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Oil & Gas Stock Roundup: Earnings Deluge & Acquisition News Take Center Stage

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It was a week when oil prices rose above $90 for the first time since 2014 but natural gas futures registered a decline.

On the news front, some well-known energy companies like Shell plc SHLX, ConocoPhillips COP, Marathon Petroleum MPC and NOV Inc. NOV) reported December-quarter earnings, while Permian producer Earthstone Energy ESTE agreed to buy West Texas-focused Bighorn Permian Resources LLC for around $860 million.

Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures gained 6.3% to close at $92.31 per barrel but natural gas prices lost 1.4% to end at $4.572 per million British thermal units (MMBtu). In particular, the oil market managed to maintain its forward momentum from the previous six weeks.

Apart from signs of strong global demand, the positive oil price action could be attributed to recent geopolitical headlines that could impact production. For example, the Russia-Ukraine tensions and the attack by Yemen's Houthi group on OPEC-member UAE gave a boost to oil by threatening supply disruptions. With some oil wells in Texas shut in due to a winter storm, there are fears of further widespread losses in domestic output.

Meanwhile, natural gas tallied a weekly loss, spooked by a mild weather outlook and the subsequent lull in heating demand.

Recap of the Week’s Most-Important Stories

1. Europe’s largest oil company Shell reported fourth-quarter earnings per ADS (on a current cost of supplies basis, excluding items — the market’s preferred measure) — of $1.66. The bottom line came in above the Zacks Consensus Estimate of $1.40 and surged from the year-earlier quarter’s earnings of 10 cents per ADS, backed by stronger commodity prices.

Meanwhile, Shell repurchased $1.7 billion of shares in the fourth quarter. The energy group also announced plans to buy back $8.5 billion worth of shares in the first half of this year, including the recent pledge to return $5.5 billion from the Permian sale proceeds. Shell declared a fourth-quarter payout of 24 cents per share and expects to hike it by approximately 4% next quarter.

During the quarter under review, Shell generated cash flow from operations of $8.2 billion, returned $1.8 billion to its shareholders through dividends and spent $6.2 billion cash on capital projects. (Shell Q4 Earnings Beat Estimates on Soaring Oil)

2.   ConocoPhillips — one of the world’s largest independent oil and gas producers —  reported fourth-quarter 2021 adjusted earnings per share of $2.27, comfortably beating the Zacks Consensus Estimate of $2.20. The results were aided by increased production volumes and realized oil equivalent prices.

As of Dec 31, 2021, ConocoPhillips had $5 billion in total cash and cash equivalents. The company had a total long-term debt of $18.7 billion. It had a debt-to-capitalization ratio of 0.31. At fourth-quarter end, the Zacks Rank #1 (Strong Buy) company had short-term debt of $1.2 billion. Capital expenditures and investments totaled $1.6 billion, and dividend payments grossed $609 million. Net cash provided by operating activities was recorded at $5.9 billion.

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

ConocoPhillips reported preliminary 2021 year-end proved reserves of 6.1 billion BoE. COP added its total reserve replacement ratio at 377%. ConocoPhillips revised higher its expected 2022 return of capital to its shareholders. The new guidance is at $8 billion, reflecting an increase from the prior projection of $7 billion. (ConocoPhillips Beats Q4 Earnings Estimates, Hikes VROC)

3   Independent oil refiner and marketer Marathon Petroleum reported adjusted earnings of $1.30 per share, which comfortably beat the Zacks Consensus Estimate of 47 cents and improved from a loss of 94 cents per share in the year-ago period. The company’s bottom line was favourably impacted by stronger-than-expected performance from both segments.

The company repurchased shares worth $3 billion during the October-January period and has now completed around 55% of its target to buy back $10 billion in common stock. This was after Marathon Petroleum concluded the sale of its Speedway business comprising approximately 3,900 c-stores in 35 states to Japan-based retail group Seven &i Holdings — the owner of the 7-Eleven convenience store chain — for $21 billion. Further planning to reward its shareholders, MPC announced a new $5 billion buyback program.

