It was a week where oil prices logged a decline but natural gas futures tallied a third rise in a row.
On the news front, Exxon Mobil Corporation XOM made a big natural gas discovery off the coast of Cyprus, while BP plc BP announced first gas production from the Angelin development offshore Trinidad.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures lost 2.6% to close at $55.80 per barrel, natural gas prices rose 4.4% to $2.859 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Diamondback and Cabot Report Q4 Earnings)
The U.S. crude benchmark fell for the first time in three weeks on weaker-than-expected domestic economic data and shrinking factory activity in China, which stoked fears of slowing energy demand. Record oil production in the United States also contributed to the losses, thereby more than offsetting the OPEC-agreed cutbacks that continue to drain global supply.
Meanwhile, natural gas prices registered a third successive weekly uptick following forecasts of colder weather, which should lead to the heating fuel’s robust demand.
Recap of the Week’s Most Important Stories
1. ExxonMobil recently announced the discovery of natural gas in Glaucus-1 well, located off the coast of Cyprus. After drilling the well safely to 13,780 feet in Block 10, the company found 436 feet of gas-bearing reservoir. ExxonMobil added that the initial interpretation of well data suggests that the new discovery may comprise 5 trillion to 8 trillion cubic feet of natural gas resource. However, the integrated energy firm will carry on further analysis to confirm the potential of the resource.
It is to be noted that Zacks Rank #3 (Hold) ExxonMobil is the operator of block 10, spreading across 2,572 square kilometers, with 60% ownership stake. The remaining 40% interest is owned by Qatar Petroleum International Upstream O.P.C.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In a separate release, ExxonMobil announced that through 2018 it made an addition of 4.5 billion oil-equivalent barrels of proved oil and gas reserves. Thus, the company was able to replace 313% of production through 2018. As of Dec 31, 2018, ExxonMobil recorded its reserves at 24.3 billion oil-equivalent barrels, representing an increase of 23% year over year, thanks to several offshore Guyana discoveries, acquisition of high-quality Brazilian resources and contributions from the prolific Permian basin. (Read more ExxonMobil Hits Gas in Cyprus, Sees Reserves Growth in 2018)
2. BP recently announced that the company has commenced production from the Angelin development, located 60 kilometers off the south-east coast of Trinidad and Tobago. The commencement of natural gas production from the development was on schedule and within budget. The Angelin development was originally discovered in 1995 through the El Diablo well and sanctioned in mid-2017.
Peak production from the site is expected at 50,000 barrels of oil equivalent per day. Notably, the Angelin platform marks the company’s 15th installation offshore Trinidad and Tobago.
The beginning of natural gas production from the site is well within two years following the green light, which highlights BP’s project execution prowess. Also, it is the company’s third major upstream project start-up this year. (Read more BP Brings Angelin Online, to Deliver 2 More Upstream Projects)
3. U.S. energy firm Apache Corporation APA reported fourth-quarter earnings per share – excluding one-time items – of 31 cents, ahead of the Zacks Consensus Estimate of 25 cents. The outperformance stems from strong growth in production from the key Permian Basin region. However, Apache’s bottom line witnessed a fall from the year-ago quarter’s adjusted profit of 33 cents on lower natural gas realizations.
In the company's Permian Basin acreage, average production volumes improved to 235,936 BOE/d from 176,969 in the fourth quarter of 2017. Results were helped by operational progress and the continued ramp up at the company’s Alpine High discovery.
Apache also announced a 5% increase in proved reserves at year-end 2018 to 1.23 billion oil-equivalent barrels, replacing 135% of 2018 production. The reserve additions were driven by extensions, partially offset by production and downward revisions. (Read more Apache Q4 Earnings Top on Permian Production Strength)
4. Cheniere Energy, Inc. LNG reported fourth-quarter 2018 net earnings per share of 26 cents, missing the Zacks Consensus Estimate of 36 cents. The weaker-than-expected results can be attributed to high costs incurred during the quarter. The bottom line also deteriorated from the year-ago income of $0.54 per share.
During the quarter, the company shipped 80 cargoes from the Sabine Pass liquefied natural gas terminal in Louisiana, reflecting an increase of 14% from a year ago. Total volumes of LNG exported in the reported quarter were 285 trillion British thermal units (TBtu) compared with 252 TBtu in the year-ago period.
As of Dec 31, 2018, Cheniere had approximately $981 million in cash and cash equivalents. It recorded $28.2 billion in net long-term debt compared with the prior-year level of $25.3 billion. The debt-to-capitalization ratio of the company stands at 93.6%. Cheniere has reiterated its guidance for 2019. It anticipates adjusted EBITDA within $2.9-$3.2 billion, with distributable cash flow expected between $600 million and $800 million. (Read more Cheniere Q4 Earnings Lag Amid High Costs, Sales Up Y/Y)
5. Brazil's state-run energy giant Petrobras PBR announced fourth-quarter earnings per ADS of 32 cents, missing the Zacks Consensus Estimate of 45 cents. The weaker-than-expected results can be attributed to impairments and charges associated with legal disputes.
However, the bottom line compared favorably with the year-earlier quarter’s loss of 26 cents, boosted by a rise in the price of oil. Net quarterly profit of R$2.1 billion turned around from a loss of R$5.5 billion, while adjusted EBITDA rose to R$29.2 billion from R$13 billion a year ago.
During the three months ended Dec 31, 2018, Petrobras’ capital investments and expenditures totaled around R$10 billion, 26% lower than the R$13.5 billion incurred in the year-ago period. The lower capital spending reflects an attempt by the company to pay down debt. As a result, free cash flow came in at R$17.1 billion for the quarter, surging 159.1% year over year. (Read more Petrobras Q4 Earnings Jump on Oil Surge, Output Falls)
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.
Last 6 Months
Contrary to the week’s bearish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +1% return last week. The best performer was Houston-based energy explorer Occidental Petroleum Corporation OXY whose stock rose 2.5%.
But longer-term, over six months, the sector tracker is down 8.9%. Downstream biggie Valero Energy Corporation VLO was the major loser during this period, experiencing a 30.1% 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.
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Petroleo Brasileiro S.A.- Petrobras (PBR) : Free Stock Analysis Report
Valero Energy Corporation (VLO) : Free Stock Analysis Report
BP p.l.c. (BP) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Apache Corporation (APA) : Free Stock Analysis Report
Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report
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