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Oil & Gas Stock Roundup: Occidental, Cheniere & Petrobras’ Earnings Impress

Zacks

It was a week where oil prices ended above $70-a-barrel and natural gas futures got a lift from the U.S. supply data.

On the news front, energy biggies Occidental Petroleum Corp. OXY, Cheniere Energy, Inc. LNG and Petrobras PBR came up with strong earnings reports.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained about 1.4% to close at $70.70 per barrel, while natural gas prices rose some 3.5% to $2.806 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: BP & EOG's Q1, Marathon-Andeavor Deal & More)

The U.S. oil benchmark hit a new three-and-a-half-year high last week on bullish EIA inventory numbers and a looming drop in Iranian crude exports.


The federal government’s EIA report revealed that crude stockpiles recorded a fall of 2.2 million barrels, the first increase in three weeks, and significantly larger than expected. On a further bullish note, the report revealed that refined product inventories, gasoline and distillate, both dropped from their week earlier levels.

The commodity was also supported by President Trump’s recent withdrawal from a nuclear deal with OPEC’s third-largest producer Iran and a pledge to reimpose sanctions on Tehran. The action has stoked worries about an expected cut in Iranian oil exports by around 1 million barrels per day from current levels and lead to a supply shortage in an already ‘tight’ oil market.

Natural gas prices also moved northward last week following a smaller-than-expected increase in supplies. Stockpiles held in underground storage in the lower 48 states rose by 89 billion cubic feet (Bcf) for the week ended May 4, below the guidance (of 92 Bcf gain) as per the analysts surveyed by S&P Global Platts, a leading independent commodities and energy data provider.

Recap of the Week’s Most Important Stories

1. Houston-based energy explorer Occidental Petroleum reported first-quarter 2018 earnings of 92 cents per share, beating the Zacks Consensus Estimate by 29.6%. The Zacks Rank #2 (Buy) company’s outperformance was owing to improvement in worldwide sales volume and realized price of oil and natural gas liquids. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Occidental Petroleum’s average daily net oil, liquids and gas production volume increased to 609,000 barrels of oil equivalents per day (BOE/d) from 584,000 boe/d reported in the year-ago quarter. This increase could be attributed to increased drilling activity and well productivity in the Permian Resources region. Realized prices for crude oil in the first quarter increased 24.5% year over year to $61.04 per barrel worldwide, while realized NGL prices increased 17.4%.

Occidental Petroleum expects second-quarter production to be in the range of 628,000-648,000 BOE/d and Permian Resources production within 188,000-198,000 BOE/d. The company expects 2018 production between 645,000 and 665,000 BOE/d, up from the prior expected range of 640,000-665,000 BOE/d. Occidental expects 2018 Permian Resources production in the range of 198,000-210,000 BOE/d, up from the prior guidance of 195,000-209,000 BOE/d. (Read more Occidental Q1 Earnings Beat Estimates, Guidance Up)

2. U.S. gas exporter Cheniere Energy reported strong first-quarter results on robust production volumes and strong pricing. The company’s net income per share came in at $1.18, ahead of the Zacks Consensus Estimate of 62 cents and the comparable 2017 period profit of 23 cents.

During the quarter, the company shipped 67 cargoes from Sabine Pass liquefied natural gas terminal in Louisiana. Total volumes lifted in the reported quarter were 244 trillion British thermal units.

Overall costs and expenses soared 79% to $1,495 million from the same quarter last year. The increase is mainly attributed to the higher cost of sales which jumped to $1,178 million compared with $624 million in the prior-year quarter, while operating and maintenance expenses rose 79.5% year-over-year to $140 million.

Cheniere Energy raised its EBITDA guidance for full-year 2018, following the better-than-expected profit. The upbeat forecast reflects higher-than-anticipated realized margins on marketing volumes. Adjusted EBITDA is now expected to be between $2,300 million and $2,500 million compared with the prior guidance ranging $2,000-$2,200 million. The distributable cash flow is likely to be between $350 million and $550 million, up from the prior guided range of $200-$400 million. (Read more Cheniere Energy Q1 Earnings Beat Estimates, View Up)

3. Brazil's state-run energy giant Petrobras announced first quarter net income of $2,145 million or 16 cents per share, compared with $1,417 million or 11 cents in the year-earlier quarter. Earnings per ADR came in at 32 cents (1 ADR equivalent to 2 shares in the Brazilian market), well ahead of the Zacks Consensus Estimate of 19 cents. Higher oil prices were primarily responsible for the outperformance, which helped Petrobras post its best quarterly earnings in five years.

