initiative. The transaction is subject to customary terms and conditions and is expected to close in the second quarter of 2018.

The assets, which are earmarked for monetization, are currently averaging 200 million cubic feet of gas-equivalent per day. Combined with other recent asset divestitures announced by the company, it has already announced to sell non-core assets worth $1 billion.

In 2018, Devon Energy plans to lower $1.5 billion of its outstanding debt to strengthen its balance sheet and lower interest expenses. Devon Energy might utilize the sale of proceeds from Barnett Shale to lower its outstanding debt level.

The strategy to divest non-core assets is actually helping Devon Energy to concentrate on its high-margin oil production region. The company will in turn utilize the cash flow to lower its existing debts levels, and work to increase shareholders’ value through share buybacks and dividend growth. (Read more Devon Divests Non-Core Assets in Barnett for $533M)

5. Eni SpA E has agreed to divest 10% of its stake in the Shorouk concession, offshore Egypt, to a wholly owned subsidiary of Mubadala Investment Company, Mubadala Petroleum. Eni will generate about $934 million from this sale.

Eni currently holds 60% stake in the Shorouk concession through its subsidiary, IEOC. Other partners are Rosneft and BP plc with the respective 30% and 10% interests in the concession. The transaction’s closure is subject to fulfillment of certain standard conditions including all essential authorizations from Egyptian authorities.

The super-giant gas field of Zohr is also located at the Shorouk concession, producing 400 million standard cubic feet per day. It was brought online in December 2017 within 28 months after its discovery. The yield from Zohr is expected to eventually reach the plateau by the end of 2019. In 2018, Zohr is likely to add 70,000 barrels of oil equivalent per day for Eni.

The deal is in line with Eni’s dual exploration strategy, via which, the company seeks to farm out stakes in the fields it operates so as to raise cash for financing future development as well as meting out dividends. (Read more Eni to Divest 10% in the Shorouk Concession for $934M)

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

-0.9%

-5.4%

CVX

+4.6%

+3.8%

COP

+2.2%

+21.9%

OXY

-3%

+5.1%

SLB

+5.5%

+2.5%

RIG

+2.2%

+12.6%

VLO

+3.9%

+32%

ANDV

+12.2%

-3.3%

In line with the week’s positive oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +2.7% return last week. The best performer was San Antonio, TX-based downstream operator Andeavor ANDV whose stock jumped 12.2%.

Longer-term, over six months, the sector tracker is up 4.6%. Another independent refinerValero Energy Corp. VLO was the major gainer during this period, experiencing a 32% 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.

Additionally, investors will keep an eye on International Energy Agency’s (IEA) February Oil Market Report to get insights on the industry.

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