It was a week where oil prices hit their highest since Sep 24 and natural gas futures tallied a small gain.
On the news front, upstream energy biggies EOG Resources EOG and Occidental Petroleum OXY reported third-quarter earnings. While the commodity pricing scenario continues to be challenging, both companies benefited from higher year-over-year production.
Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures rose 1.9% to close at $57.24 per barrel, while natural gas prices moved up 2.8% for the week to finish at 2.789 per million Btu (MMBtu).
The U.S. crude benchmark finished at a six-week high on Friday, primarily driven by data showing drillers in the United States removing oil rigs, thus pointing to signs of declining domestic supplies. Positive murmurings about the U.S.-China trade negotiations brought further upside.
Meanwhile, natural gas prices finished higher after the weekly inventory release showed a smaller-than-expected increase in supplies.
Recap of the Week’s Most Important Stories
1. Upstream energy company EOG Resources reported third-quarter 2019 adjusted earnings per share of $1.13, missing the Zacks Consensus Estimate of $1.14 owing to lower average price realization for crude oil and natural gas. This was partly offset by production gains. The bottom line also compared unfavorably with the year-ago quarter profit of $1.75 per share.
In the quarter, EOG Resources’ total volume rose 11% year over year to 76.7 million barrels of oil equivalent/MMBoe (73% liquids). Average realized crude oil and condensate price fell 19% year over year to $56.66 per barrel. Quarterly NGL prices declined 58% to $12.67 per barrel from $30.09 in the year-ago quarter. Moreover, natural gas was sold at $2.13 per thousand cubic feet (Mcf), representing a year-over-year decline of 22%.
For 2019, the company expects crude oil equivalent volume of 810.1-819.2 thousand barrels of oil equivalent per day (MBOE/D). For the fourth quarter of 2019, it anticipates crude oil equivalent volume of 818.9-854.9 MBOE/D. Notably, the company tightened its projection for the 2019 capital budget to $6.2-$6.4 billion from $6.1-$6.5 billion mentioned earlier. (Read more EOG Resources Q3 Earnings & Revenues Miss Estimates)
2. Houston-based oil and gas producer Occidental Petroleum reported third-quarter 2019 earnings of 11 cents per share, lagging the Zacks Consensus Estimate of 41 cents by 73.2%. The company’s underperformance resulted from lower average realized prices, partially offset by production gains on account of the Anadarko acquisition.
Occidental Petroleum’s average daily net oil, liquids and gas production volume average daily net oil, liquids and gas production volume expanded to 1,155,000 barrels of oil equivalent per day (BOE/d), which included the acquired Anadarko assets. The metric was 681,000 BOE/d in the prior-year quarterThis improvement in production volume was backed by higher drilling activity and solid output from the Permian Resources region. Permian Resources production improved 33% year over year.
As of Sep 30, 2019, the company had a long-term debt (net of current portion) of $39,946 million compared with $10,201 million on Dec 31, 2018. The increase in the debt level was due to the loan taken by the company to fund the acquisition of Anadarko. Occidental expects fourth-quarter 2019 production in the range of 1,312,000-1,336,000 BOE/d. Production from Permian Resources is expected in the range of 449,000-459,000 BOE/d. (Read more Occidental Q3 Earnings Miss Estimates, Sales Beat)
3. Diamondback Energy, Inc. FANG reported disappointing third-quarter 2019 results. Weaker-than-expected natural gas price realizations caused this underperformance. Precisely, natural gas prices came in at 62 cents per thousand cubic feet (Mcf), missing the Zacks Consensus Estimate of $1.05 and the year-ago figure of $1.86 as well. Moreover, the Zacks Rank #3 (Hold) company’s adjusted net income per share of $1.47 lagged the Zacks Consensus Estimate of $1.71 and also decreased 12% from the year-ago figure of $1.67.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The 2018 buyouts of Energen Corporation and Ajax Resources helped Diamondback transform into one of the leading Permian Basin oil producers. Production of oil and natural gas averaged 287.1 MBOE/d comprising 65% oil. The figure skyrocketed 133% from the year-ago quarter.
