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Oil & Gas Stock Roundup: Exxon's Q2 Update, Conoco's Upbeat 10-Year Plan & More

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·8 min read
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It was a week when both oil and natural gas prices settled at multi-year highs.

On the news front, energy biggie ExxonMobil XOM issued update on its upcoming Q2 earnings, while ConocoPhillips COP announced an increase in its stock buybacks and lowered cost estimates.

Overall, it was another good week for the sector. West Texas Intermediate (WTI) crude futures gained 1.5% to close at $75.16 per barrel and natural gas prices moved up 5.1% to end at $3.7 per million British thermal units (MMBtu). In particular, the oil market managed to maintain its forward momentum from the previous five weeks.

Coming back to the week ended Jul 2, oil prices finished at their highest levels in more than two and a half years after the latest U.S. government data gave further proof of improving fundamentals in the energy market. Oil supplies declined to pre-lockdown levels, with U.S. commercial stockpiles down by more than 10% since mid-March. Taking Cushing as an indicator, the oil market has already tightened considerably. Stocks fell to just 40.3 million barrels at the key storage hub last week, the lowest since March 2020. There was also an improvement in distillate demand.

Natural gas finished up too — at its highest since December 2018 — on the prospect of more weather-related consumption and strong liquefied natural gas (“LNG”) feedgas deliveries.

Recap of the Week’s Most-Important Stories

1.  ExxonMobil recently expressed optimism that higher oil prices would contribute significantly to its second-quarter 2021 upstream earnings. The leading integrated energy company now projects a significant sequential improvement in results for its three key business lines, considering the core operations.

The company projects second-quarter operating results from the oil and liquids businesses to improve $600 million to $1 billion from the March quarter thanks to an uptick in oil prices. The change in natural gas prices is likely to have contributed another, a maximum of $400 million, to the profits of the upstream business, as forecast by the energy major. It is to be noted that the rolling out of coronavirus vaccines, which led to expectations that the economies will rebound strongly later this year, primarily helped commodity prices move north in the June quarter of 2021.

Moreover, ExxonMobil estimated $500 million to $700 million of sequential improvement in contributions from the downstream business in the June quarter, thanks to improved refining margins. From the chemical business, the company estimated profit to increase $700 million to $900 million owing to a healthy chemicals margin. (ExxonMobil Expects Higher Oil Price to Boost Q2 Earnings)

2.   ConocoPhillips recently provided an ambitious 10-year operating plan and increased the share repurchase program. Its operational update includes the Concho Resources acquisition in January 2021.

The Zacks Rank #1 (Strong Buy) company intends to boost stock buybacks by $1 billion for 2021, which is in line with its plan of returning 30% cash from operations to its shareholders. It resumed the share repurchase program in March at an annualized level of $1.5 billion. The latest buyback move is likely to bring the total 2021 planned distribution to $6 billion. Importantly, in the 2022-2031 time period, the company expects to return more than $65 billion to its shareholders, which will be funded by cash from operations.

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

Furthermore, it has reduced the 2021 capital expenditure by $200 million from the previous estimate of $5.5 billion. Also, it expects adjusted operating costs to decrease $100 million from the prior estimate to $6.1 billion. The company anticipates capital expenditures to average $7 billion per annum, which will likely result in 3% compound annual growth in production. (ConocoPhillips Hikes Buyback by $1B, Outlines 10-Year Plan)

3.  EQT Corporation EQT brought forward a comprehensive plan to achieve net-zero Scope 1 and 2 greenhouse gas (“GHG”) emissions across its operations by 2025.

The company, which is a leading natural gas producer in the United States, pledged to slash the GHG emission intensity by 70% in just four years. It also set a climate target to reduce 65% of the company’s methane emission intensity below the 2018 levels by 2025.

EQT clarified that natural gas will remain the basis of its business and will assume leadership in Environmental, Social, and Governance to help decarbonize the natural gas industry. The company plans to explore natural gas-based climate solutions, which include responsibly sourced gas, blue hydrogen and carbon offsets. (EQT Reveals Plans to Reach Net-Zero Emission Target by 2025)

4.  Equinor ASA EQNR recently commenced production from the Martin Linge oil and gas field after years of delay. The project was initially scheduled to come online in 2016 with cost of development of NOK 31.5 billion (around $3.67 billion), which shot up to NOK 63 billion (around $7.34 billion) due to massive cost overruns.

Recoverable resources from the field are estimated at 260 million barrels of oil equivalent. Peak production from the field is expected to reach 115,000 barrels of oil equivalent per day in 2022. Operator Equinor has a 70% stake in Martin Linge, while its partner state-run Petoro owns the rest. At a water depth of 115 meters, the field lies 42 kilometers west of Oseberg.

Using a new pipeline, gas from the field is being transported to St. Fergus in Scotland. The produced oil is processed in a permanently anchored oil storage vessel, from which it is shipped to the market through shuttle tankers. The field is powered by electricity from the Kollsnes substation in West Norway, through a 163-kilometer sea cable. Equinor expects carbon dioxide emission from the field to remain low, as activities are dependent on electricity from shore. (Equinor Brings Martin Linge Field Online From Shore)

5.  Enterprise Products Partners EPD, through a subsidiary, recently acquired the ethylene trading hub and storage business of NOVA Chemicals, located in Mont Belvieu, TX. The financial terms of the deal are yet to be disclosed.

The deal is complementary in nature as it will cater to Enterprise Products’ growing ethylene network. The partnership has an ethylene export terminal of 1 million mt per annum capacity at the Houston Ship Channel and a Gulf Coast pipeline system. As such, the latest deal will enable the partnership to enhance its services provided to customers.

The move is expected to boost Enterprise Products’ olefins footprint. The addition of the assets from NOVA Chemicals is expected to make Enterprise Products a major player for physically settled futures markets. This will likely boost the partnership’s profitability from its trading arm. Also, the deal will enable NOVA Chemicals to focus on the core operation of ethylene and polyethylene production. (Enterprise Products Buys NOVA's Storage & Trading Hub)

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 six months.

Company    Last Week    Last 6 Months

XOM                -2.3%              +36.5%
CVX                 -1.1%             +15.3%
COP                +2.3%            +34.9%
OXY                 -1%                 +48.3%
SLB                 -1.7%              +25.3%
RIG                 +14.4%           +69.3%
VLO                 -4.9%              +25.2%
MPC                -2.4%              +33.5%

The Energy Select Sector SPDR — a popular way to track energy companies — was down 1.2% last week. The worst performer was downstream operator Valero Energy VLO whose stock lost 4.9%.

But over the past six months, the sector tracker has surged 27.6%. Offshore driller Transocean Ltd. RIG was the major gainer during the period, experiencing a 69.3% price appreciation.

What’s Next in the Energy World?

As the global oil consumption outlook strengthens amid the OPEC+ led calibrated supply cuts and successful vaccine deployments, market participants will be closely tracking 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 energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed too. News related to coronavirus vaccine approval/rollout/distribution will be of utmost importance. Finally, investors will look for updates on OPEC+’s stalled meeting — one that has been held up due to differences between the United Arab Emirates and Saudi Arabia.

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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
 
Valero Energy Corporation (VLO) : Free Stock Analysis Report
 
EQT Corporation (EQT) : Free Stock Analysis Report
 
Equinor ASA (EQNR) : Free Stock Analysis Report
 
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