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Oil & Gas Stock Roundup: Conoco Cuts Dividend, Shell Sticks to Previous Payout

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

With earnings remaining front and center, the major headlines came from ConocoPhillips COP and Royal Dutch Shell plc’s RDS.A fourth quarter underperformance. But despite having its profits hammered by low oil prices, Shell kept its payout intact, while ConocoPhillips slashed its dividend by two-thirds.

Overall, it was a pretty dismal week for the sector. West Texas Intermediate (WTI) crude futures dived 8.1% to close at $30.89 per barrel, while natural gas prices plunged 10.2% to $2.063 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Crude Slump Takes Toll on Chevron, BP's Q4.)

Oil prices moved south as doubts surfaced over a possible deal between the OPEC and non-OPEC producers over output cuts to bolster prices. Another catalyst for the sell-off was a stronger U.S. dollar, which has made the greenback-priced crude more expensive for investors holding foreign currency.

Natural gas also fared badly after an inventory report showed that the weekly storage withdrawal was unable to beat expectations. The heating fuel was also pressured by predictions of tepid demand due to milder weather forecasts over the last stretch of the November-March winter heating season.

Recap of the Week’s Most Important Stories

1.    All of a sudden, the dividends for oil majors are not looking as safe as they once were. Last week, Houston-based energy major ConocoPhillips became the first large U.S. production company to chop its dividend to deal with more challenging times ahead. The energy finder – which no longer possesses a downstream segment that could have benefitted from cheap oil – slashed its payout by 66%. 

ConocoPhillips reported wider-than-expected fourth quarter loss as slightly improved volumes were more than offset by struggling crude prices. Daily production from continuing operations averaged 1.599 million barrels of oil equivalent (MMBOE) in the quarter, up from 1.589 MMBOE in the year-ago quarter. However, average realized price for oil was $40.35 per barrel, compared with $71.31 in the year-earlier quarter. (See More: ConocoPhillips Q4 Loss Wider Than Expected, Revenues Lag.)

2.    Europe’s largest oil company Royal Dutch Shell plc reported dismal fourth-quarter earnings amid the continued plunge in commodity prices. The Hague-based supermajor reported adjusted earnings per ADR (on a current cost of supplies basis) of 57 cents. This was below the Zacks Consensus Estimate of 60 cents and almost half the year-ago adjusted profit of $1.04.

The group’s worldwide realized liquids prices was 46% below year-earlier levels and natural gas realizations fell 33% from the fourth quarter of 2014.

Amid the steepest fall in profits in at least 13 years and the impending takeover of BG Group, Shell reiterated that it will cut 10,000 jobs and dispose thousands of billions in assets. However, in a reprieve to investors, the supermajor has promised to maintain its annual dividend. (See More: Royal Dutch Shell's Q4 Earnings Miss, Maintains Dividend.)

3.    Top rig contractor Diamond Offshore Drilling Inc. DO came out with better-than-expected fourth quarter earnings on the back of cost cutting initiatives and operating efficiency.

However, as the pressure of oil prices continue, offshore drillers’ problems get worse. In order to tide over this ‘severe and prolonged downturn’ Diamond Offshore announced that it has discontinued its quarterly cash dividend of 12.5 cents per share. Apart from an annual savings of $69 million, the dividend suspension will bolster its balance sheet. (See More: Diamond Offshore Beats on Q4 Earnings, Cancels Dividend.)

4.    World’s largest oilfield services company Schlumberger Ltd. SLB and leading flow equipment products provider Cameron International Corp. CAM jointly announced that they have received unconditional clearance from the European Commission (EU) for their $14.8 billion merger.

The panel does not expect the proposed merger to raise any concerns in terms of competition given the diverse nature of activities in which the companies are involved. This has been the driving force behind the unconditional approval for the expected combination following a Phase 1 review.

Following EU’s consent, the only regulatory approval awaited by the companies to close the deal is in China -- from the Ministry of Commerce. Authorities in China have begun their Phase 1 review process on February 4, 2016. (See More: Schlumberger-Cameron Merger on Track: EU Gives Approval.)

5.    Suncor Energy Inc. SU − Canada’s largest energy firm – now has approval from 72.9% of Canadian Oil Sands Ltd shareholders to take over the latter.

It is to be noted that shareholders of Canadian Oil Sands who could not tender their shares due to lack of time will now get a chance to do so as the offer has been extended by Suncor to Feb 22, 2016. All the tendered shares of Canadian Oil Sands will likely be taken up by Suncor.

Importantly, as per the terms of the Oct 5, 2015 offer and the amended offer on Jan 22, 2016, Canadian Oil Sands shareholders will be paid 0.28 Suncor share for every share of Canadian Oil Sand.

Last month, after days of negotiation, the two companies finally signed a friendly accord under which Suncor consented to raise its bid to C$4.24 billion from the prior offer of C$3.78 billion. (See More: Suncor Gets Canadian Oil Sands' Investor Nod for Buyout.)

Price Performance

The following table shows the price movement of the major oil and gas players over the past week and during the last 6 months.

Company

Last Week

Last 6 Months

XOM

+7.36%

+3.06%

CVX

+2.19%

+0.12%

COP

-8.95%

-31.41%

OXY

+1.74%

-7.14%

SLB

-1.06%

-17.36%

RIG

+1.15%

-33.96%

VLO

-19.50%

-20.55%

TSO

-13.88%

-32.05%

Over the course of last week, ‘The Energy Select Sector SPDR’ suffered a loss of 2.77% on oversupply fears and strength in the U.S. dollar. Consequently, investors witnessed a bout of heavy selling in some major companies. The worst performer was refiner Valero Energy Corp. VLO whose stock shed 19.5%.

Longer-term, over the last 6 months, ‘The Energy Select Sector SPDR’ lost 16.98% of its value. Offshore drilling giant Transocean Ltd. was the main laggard, as it witnessed a 34% price decline.

What’s Next in the Energy World?

Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking a series of top-tier economic readings, including those on jobless claims, consumer sentiment and retail sales. In corporate news, the 2015 Q4 earnings remain the primary focus this week, with some S&P 500 members coming out with quarterly results.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
CAMERON INTL (CAM): Free Stock Analysis Report
 
VALERO ENERGY (VLO): Free Stock Analysis Report
 
SUNCOR ENERGY (SU): Free Stock Analysis Report
 
SCHLUMBERGER LT (SLB): Free Stock Analysis Report
 
ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report
 
DIAMOND OFFSHOR (DO): Free Stock Analysis Report
 
CONOCOPHILLIPS (COP): Free Stock Analysis Report
 
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