In the reported quarter, Marathon Petroleum spent $651 million on capital programs (57% on Refining & Marketing and 35% on the Midstream segment) compared to $491 million in the year-ago period. As of Dec 31, the company had cash and cash equivalents of $5.3 billion and total debt, including that of MPLX, of $25.5 billion, with a debt-to-capitalization of 43.9%. (Marathon Follows Refining Peers to Q4 Earnings Beat)

4.   Shares of NOV plunged more than 8% on Friday after the company reported a wider-than-expected fourth-quarter loss the day before. Bucking the overall upward trend in the energy sector, the oil and gas equipment company posted adjusted loss of 6 cents per share, 3 cents worse than the Zacks Consensus Estimate. The underperformance reflects COVID-induced headwinds in the form of supply chain bottlenecks, elevated costs and labor issues.

At the end of 2021, NOV’s capital equipment order backlog for Rig Technologies was $2.77 billion, including $191 million worth of new orders. The company’s Completion & Production Solutions operations currently have a $1.29 billion backlog, comprising $495 million of new orders, the highest since 2019.

As of Dec 31, 2021, the company had cash and cash equivalents of $1.6 billion and a long-term debt of $1.7 billion, with a debt-to-capitalization of 25.2%. Investors should know that during the fourth quarter, NOV reinstated its dividend of 5 cents per share. (NOV Stumbles After Witnessing Wider-Than-Expected Q4 Loss)

5.   Permian Basin oil and gas company, Earthstone Energy, said on Monday that it has reached an agreement to buy West Texas-focused Bighorn Permian Resources LLC, which is privately owned, for around $860 million in cash as well as stock.

Earthstone, which had snapped another privately held firm, Chisholm Energy Holdings LLC, in December 2021, said that Bighorn’s assets — mainly situated in the Reagan and Irion counties — are spread over 110,600 net acres. Around 98% of the to-be-acquired properties are operated and its adjusted EBITDAX for 2022 is forecast around $348 million. Further, the acreage had an average output of 42,400 barrels of oil equivalent per day/boepd (57% liquids, 25% oil) in November 2021.

According to ESTE’s estimates, the two acquisitions would lead to an increase in its total net production by about 70% to be around the 76,000-80,000 boepd range, 54% growth in its adjusted EBITDAX, and a free cash flow increase of 194%. (Earthstone Announces Bighorn Permian Acquisition)

Price Performance

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

Company    Last Week    Last 6 Months

XOM                  +8.1%             +43.4%
CVX                   +4%                +33.8%
COP                  +3%                 +64.5%
OXY                   +8.6%             +55.4%
SLB                   -2.9%              +41.7%
RIG                    +16%              +6.9%
VLO                   +7.7%              +34.8%
MPC                  +8.9%              +39.1%

The Energy Select Sector SPDR — a popular way to track energy companies — was up 5% last week. Over the past six months, the sector tracker has increased 40.9%.

What’s Next in the Energy World?

As the global oil consumption outlook strengthens amid tightening fundamentals, market participants will closely track the regular releases to watch for signs that could further validate the upward momentum. In this context, the U.S. government’s statistics on oil and natural gas — one of the few solid indicators that come out regularly — will be on energy traders' radar. Data on rig count from the oilfield service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed. News related to coronavirus vaccine approval/rollout/distribution will be of utmost importance too. Investors will also keep an eye on the potential demand hit from the Omicron variant. Then there will be 2021 Q4 earnings, with a number of S&P 500 components coming up with quarterly results. Finally, the closely watched monthly reports from key agencies (OPEC and the IEA) complete the releases this week.

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Shell Midstream Partners, L.P. (SHLX) : Free Stock Analysis Report
Earthstone Energy, Inc. (ESTE) : Free Stock Analysis Report
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