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Oil & Gas Stock Roundup: Shell, BP & ConocoPhillips Post Q1 Earnings Beat

It was a week where both oil and natural gas prices settled lower.

On the news front, European oil majors Royal Dutch Shell plc RDS.A and BP plc BP, as well as energy explorer ConocoPhillips COP reported better-than-expected first-quarter earnings.  

Overall, it was a dismal week for the sector. West Texas Intermediate (WTI) crude futures fell 2.2% to close at $61.94 per barrel, while natural gas prices edged down 0.5% for the week to finish at $2.567 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Chevron Tops Q1 Earnings, Exxon & TOTAL Flops)

The U.S. crude benchmark pulled back after the Energy Department's latest inventory release showed that stockpiles recorded a massive weekly increase – the biggest of the year – and surging domestic production that has risen to an all-time high of 12.3 million barrels a day. Data showing drillers in the United States adding oil rigs brought further downside. In particular, industry watchers are concerned that the relentless increase in U.S. oil production will offset the production cuts from the OPEC-led group of exporters, and drop in supply from Venezuela and Iran.

Meanwhile, natural gas prices fell after a government report showed higher-than-expected increase in supplies. The decline could also be attributed to predictions of mild weather-associated headwinds that might lead to tepid demand. While the fundamentals of natural gas consumption continue to be favorable, record high production in the United States and expectations for explosive growth through 2020 means that supply will keep pace with demand.

Recap of the Week’s Most Important Stories

1.    Europe’s largest oil company Royal Dutch Shell reported earnings per ADS (on a current cost of supplies basis, excluding items - the market’s preferred measure) of $1.30, above the Zacks Consensus Estimate of $1.05 and in line with the year-ago profit. The better-than-expected bottom line could be attributed to strength in its gas business, partly offset by weaker refining margins.

As of Mar 31, 2019, the company had $21.5 billion in cash and $92.5 billion in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 26.5%, up from 24.7% a year ago. The deterioration in the group’s debt ratio was due to the adoption of IFRS 16 accounting standard.

During the quarter under review, Shell generated cash flow from operations of $8.6 billion, returned $3.9 billion to shareholders through dividends and spent $6.7 billion on capital projects. Meanwhile, Shell will repurchase $2.75 billion worth of shares up to Jul 29 in the fourth installment of its three-year $25 billion buyback program. (Read more Shell Rides on Gas Unit to Q1 Earnings Outperformance)

2.    British supermajor BP plc reported first-quarter 2019 adjusted earnings of 70 cents per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The bottom line surpassed the Zacks Consensus Estimate of 68 cents. Oil equivalent volumes from key upstream projects along with increased contributions from fuels marketing businesses backed the company’s better-than-expected quarterly results.

In the first quarter, total production of 2.656 million barrels of oil equivalent per day (MMBoe/d) was higher than 2.605 MMBoe/d a year ago. Major upstream projects, which were brought online since 2016, along with acquired U.S. shale resources of BHP backed production volumes in the quarter.

BP's net debt was $55,075 million at the end of the first quarter, higher than $39,993 million a year ago. Net debt ratio was 30.4%, above 27.8% in the prior-year quarter. Through the March quarter of 2019, the integrated energy firm made a payment of roughly $600 million, after tax, associated with the oil spill incident in the Gulf of Mexico. BP continues to project oil spill payment of roughly $2 billion for 2019. (Read more BP Beats Q1 Earnings Estimates on Key Upstream Projects)

3.    ConocoPhillips reported first-quarter 2019 adjusted earnings per share of $1.00, beating the Zacks Consensus Estimate of 92 cents and improving from the year-ago figure of 96 cents. The world’s largest independent oil and gas producer’s strong first-quarter 2019 results are primarily attributable to increased volumes from the company’s unconventional assets and higher natural gas price realization.

