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Oil & Gas Stock Roundup: BP and TOTAL Report Q4 Earnings

It was a week where oil prices logged a sharp decline, while natural gas futures sank to their lowest finish since August 2016.

On the news front, European integrated majors BP plc BP and TOTAL S.A. TOT reported fourth-quarter earnings that improved year over year.

Overall, it was a dismal week for the sector. While West Texas Intermediate (WTI) crude futures lost 4.6% to close at $52.72 per barrel, natural gas prices fell 5.5% to $2.583 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon, Chevron, Shell Earnings Beat)

The U.S. crude benchmark fell rose for the second time in three weeks on concerns over global economic growth and, consequently, slowing energy demand. A stronger dollar, which makes the greenback-priced crude dearer for investors holding foreign currency, data showing drillers in the United States adding oil rigs, and the possibility of expanding supplies from Libya also contributed to the losses.

Meanwhile, natural gas prices registered another steep weekly decline following a below-consensus decrease in supplies and continued strength production.

Recap of the Week’s Most Important Stories

1.    BP reported fourth-quarter adjusted earnings of $1.04 per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items, ahead the Zacks Consensus Estimate of 78 cents and the year-ago quarter’s 64 cents. The London, UK-based company benefited from higher oil equivalent price realizations, ramped-up production from key upstream projects and strength in the fuel marketing businesses.

Through 2018, the integrated energy firm made a payment of $3.2 billion, after tax, associated with the oil spill incident in the Gulf of Mexico. BP has estimated oil spill payment to be roughly $2 billion in 2019.

The company expects oil and natural gas production in the January-to-March quarter of 2019 to be flat sequentially. Through 2019, the energy giant projects production volumes to increase, thanks to major upstream developments that came online over the years since 2016. (Read more BP Beats on Q4 Earnings, Foresees $2B Oil Spill Cost in 2019)

2.    TOTAL reported fourth-quarter 2018 operating earnings per share of $1.17, lagging the Zacks Consensus Estimate of $1.22 by 4.1% due to slightly weaker production in the Middle East. However, the bottom line improved from the year-ago profit of $1.04, driven by rising oil prices.

Cash and cash equivalents as of Dec 31, 2018 were $27.9 billion compared with $33.18 billion recorded in the corresponding period of 2017. Net debt-to-capital ratio was 15.5% at the end of the quarter, up from 11.9% at the end of fourth-quarter 2017. The Zacks Rank #3 (Hold) company intends to buy back shares worth $1.5 billion in 2019, after repurchasing $1.5 billion shares in 2018. TOTAL has plans to repurchase shares worth $5 billion over the 2018-2020 timeframe.

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

TOTAL’s 2019 upstream production is expected to increase 9% from a year ago. It expects that the startup of lara 1 in Brazil, Kaombo South In Angola, Culzean in the UK, and the ramp up of Kaombo North Egina in Nigeria and Ichthys LNG in Australia will continue to boost production. It aims to invest in the range of $15-$16 billion in 2019 and is targeting a cost reduction of $4.7 billion. (Read more TOTAL's Q4 Earnings Miss Estimates, Revenues Up Y/Y)

3.    Suncor Energy SU recently announced fourth-quarter 2018 earnings, wherein it underperformed, breaking its impressive record of not missing earnings estimates in the trailing five quarters. The weaker-than-expected results can be attributed to weakness in oil prices and widening Canadian differentials, which impacted the upstream segment of the company to a large extent.

Suncor returned C$574 million to its shareholders through dividends and bought back C$1,166 million of outstanding shares in fourth-quarter 2018. The company expects its existing repurchase program of C$3 billion to be completed by February 2019. On a further encouraging note, Suncor increased its quarterly dividend payout to $0.42 per share, up 17% on a year-over-year basis. This marks the 17th consecutive year of annualized dividend payments. The company approved another buyback program of up to C$2 billion to boost its shareholders’ confidence.

Suncor expects 2019 total production in the band of 780,000-820,000 Boe/d. Production from oil sands is estimated within 410,000-440,000 bbls/d. Production from Syncrude is expected in the band of 160,000-180,000 bbls/d. Fort Hills’ output is expected within 85,000-95,000 bbls/d. Total refinery throughput is projected in the range of 430,000-450,000 barrels per day, with refinery utilization of 93-97%. For 2019, capex is expected in the band of C$4.9-C$5.6 billion. (Read more Suncor Misses Q4 Earnings Estimates on Crude Weakness)

4.    Independent oil refiner and marketer Marathon Petroleum MPC reported strong fourth-quarter earnings on favorable crude differentials, growing throughput volumes and higher fuel margin.

Operating profit from the Refining & Marketing segment was $923 million compared with $732 million in the year-ago quarter. Income from the Retail segment totaled $613 million, up more than four-fold from the year-ago period. Segment profitability in the Midstream unit was $889 million, up from $343 million in the fourth quarter of 2017.

In the reported quarter Marathon Petroleum spent $1.7 billion on capital programs (56% on the Midstream segment). As of Dec 31, the company had cash and cash equivalents of $1.7 billion and total debt of $27.5 billion, with a debt-to-capitalization ratio of 38.4%. During the full year 2018, Marathon Petroleum returned $4.2 billion of capital to shareholders, including $675 million in share buybacks in the fourth quarter. (Read more Marathon Petroleum Q4 Earnings Beat, Revenues Miss)

5.    Phillips 66 PSX posted fourth-quarter 2018 adjusted earnings per share of $4.87, which surpassed the Zacks Consensus Estimate of $2.76. The bottom line increased from the year-ago quarter’s $1.07. The strong earnings performance was backed by significant improvement in realized refining margin. This was partially offset by turnaround activities in Chemicals businesses.

The ‘Refining’ segment’s adjusted earnings surged to $2,008 million from $510 million in the prior-year quarter, thanks to significant improvement in realized refining margin owing to plunge in oil prices through the December quarter of 2018. During the quarter, Phillips 66’s refining utilization was 99%.

In the reported quarter, Phillips 66 generated $4,139 million of cash from operations. Through dividends and share repurchases, the company returned capital worth $864 million to stockholders. As of Dec 31, cash and cash equivalents were $3,019 million along with debt of $11.2 billion. The company’s debt-to-capitalization ratio was 29%. (Read more Phillips 66 Beats on Q4 Earnings on Refining Strength)

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

-1.5%

-5.7%

CVX

-0.7%

-4.5%

COP

-3.1%

-6.1%

OXY

-4.5%

-17%

SLB

-4%

-32.8%

RIG

-4.9%

-28.7%

VLO

-1.3%

-27.4%

MPC

-4.2%

-22.9%

In line with the week’s bearish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a -3% return last week. The worst performer was offshore driller Transocean RIG whose stock slumped 4.9%.  

Longer-term, over six months, the sector tracker is down 14.9%. Oilfield service biggie Schlumberger SLB was the major loser during this period, experiencing a 32.8% 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 2018 Q4 earnings, with quite a few S&P 500 members coming out with quarterly results.

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