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Oil & Gas Stock Roundup: Enbridge, Petrobras & TC Energy Report Q1 Earnings

Nilanjan Choudhury

It was a week where oil prices climbed sharply, while natural gas finished lower.

On the news front, Enbridge Inc. ENB, Petrobras PBR and TC Energy Corporation TRP reported March quarter earnings.  

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures surged 19% to close at $29.43 per barrel, natural gas prices fell 9.7% for the week to finish at 1.646 per million Btu (MMBtu). In particular, the oil markets extended their gain toward $30 a barrel.

Coming back to the week ended May 15, the crude benchmark recorded a big jump as the historic OPEC+ deal to curb production got underway from May 1. On a further positive note, Saudi Arabia pledged an additional 1 million barrels per day in cuts from next month. Further, the U.S. Energy Department's latest inventory release revealing the first decline in domestic crude supplies in 16 weeks and pullback in domestic production also had a positive effect on the commodity. Meanwhile, U.S. rig counts - an indicator of future production - recently posted their lowest level since July 2009. The International Energy Agency’s (IEA’s) latest Oil Market Report revising up its growth estimates for 2020 global oil demand was another price driver.

Meanwhile, natural gas ended lower following a higher-than-expected increase in supplies. As it is, the fuel faces the prospect of a coronavirus-related steep drop-off in usage. Natural gas is already coming off a mild winter amid strong production that kept inventories well above normal. In fact, the commodity recently slumped to its lowest price since 1995.

Recap of the Week’s Most Important Stories

1.  Energy infrastructure provider Enbridge reported first-quarter 2020 earnings per share of 62 cents, beating the Zacks Consensus Estimate of 51 cents and increasing from the year-ago quarter’s profit of 61 cents. The outperformance stemmed from higher contributions from Mainline System.

For 2020, the company has reaffirmed its guidance for DCF per share at the band of C$4.50 to C$4.80. Notably, in the wake of coronavirus pandemic, Enbridge decided on the deferral of roughly C$1 billion of planned secured growth capital budget for 2020. Also, the disruption in energy business owing to the virus outbreak led the midstream service provider to slash operating expense expectation for 2020 by C$300 million.

The company added that the pandemic, which is denting global energy demand, resulted in a throughput cut of 400,000 barrels per day (Bbl/D) from the Mainline pipeline system in April. The firm expects throughput to reduce by an average of 400,000 to 600,000 Bbl/D in the June quarter of 2020. (Enbridge Beats Earnings and Revenue Estimates in Q1)

2.   Brazil's state-run energy giant Petrobras announced first-quarter earnings per ADS of 6 cents, missing the Zacks Consensus Estimate by a penny and below the year-ago profit of 16 cents. The unfavorable comparison primarily stems from lower average realized commodity prices.

During the three months ended Mar 31, 2020, Petrobras’ capital investments and expenditures totaled $2,439 million, compared with $2,298 million in the prior-year quarter. Importantly, the company generated positive free cash flow for the 20th consecutive quarter, with the metric surging to $5,911 million from $3,132 million recorded in last year’s corresponding period.

At the end of the first quarter, Petrobras had a net debt of $73,131 million, decreasing from $95,525 million a year ago and $78,861 million as of Dec 31, 2019. The company ended the quarter with cash and cash equivalents of $15,468 million. Meanwhile, Petrobras’ net debt to trailing 12-month EBITDA ratio improved to 2.15 from 3.10 in the previous year. (Petrobras Q1 Earnings Miss Even as Lifting Costs Drop)

3.   North American midstream giant TC Energy’s first-quarter 2020 earnings of 88 cents per share came ahead of the Zacks Consensus Estimate of 74 cents as well as the year-ago figure of 80 cents. This outperformance is primarily attributable to a solid progress in the company’s projects at the U.S. Natural Gas Pipelines, Canadian Natural Gas Pipelines and Mexico Natural Gas Pipelines apart from the Power and Storage segments. Contributions from projects worth C$8.7 billion that came online in 2019 also aided the bottom line.

Moreover, Zacks Rank #3 (Hold) TC Energy’s comparable EBITDA of C$2.5 billion in the quarter was up 6.4% from C$2.38 billion reported in the same period last year. Further, management maintained that with 95% of the company’s comparable EBITDA coming from long-term, fixed-rate contracts, it is mostly insulated from the short-term price and throughput fluctuations of the underlying commodities.