As of Mar 31, 2019, the oil giant, with a market capitalization of around $70.9 billion, had $6,218 million in total cash and cash equivalents. The Zacks Rank #2 (Buy) company had a total debt of nearly $14,832 million, representing a debt-to-capitalization ratio of 31.1%.

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

In the reported quarter, ConocoPhillips generated $2.9 billion in cash from operating activities. Capital expenditures and investments totaled $1.6 billion, and dividend payments grossed $350 million. The company repurchased shares worth $752 million in the quarter. (Read more ConocoPhillips' Q1 Earnings Beat on Higher Oil Output)

4.    Texas-based oil and gas producer Concho Resources Inc. CXO reported mixed first-quarter 2019 results on Apr 30, wherein earnings missed the Zacks Consensus Estimate by a whisker. The underperformance can be attributed to high operating costs incurred in the quarter. The Permian-focused player generated revenues of $1,104 million, topping the consensus mark of $1,049 million on the back of higher-than-anticipated production volumes.

Concho's average quarterly volume increased 44.1% year over year to 328,491 Boe/d. Total output exceeded the high end of the firm’s forecasted range of 300,000-306,000 Boe/d. Of the total volume, 64% consisted of liquids. Daily oil output increased 46% to hit a record of 210,400 barrels. Operating expenses in the quarter skyrocketed to $1,950 million, resulting in operating loss of $846 million against a gain of $1,015 million in the year-ago period. This was primarily because of a surge in derivatives loss.

While Concho reiterated its full-year capex budget of $2.9 billion, the company raised its production guidance. The firm now expects 2019 oil output to grow 27-31% y/y versus prior forecast of 26-30%. Production for the second quarter is expected within 316,000-322,000 Boe/d. (Read more Concho Misses on Q1 Earnings, Lifts Output Guidance)

5.     Williams Companies, Inc. WMB  reported first-quarter 2019 adjusted earnings from continuing operations of 22 cents per share, missing the Zacks Consensus Estimate of 24 cents. Lower contribution from its ‘West’ segment led to the underperformance. Nonetheless, the reported EPS was higher than the prior-year figure of 19 cents.

Distributable cash flows came in at $780 million, up 8% from the year-ago quarter. Adjusted EBITDA came in at $1,216 million in the quarter under review compared with $1,135 million in the corresponding period of 2018. Cash flow from operations totaled $775 million compared with $694 million in the prior-year period. Higher revenues from Transco projects drove cash flow in the quarter.

The company maintained its adjusted EBITDA guidance in the band of $4,850-$5,150 million, with distributable cash flow within $2,900-$3,300 million. However, the company revised its adjusted EPS view for the year within 83 cents to $1.07 from the earlier projected range of 77 cents to $1.01. Growth capex is now expected in the band of $2.3-2.5 billion versus prior forecast of $2.7-$2.9 billion. (Read more Williams Lags on Q1 Earnings & Sales, Tweaks Guidance)

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

-3.8%

-5.5%

CVX

+0.1%

-0.7%

COP

-1.2%

-10.8%

OXY

-5.5%

-21%

SLB

-4.7%

-20.7%

RIG

-11.8%

-32%

VLO

-1.8%

-3.1%

MPC

-0.7%

-14.9%

The Energy Select Sector SPDR – a popular way to track energy companies – was down 3% last week. The worst performer was offshore driller Transocean Ltd. RIG whose stock slumped 11.8%.

Longer-term, over six months, the sector tracker is down 7.4%. Transoceanwas again the major loser during this period, experiencing a 32% price decline.

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 and the 2019 Q1 earnings, with a few S&P 500 members coming out with quarterly results.

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BP p.l.c. (BP): Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report
 
Transocean Ltd. (RIG): Free Stock Analysis Report
 
Williams Companies, Inc. (The) (WMB): Free Stock Analysis Report
 
Concho Resources Inc. (CXO): Free Stock Analysis Report
 
ConocoPhillips (COP): Free Stock Analysis Report
 
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