The company now expects 2019 output in the range of 281-282 MBOE/d compared with the prior guidance of 277-284 MBOE/d. Further, full-year capex is revised to $2.72-$2.95 billion from the prior expectation of $2.85-$2.90 billion. Diamondback projects 2020 average daily production of 310.0-325.0 MBOE/d. Its average daily oil production is estimated between 205.0 and 215.0 MBO/d with expected capital spend of $2.8-$3.0 billion. (Read more Diamondback's Q3 Earnings Miss on Weak Gas Prices)
4. Marathon Oil Corporation MRO reported stellar third-quarter 2019 results wherein both earnings and revenues surpassed the respective Zacks Consensus Estimate. Better-than-expected net sales volumes led to this outperformance. Precisely, the same totaled 427 MBOE/d, topping the Zacks Consensus Estimate of 394 MBOE/d. Consequently, the company’s adjusted income from continuing operations came in at 14 cents per share, outpacing the Zacks Consensus Estimate of 4 cents.
Total costs in the quarter were $1,108 million, below $1,244 million in the prior-year period. Marathon Oil’s capital expenditure summed $646 million. Additionally, the company generated organic free cash flow (FCF) of $81 million with the year-to-date FCF amounting to $298 million. Marathon Oil has repurchased $300 million of shares year to date. It also paid out $122 million as dividends. As of Sep 30, it had cash and cash equivalents of $1,165 million and long-term debt of $4,903 million. Debt-to-capitalization ratio of the company was 28.5%.
Marathon Oil’s 2019 capital expenditure is intact at $2.4 billion. For the ongoing year, the company raised its U.S. oil production guidance to 13% from 12% expected previously. It also lifted its total production guidance to 11% from 10% guided earlier. (Read more Marathon Oil Q3 Earnings Beat on High U.S. Output)
5. Devon Energy Corp. DVN reported third-quarter 2019 adjusted earnings per share of 26 cents, which surpassed the Zacks Consensus Estimate of 19 cents by 36.8%. Robust oil and gas production led to the outperformance, partly offset by lower contribution from marketing businesses and a decline in realized prices of hydrocarbons.
Total production (including divested U.S. assets) in third-quarter 2019 touched 428,000 BOE/d, a tad higher than the year-ago figure. Excluding production from divested assets, third-quarter total output was 325,000 BOE/d. Strong output from its Delaware assets boosted overall production. Third-quarter oil production was 148,000 Boe/d, which is above the guided range of 141,000-147,000 Boe/d and 19% higher than the year-ago level. Meanwhile, total realized prices — including cash settlements — were $27.73 per BOE in the reported quarter, down 6.1% year over year.
Devon estimates total oil production from retained assets for the fourth quarter of 2019 within 154,000-160,000 barrels per day. Total production in the quarter is expected in the range of 420,000-448,000 BOE/d. It expects year-over-year growth in 2019 U.S. oil production in the range of 20-21%, indicating a 550-basis point improvement from original expectation. Devon has lowered its view for 2019 G&A expenses to the range of $460-$470 million and financing costs to $245-$255 million. (Read more Devon Tops Q3 Earnings Estimates, Raises Guidance)
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.
Last 6 Months
The Energy Select Sector SPDR – a popular way to track energy companies – was up 2.4% last week. The best performer was oilfield services major Schlumberger SLB whose stock gained some 5.5%.
But longer-term, over six months, the sector tracker lost 4.1%. Energy explorer Occidental Petroleum was the major loser during this period, experiencing a 28.2% price plunge.
What’s Next in the Energy World?
With the 2019 Q3 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. Finally, the closely watched monthly reports from three key agencies (EIA, OPEC and the IEA) are due for release later this week.
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Schlumberger Limited (SLB) : Free Stock Analysis Report
Devon Energy Corporation (DVN) : Free Stock Analysis Report
EOG Resources, Inc. (EOG) : Free Stock Analysis Report
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
Marathon Oil Corporation (MRO) : Free Stock Analysis Report
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
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