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

As of Mar 31, 2020, TC Energy’s capital investments totaled C$1.99billion. On the same date, the company had cash and cash equivalents worth C$1.89 billion and long-term debt of C$34.8 billion. Its total debt to total capital was 50.6%. (TC Energy Q1 Earnings Beat Estimates, EBITDA Rises Y/Y)

4.   Large-cap pipeline operator MPLX LP MPLX reported first-quarter adjusted earnings of 61 cents per unit, beating the Zacks Consensus Estimate of 56 cents. The bottom line was on par with the year-ago quarter figure. The better-than-expected earnings was backed by higher pipeline and gathering throughput.

Distributable cash flow available to limited partners in first-quarter 2020 was $1,078 million, providing 1.44X distribution coverage, up from $757 million in the year-ago quarter. Distribution per unit was 68.75 cents in the reported quarter, representing an increase of 4.6% from the year-ago quarter. Net cash flow from operating activities in the quarter under review increased to $1,009 million from $853 million recorded in the corresponding period of 2019. As of Mar 31, 2020, the partnership’s cash and cash equivalents were $57 million. Its total long-term debt amounted to $20.5 billion, while debt-to-capitalization ratio was 0.61.

The partnership lowered its 2020 capital budget by more than $700 million to $1 billion. Notably, the capital budget for growth projects in 2020 was slashed by more than $600 million to roughly $900 million. The partnership has decided to reduce operating expenses in the year by roughly $200 million. (MPLX Beats Q1 Earnings Estimates on Pipeline Throughput)

5.    Natural gas operator EQT Corporation EQT reported first-quarter 2020 adjusted earnings from continuing operations of 14 cents per share compared with the Zacks Consensus Estimate of break-even earnings. The better-than-expected results were due to a year-over-year increase in natural gas equivalent production volumes and lower per unit operating expenses,

Total capital expenditure amounted to $262.1 million for the first quarter, down from $476 million in the year-ago period. As of Mar 31, 2020, the company had $18.7 million in cash and cash equivalents, up from the fourth-quarter level of $4.6 million. Total debt of $5,036.9 million declined from the fourth-quarter level of $5,293 million.

The company anticipates adjusted operating cash flow in the range of $1.325-$1.425 billion for 2020, suggesting fall from $1.83 billion in 2019. It expects capital expenditure in the band of $1.075-1.175 billion for the year, implying a decrease from $1.77 billion in 2019. As such, free cash flow will likely be recorded within $225-$325 million this year. (Why EQT Corp. Stock Down 6.5% Despite Q1 Earnings Beat)

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                -7.3%              -39.3%
CVX                 -6.6%              -25.4%
COP                -5.1%              -31.5%
OXY                 -8%                  -64.7%
SLB                 -11.6%             -54.5%
RIG                 +0.7%               -72.4%
VLO                 -9.4%               -41%
MPC                -8.3%               -52.3%

The Energy Select Sector SPDR – a popular way to track energy companies – was down 7.2% last week. The worst performer was oilfield services behemoth Schlumberger SLB whose stock fell 11.6%.

Longer-term, over six months, the sector tracker is down 39.9%. Offshore driller Transocean Ltd. RIG ) was the major loser during this period, experiencing a 72.4% price plunge.

What’s Next in the Energy World?

As global oil consumption gradually ticks up, market participants will be closely tracking the regular releases to watch for signs that could further validate a rebound. In this context, the U.S. government statistics on oil and natural gas - one of the few solid indicators that comes out regularly - and the Baker Hughes data on rig count, will be on the energy traders' radar.

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Transocean Ltd. (RIG) : Free Stock Analysis Report
Petroleo Brasileiro S.A. Petrobras (PBR) : Free Stock Analysis Report
EQT Corporation (EQT) : Free Stock Analysis Report
Schlumberger Limited (SLB) : Free Stock Analysis Report
Enbridge Inc (ENB) : Free Stock Analysis Report
MPLX LP (MPLX) : Free Stock Analysis Report
TC Energy Corporation (TRP) : Free Stock Analysis Report
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