Importantly, Petrobras generated free cash flows of $4,005 million for the quarter ended Mar 31 – positive for the twelfth quarter in a row – reflecting operational improvement and lower investments. However, free cash flows fell 3% from the year-ago period due to the payment associated with a class action lawsuit. Moreover, adjusted EBITDA edged down 1% to $7,914 million.

During the three months ended Mar 31, 2018, Petrobras’ capital investments and expenditures totaled $3,067 million, lower than the $3,672 million incurred in the year-ago period.

This allowed the world's most indebted oil company to trim its massive debt load. At the end of the quarter, the company had net debt of $81,447 million, decreasing from the $84,871 million as of Dec 31, 2017. Net debt-to-capitalization ratio during the same period was approximately 49%, down from 51% three months ago. Additionally, Petrobras finished the first quarter with cash and cash equivalents of $19,966 million. (Read more Petrobras Q1 Earnings Buoyed by Rising Oil Prices)

4. Royal Dutch Shell plc RDS.A recently agreed to drop down its ownership interest in the Amberjack Pipeline Company LLC to Shell Midstream Partners, L.P. SHLX, a subsidiary of Shell Pipe Line Corporation. The deal is valued at $1.22 billion (more than £900 million).

Per the agreement, Shell will divest its 75% interest of Amberjack Series A and 50% interest of Amberjack Series B to Shell Midstream. Notably, the deal marks the largest acquisition for Shell Midstream to date. The drop down is anticipated to close within May 11, 2018.

The transaction is expected to heighten Shell's midstream assets' value without dropping possession of crucial infrastructures. The move is also in line with the company's aim to upgrade and streamline its portfolio. Shell intends to simplify the operational structure by offloading assets. (Read more Shell Drops Down Amberjack Pipeline to Midstream Unit)

5. Enbridge Inc. ENB – through one of its subsidiaries – inked a definitive agreement for sale of Midcoast Operating, L.P. and its units (Midcoast) for $1.120 billion in cash. Subject to regulatory approvals and satisfaction of other customary closing conditions, the transaction is projected to close in the third quarter of 2018.

The Midcoast Operating, L.P. and its subsidiaries (Midcoast) carry out the company's U.S. natural gas and natural gas liquids (NGL) gathering, processing, transportation and marketing businesses along with supplying to renowned basins in Texas.

The natural gas gathering, treating, processing and transportation as well as NGL transportation assets located in the East Texas, Western Anadarko and Barnett shale plays comprise the Midcoast business. It also includes about 11,200 miles of natural gas gathering and transportation pipelines, 2,075 million cubic feet per day (MMcf/d) of natural gas processing capacity and 1,330 MMcf/d of treating capacity.

These transactions are in sync with Enbridge’s strategy to move towards a pure regulated pipeline and utility model as well as achieve its target of selling non-core assets worth CAD$3 billion in 2018. The proceeds from the sale will be used to strengthen its balance sheet and boost the financial flexibility to fund its secured growth program of CAD$22 billion. (Read more Enbridge to Sell Midstream Businesses in Texas and Oklahoma)

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

+6.8%

+1.5%

CVX

+3.4%

+13.2%

COP

+4.3%

+39.8%

OXY

+9.3%

+25.5%

SLB

+3.3%

+16.8%

RIG

+7.8%

+30.9%

VLO

+1.1%

+41.1%

ANDV

+0.3%

+34.8%

Reflecting the week’s positive oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +3.9% return last week. The best performer was Houston-based energy explorer Occidental Petroleumwhose stock jumped 9.3%.

Longer-term, over six months, the sector tracker is up 15.2%. Downstream operator,Valero Energy Corp. VLO, is far and away the major gainer during this period, experiencing a 41.1% price appreciation.

What’s Next in the Energy World?

With the 2018 Q1 earnings season essentially over, market participants will get back to 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 and the monthly report from International Energy Agency (IEA).

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