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Oil & Gas Stock Roundup: Diamondback and Cabot Report Q4 Earnings

Nilanjan Choudhury
Sanmina (SANM) closed at $30.68 in the latest trading session, marking a +0.69% move from the prior day.

It was a week wherein both oil and gas prices logged handsome gains.

On the news front, Diamondback Energy FANG and Cabot Oil & Gas Corporation COG reported fourth-quarter earnings that came below the Zacks Consensus Estimate.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained 3% to close at $57.26 per barrel, natural gas prices rose 3.5% to $2.717 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Occidental's Q4, Shell's Acquisition & More)

The U.S. crude benchmark rose for the sixth time in eight weeks to its highest settlement since November. Continued optimism surrounding talks between the United States and China to resolve the trade war boosted prices, while the commodity also drew support from the OPEC-agreed cutbacks that continue to drain global supply.

Meanwhile, natural gas prices registered a second successive weekly uptick following a larger-than-average decrease in supplies. Investors were also buoyed by forecasts of colder weather, which should lead to the heating fuel’s robust demand.

Recap of the Week’s Most Important Stories

1.    Diamondback Energy reported fourth-quarter adjusted net income per share of $1.21, below the Zacks Consensus Estimate of $1.62 and the comparable 2017 period profit of $1.56 on lower realized prices. The Permian pure play’s total revenues of $633.1 million came below the Zacks Consensus Estimate of $663 million but increased 58.6% year over year on strong production.

But Diamondback – that generated $12 million in free cash flow during the first three quarters of 2018 – admitted its failure to keep spending within cash flows in the fourth quarter. This was mainly on account of the dramatic decline in oil prices at the end of 2018, coupled with merger-associated costs.

The company updated 2019 guidance and looks for production growth of more than 27% during the year. Diamondback is forecasting full-year output range of 275-290 MBOE/d, of which 68-70% is oil. While the company trimmed its 2019 capital spending outlook to $2.7–$3 billion from $2.7–$3.1 billion earlier, the estimated figure is significantly higher than the previous year’s outlay of $1.7 billion. Further, management cautioned that realized prices in the first quarter of 2019 will be weak. (Read more Diamondback Q4 Earnings Miss as Crude Prices Fall)

2.    Domestic energy explorer Cabot Oil & Gas Corporation reported fourth quarter earnings per share – adjusted for special items – of 55 cents, below the Zacks Consensus Estimate of 58 cents due to lower-than-anticipated production. Precisely, the company’s production came in at 206.3 billion cubic feet equivalent (Bcfe), lagging the Zacks Consensus Estimate of 208 Bcfe.

Operating cash flows were $316.1 million for the quarter (up 76.4% year over year), while capital expenditures totaled $247 million (up 38.9%). As of Dec 31, 2018, the Zacks Rank #3 (Hold) company had $1.2 billion in long-term debt, with a debt-to-capitalization ratio of 37%. During the quarter, Cabot repurchased approximately $259 million of its stock.

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

For the first quarter, Cabot provided its net production guidance in the range of 2,250-2,275 million cubic feet equivalent a day. Cabot also revised its expectations for 2019. It projects the production growth to be 20% as against the previous guidance in the 20-25% range. The production growth is based on a capital expenditure projection of $800 million (the earlier range was between $800-$850 million). (Read more Cabot Q4 Earnings Miss, Cash Flow & Reserves Jump)

3.    HollyFrontier Corp. HFC reported fourth-quarter 2018 net income per share (excluding special items) of $2.25, beating the Zacks Consensus Estimate of $1.99 and also exceeding the year-ago level of $0.70, thanks to improving refining margins.

Adjusted EBITDA from the Refining segment, which is the main contributor to HollyFrontier’s earnings, was $583.4 million. This reflected a healthy improvement from the year-ago income of $233.1 million, thanks to wider gross margins, which jumped 76.7% to $22.17 per barrel.

As of Dec 31, 2018, the U.S. refiner had approximately $1.1 billion in cash and cash equivalents, and $2.4 billion in net long-term debt, representing a debt-to-capitalization ratio of 27.3%. During the quarter, the company paid $57.6 million in dividends and bought back shares worth $185.2 million. (Read more HollyFrontier Tops Q4 Earnings, Lags Sales Estimates)

4.    Cimarex Energy Co. XEC reported fourth-quarter 2018 earnings per share of $1.98, which surpassed the Zacks Consensus Estimate of $1.75 and improved from the year-ago $1.47. The strong results were aided by an increase in oil equivalent production backed by ramped up activities in the Permian Basin and Mid-Continent. The company’s board of directors has given authorization to increase the quarterly dividend by 11% to 20 cents per share sequentially.

Oil volumes rose 29.4% to 79.9 thousand barrels per day (MBbls/d) on a year-over-year basis. Moreover, natural gas volumes increased 16.5% to 621.9 MMcf/d year over year. Natural gas liquids (NGL) volumes jumped 35.5% year over year to 67.7 MBbls/d.

Cimarex projects total daily production for the March quarter of 2019 in the range of 245-257 MBoe. Of this, oil production is projected in the band of 75-81 MBbls/d. Daily production for 2019 is estimated in the range of 250-270 MBoe. (Read more Cimarex Q4 Earnings Top Estimates, Proved Reserves Grow)

5.    Parsley Energy, Inc. PE recently reported fourth-quarter 2018 adjusted net earnings per share of 30 cents, which was in line with the year-ago level but lagged the Zacks Consensus Estimate of 34 cents. The underperformance of this Permian producer stemmed from weak commodity prices and high costs during the quarter.

Parsley's average quarterly volume increased 49.2% year over year to 119.8 thousand barrels of oil equivalent per day — comprising 85.3% liquids — on the back of rising production of oil, natural gas and natural gas liquids (NGLs). In the quarter under review, the company put 43 gross horizontal wells in production.

Parsley expects 2019 capital expenditure in the range of $1,350-$1,550 million, which is lower than the updated 2018 spending level of $1,762 million. For full-year 2019, the company expects total production in the range of 124,000-134,000 barrels of oil equivalent per day (Boe/d), higher than 109,416 Boe/d recorded in 2018. The company expects first-quarter oil output to average 75.5-78 thousand barrels per day. (Read more Parsley's Q4 Earnings Miss on Low Price Realizations)

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

+0.9%

-2.4%

CVX

0%

-0.6%

COP

-0.3%

-4.9%

OXY

-1.9%

-17.4%

SLB

-1.3%

-30.9%

RIG

-7.6%

-30%

VLO

+1.1%

-29.9%

MPC

+0.6%

-22.6%

Contrary to the week’s positive oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a marginal -0.5% return last week. The best performer was offshore driller Transocean Ltd. RIG whose stock slumped 7.6%. 

Longer-term, over six months, the sector tracker is down 12.3%. Oilfield service biggie Schlumberger SLB was the major loser during this period, experiencing a 30.9% 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 the last batch of S&P 500 members coming out with quarterly results.

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HollyFrontier Corporation (HFC) : Free Stock Analysis Report
 
Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
Cimarex Energy Co (XEC) : Free Stock Analysis Report
 
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
 
Cabot Oil & Gas Corporation (COG) : Free Stock Analysis Report
 
Parsley Energy, Inc. (PE) : Free Stock Analysis Report
 
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