Oil & Gas Stock Roundup: Integrated Business Model Saves Exxon, Chevron Q3
It was a week where oil prices rebounded from a two-month low, while natural gas futures tumbled to levels not seen since Apr 2012.
However, with earnings remaining front and center, the major headlines came from Exxon Mobil Corp. XOM and Chevron Corp.’s CVX third quarter outperformance, where they saw off plunging oil prices to beat estimates on refining strength.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures rallied 4.5% to close at $46.59 per barrel, natural gas prices slumped 5.8% to $2.32 per million Btu (MMBtu).
Oil prices recovered from their multi-week lows, buoyed by the Baker Hughes rig count data that showed another drop in oil-directed rigs – now at their lowest level in more than five years – indicating a break in shale drilling activities. The latest weekly U.S. government report, which showed a sharp decline in gasoline and distillate inventories, also played its part in improving sentiments.
Natural gas though fared badly and dropped to a new three-year low amid near-record supplies in the face of limited demand. Even a bullish inventory report and favorable weather forecast could not save the commodity.
Recap of the Week’s Most Important Stories
1. Integrated supermajors Exxon Mobil Corp. and Chevron Corp. must be glad they did not let go their refineries, when many others did. Both the companies reported better-than-expected third quarter earnings – amid plunging commodity prices – on improved downstream results that saw refining margins climb on lower input costs. This countered the faltering sales of their exploration and production businesses.
With a rebound in commodity prices not visible anytime soon, the two American oil giants are looking to conserve cash with big spending cuts, while appeasing investors by maintaining their dividends.
2. Houston-based independent explorer and producer ConocoPhillips COP reported in-line third quarter loss as improved volumes were offset by struggling crude prices. Daily production from continuing operations averaged 1.554 million barrels of oil equivalent (MMBOE) in the quarter, up from 1.495 MMBOE in the year-ago quarter. However, average realized price for oil was $46.41 per barrel, compared with $86.67 in the year-earlier quarter.
ConocoPhillips expects to deliver 3–4% production growth in 2015. For the fourth quarter of 2015, production from continuing operations is expected at 1,585–1,625 MBOED. To counter diving oil and gas prices, the company has reduced its 2015 capital expenditures guidance to $10.2 billion from the earlier guidance of $11.5 billion. The company has also reduced 2015 operating cost guidance to $8.2 billion from the earlier guidance of $9.2 billion. (See More: ConocoPhillips Incurs Loss as Expected in Q3, Lags Revenue.)
3. Oil Refiner Valero Energy Corp. VLO came out with strong third quarter earnings on the back of higher refining throughput margins, which increased to $14.38 per barrel from the year-ago level of $11.81 per barrel.
While total operating cost per barrel rose 3.2% year over year to $5.55 during the quarter, refining operating expense per barrel was $3.80 compared with $3.81 in the year-ago quarter.
In some good news for investors, the downstream operator raised its quarterly dividend by 25% to 50 cents per share (or $2.00 per share annualized). (See More: Valero Energy Beats Q3 Earnings and Revenue Expectations.)
4. Ohio-based independent oil refiner and marketer Marathon Petroleum Corp. MPC reported weaker-than-expected third-quarter earnings due to lower volumetric gains resulting from overall decline in commodity prices. However, the bottom line improved from the year-ago period profit on the back of stronger refining margins and crack spreads, together with conducive market conditions.
Marathon Petroleum further informed that it has decided to cancel its proposed $2.2 billion Residual Oil Upgrader Expansion project to ensure capital discipline. The company wants to ensure that capital is used for only those projects that deliver the best long-term, risk-adjusted returns to shareholders. (See More: Marathon Petroleum Q3 Earnings Jump but Misses Estimates.)
5. Downstream operator Phillips 66 PSX posted adjusted third-quarter 2015 earnings of $3.02 per share, ahead of the Zacks Consensus Estimate of $2.27 and the year-ago earnings of $2.02 per share. Robust performance by the company’s Refining and Marketing segments led to the outperformance.
What’s more, Phillips 66 announced a $2 billion increase in its share repurchase authorization. (See More: Phillips 66 Q3 Earnings Beat, Revenues Miss Estimates.)
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 | +4.93% | -4.30% |
CVX | +6.82% | -12.33% |
COP | +6.17% | -18.02% |
OXY | +5.66% | -5.56% |
SLB | +2.32% | -14.57% |
RIG | +2.89% | -9.29% |
VLO | +9.90% | +17.07% |
TSO | +7.28% | +24.65% |
Over the course of last week, ‘The Energy Select Sector SPDR’ posted a gain of 4.55% as investors witnessed a bout of heavy buying in major companies. The best performer was refiner Valero Energy Corp. that added 9.9% to its stock price.
Longer-term, over the last 6 months, ‘The Energy Select Sector SPDR’ lost 16% of its value. Houston-based energy major ConocoPhillips was the main laggard, as it witnessed an 18% price decline. However, another downstream operator Tesoro Corp. TSO was able to buck the trend and was the chief beneficiary on the bourses with its shares advancing 24.7% during this period.
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 crucial economic reports, including those on personal expenditure, construction spending, factory orders, manufacturing, services and employment. In corporate news, the 2015 Q3 earnings remain the primary focus this week again, with some S&P 500 members coming out with quarterly results.
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CHEVRON CORP (CVX): Free Stock Analysis Report
VALERO ENERGY (VLO): Free Stock Analysis Report
TESORO CORP (TSO): Free Stock Analysis Report
CONOCOPHILLIPS (COP): Free Stock Analysis Report
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
PHILLIPS 66 (PSX): Free Stock Analysis Report
MARATHON PETROL (MPC): Free Stock Analysis Report
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