It was a week when oil prices ended higher but natural gas logged a sharp decline.
On the news front, energy companies Enbridge ENB, EOG Resources EOG, Williams Companies WMB, Pioneer Natural Resources PXD and Diamondback Energy FANG reported June-quarter earnings.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures gained 3.8% to close at $37.14 per barrel, natural gas prices fell 9.6% in the week to finish at 3.031 per million Btu (MMBtu).
Oil prices recovered from a multi-month slump after a U.S. government data showed a decline in stockpiles significantly higher than projections. However, price gains were tempered by the acceleration of coronavirus cases and the subsequent reintroduction of stay-at-home orders in many countries that threaten to slow down the fragile recovery in consumption.
On the other hand, natural gas eased back from its 21-month highs due to expectations of milder-than-normal winter weather that could result in the heating fuel’s depressed demand.
Recap of the Week’s Most-Important Stories
1. Energy infrastructure provider Enbridge reported third-quarter 2020 earnings per share of 36 cents, missing the Zacks Consensus Estimate of 40 cents and decreasing from the year-ago quarter’s profit of 42 cents. The underperformance stemmed from a decline in Mainline System throughput, partially offset by higher contributions from the U.S. Gas Transmission business.
At the end of third-quarter 2020, the company reported total debt of C$67,132 million, and cash and cash equivalents of C$657 million. Its debt-to-capitalization ratio was almost 0.51.
For 2020, the company has reaffirmed its guidance for DCF per share at the band of C$4.50 to C$4.80. Enbridge is optimistic that there will be a gradual recovery in energy demand through the remainder of this year and entire 2021. (Enbridge Q3 Earnings Miss Estimates, Revenues Fall Y/Y)
2. Upstream energy company EOG Resources reported third-quarter 2020 adjusted earnings per share of 43 cents, beating the Zacks Consensus Estimate of 16 cents. The better-than-expected results were due to a decline in lease and well expenses, offset partially by lower oil equivalent production volumes and prices.
Meanwhile, total operating expenses decreased to $2,248.2 million from $3,475.5 million in third-quarter 2019. Lease and Well expenses declined to $227.5 million from $348.9 million a year ago. Moreover, transportation costs decreased to $180.3 million from $199.4 million a year ago. Also, the company reported Gathering and Processing costs of $114.8 million, lower than the year-ago quarter’s $127.6 million. Exploration expenses, however, increased to $38.4 million from the year-ago level of $34.5 million.
The company expects 2020 production in the range of 750.3-759.3 MBoe/d. Fourth-quarter output will likely be in the band of 781.5-817.2 MBoe/d. The leading oil and gas explorer foresees the coronavirus-induced instability in energy market to extend till 2021. Owing to this, the company intends to keep its 2021 production at the levels of the December quarter of this year. (EOG Resources Q3 Earnings Beat Estimates, Revenues Miss)
3. Energy infrastructure provider The Williams Companies reported third-quarter 2020 adjusted earnings per share of 27 cents, meeting the Zacks Consensus Estimate, attributable to a strong contribution from the Northeast G&P unit. The bottom line was, however, partially offset by weak results from the Transmission & Gulf of Mexico segment.
Distributable cash flows came in at $772 million, down 6.1% from the year-ago number of $822 million. Adjusted EBITDA was $1.26 billion in the quarter under review, marginally lower than the year-ago quarter’s figure of $1.27 billion. The Zacks Rank #3 (Hold) company’s cash flow from operations totaled $452 million compared with $858 million in the prior-year period.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the reported quarter, total costs and expenses decreased to $1.29 billion from $1.37 billion a year ago owing to a fall in product expenses and G&A costs. Williams’ total capital expenditure was $938 million in the third quarter, down substantially from $1.7 billion a year ago. As of Sep 30, 2020, the company had cash and cash equivalents worth $70 million and a long-term debt of $21.95 billion with a debt-to-capitalization of 64.5%.(Williams Q3 Earnings Match Estimates, Revenues Top)
4. Pioneer Natural Resources, a premier Permian producer, reported third-quarter 2020 earnings per share of 17 cents, excluding one-time items, missing the Zacks Consensus Estimate of 18 cents. The underperformance reflects reduced crude oil production volumes and realized prices.
At the end of the quarter under review, cash balance totaled $1,325 million, up from $180 million at second-quarter end. Long-term debt totaled $3,148 million, up from $2,054 million at the end of the second quarter. It had a debt to capitalization of 22%. The current portion of the long-term debt was $140 million.
For fourth-quarter 2020, the company expects daily oil equivalent production in the range of 355-370 MBoe/d. For 2020, Pioneer Natural upwardly revised its oil equivalent production volumes guidance to 365-369 MBoe/d.Pioneer maintained its 2020 capital budget in the range of $1.4-$1.6 billion.(Pioneer Q3 Earnings Miss on Lower Crude Production)
5. Another Permian operator Diamondback Energy delivered strong third-quarter 2020 earnings. Better-than-expected production led to this outperformance. Precisely, overall volumes came in at 287.3 thousand barrels of oil equivalent per day (MBOE/d), beating the Zacks Consensus Estimate of 286.2 MBOE/d. The company’s adjusted net income per share of 62 cents outpaced the Zacks Consensus Estimate of 37 cents.
Third-quarter cash operating cost was $7.61 per barrel of oil equivalent (BOE), down 12.5% from the prior-year figure of $8.7. Diamondback’s lease operating expense (LOE) of $3.86 was down 20.4% year over year. Moreover, production taxes fell nearly 10% from the prior-year quarter to $2.08 per BOE. However, gathering and transportation expense was $1.25, higher than 95 cents in the third quarter of 2019.
Diamondback anticipates 2020 average daily production of 290-305 MBOE/d, lower than the previous guidance of 295-310 MBOE/d. Its average daily oil production is estimated between 178 MBO/d and 182 MBO/d with an expected capital spend of $1,800-$1,900 million. Further, this Midland, TX-headquartered company plans to complete 153-180 net wells. (Diamondback Q3 Earnings Top Estimates on Solid Output)
The following table shows the price movement of some the major oil and gas players over past week and during the last six months.
Company Last Week Last 6 Months
XOM +0.5% -20%
CVX +2.4% -16.8%
COP +2% -22.5%
OXY +9.6% -18.6%
SLB +1.9% +1.1%
RIG +49.3% -28.1%
VLO -1.1% -24%
MPC +7% +10.4%
The Energy Select Sector SPDR — a popular way to track energy companies — edged up 0.7% last week. The best performer was offshore driller Transocean RIG whose stock surged 49.3%.
But for the longer term, over six months, the sector tracker has lost 14.8%. On the other end of the spectrum this time, Transocean was the major loser during the period, experiencing a 28.1% price drop.
What’s Next in the Energy World?
With rapidly rising new coronavirus cases around the world leading to the reimposition of lockdowns and the looming threat of another bout of oil demand weakness, market participants will be closely tracking the regular releases to watch for signs that could validate a revival. In this context, the U.S. government’s statistics on oil and natural gas — one of the few solid indicators that comes out regularly — will be on energy traders' radar. Data on rig count from energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is also closely followed. Finally, the closely watched monthly reports from three key agencies (EIA, OPEC and the IEA) complete the releases this week.
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Transocean Ltd. (RIG) : Free Stock Analysis Report
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