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Oil & Gas Stock Roundup: Chevron's Capex Boost, Schlumberger's Revenue Warning & More

It was a week where oil prices climbed but natural gas futures dropped.

On the news front, U.S. energy major Chevron CVX set its investment budget for 2019 at $20 billion, up 9.3% from its projected spending this year. Meanwhile, Schlumberger SLB warned of weakness in the North American hydraulic fracturing market.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures gained 3.3% to close at $52.61 per barrel, natural gas prices fell some 2.7% to $4.488 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Shell's Green Initiative, Par Pacific's Acquisition & More)

The U.S. crude benchmark rose last week after OPEC members and some non-OPEC producers, led by Russia, committed to withhold production by 1.2 million barrels per day from January in an effort to tighten the market and boost prices. Data showing drillers in the United States cutting oil rigs the most in more than two years also contributed to the gains.

Meanwhile, natural gas prices dropped as predictions of milder weather (translating into weak heating gas demand) over the next few days more than offset the larger-than-expected decrease in supplies.

Recap of the Week’s Most Important Stories

1.    Chevron recently announced its capital and exploratory spending program for 2019. The budget for capital projects is reserved at $20 billion, higher than 2018’s projected investment of $18.3 billion. Notably, this marks the first budget increase in four years and reflects a 9.3% annual increase.

Chevron’s upstream spending in 2019 is expected to increase 9.5% from 2018, which can enable the company to deliver steady growth in production. Downstream expenditure of the company will likely increase 13.6% in 2019. Moreover, the company expects 66.7% of its 2019 capital spending to realize cash flow by two years.

Chevron allocated 86.5% of its total budget toward upstream operations. The company has plans to spend $7.6 billion in the upstream projects located in the United States and $9.7 billion in the international upstream projects. The company will use around $10.4 billion to develop and grow its present producing assets, of which $3.6 billion will allocated to the Permian Basin and $1.6 billion for other shale related developments. (Read more Chevron Unveils $20B Capital Expenditure Budget for 2019)

2.    The executive vice president of Schlumberger, Wells Patrick Schorn, recently said in a conference that the company’s total fourth-quarter revenues from the North America will see a 15% sequential fall, owing to declining hydraulic fracturing pricing.

Schlumberger generated $3.2 billion revenues from the North America (accounting for 37.5% of the total revenues) in the third quarter of 2018. This reflected a 2% increase from the year-ago figure. However, the Zacks Rank #3 (Hold) company now expects fourth-quarter 2018 revenues from the region at around $2.7 billion, representing a 3.6% fall from the year-ago quarter. First-quarter 2019 revenues will also bear the brunt of low hydraulic fracturing activities. However, Schlumberger expects the region to undergo a gradual recovery till the first half of 2019.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Schlumberger expects its international revenues, excluding the effects of Cameron businesses, to be in line with estimates. However, a few Latin American countries can reflect signs of weakness. (Read more Schlumberger Expects North America Revenues to Fall in Q4)

3.    ExxonMobil XOM continues to gain from holding in some of the most prolific upstream global assets, particularly the Stabroek Block. The asset’s exploration potential was ascertained again with the 10th discovery at the Pluma-1 well, offshore Guyana.

With the recent discovery, the combined gross recoverable resources have been increased to more than 5 billion oil-equivalent barrels, up from the prior projection of more than 4 billion oil-equivalent barrels. Pluma-1 well is the sixth find on the Stabroek Block in the past year. Located about 17 miles south of the Turbot-1 well, it encountered about 121 feet (37 meters) of superior, hydrocarbon-bearing sandstone reservoir. The drilling of the well commenced on Nov 1, 2018.

Stabroek Block has acreage of 6.6 million (26,800 square kilometers). Exxon’s affiliate, Esso Exploration and Production Guyana Limited, holds 45% interest in the Stabroek Block as the operator. Hess Corporation (HES) holds 30% and CNOOC Limited (CEO) holds 25% interest. (Read more Exxon Discovers Oil in the Pluma-1 Exploration Well)

4.    Reeling under discounted crude prices and pipeline crisis, the Canadian energy sector is struggling to find a path to growth. Amid the growing crisis, one of the country’s leading energy companies, Canadian Natural Resources Limited CNQ recently slashed its capital budget by C$1 billion. The company’s capital budget for 2019 is estimated at C$3.7 billion, down 20% from projected investment in 2018 and well below its preferred range of C$4.7-C$5 billion.

Canadian Natural expects its 2019 oil and natural gas liquid production at 782,000-861,000 barrels per day, on par with 2018 levels. However, natural gas output for the next year is expected within 1.49-1.55 billion cubic feet per day, reflecting a year-over-year decline of 2%. Overall production is targeted within 1.03-1.12 million barrels of oil equivalent (comprising 76% liquids and 24% gas), which is slightly lower than this year’s projected output. (Read more Canadian Natural Slashes Capex Amid Pipeline Pinch)

5.    Scarred by corruption scandal and huge debt burden, Petrobras PBR recently unveiled its new five-year plan (2019-2023), which highlights the company’s aim to revive its financial health and boost overall performance.

The 2019-2023 business plan of Petrobras is released as Roberto Castello Branco prepares to head the company from Jan 1, 2019, as part of the new Brazilian government led by Jair Bolsonaro. Notably, Branco will replace Ivan Monteiro, who became interim CEO in June after Pedro Parente resigned amid the nationwide trucker strike in Brazil. Per the new five-year plan, the company has raised its investment and divestment targets, which will help to boost growth and credit metrics.

The Brazilian oil giant intends to invest $84.1 billion between 2019 and 2023, representing nearly 13% increase from its projected investment of $74.5 billion through 2018-2022.The prudent capex program, in sync with ambitious production plans, is likely to boost the company’s top-line growth. (Read more Petrobras Ups Investment, Divestment Goals in New 5-Year Plan)

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

-2.3%

-7.9%

CVX

-2.9%

-9.9%

COP

-0.4%

-6.1%

OXY

-4.2%

-23.6%

SLB

-3.5%

-38.8%

RIG

-10.6%

-37.2%

VLO

-4.9%

-37.8%

MPC

-5.5%

-21.6%

 

The Energy Select Sector SPDR – a popular way to track energy companies – generated a -3.1% return last week. The worst performer was Transocean Ltd. RIG whose stock slumped 10.6%.  

Longer-term, over six months, the sector tracker is down 18.4%. Oilfield service major Schlumberger was the major loser during this period, experiencing a 38.8% price decline.

What’s Next in the Energy World?

In this week, 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.

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Petroleo Brasileiro S.A.- Petrobras (PBR): Free Stock Analysis Report
 
Canadian Natural Resources Limited (CNQ): Free Stock Analysis Report
 
Schlumberger Limited (SLB): Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM): Free Stock Analysis Report
 
Chevron Corporation (CVX): Free Stock Analysis Report
 
Transocean Ltd. (RIG): Free Stock Analysis Report
 
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