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Oil & Gas Stock Roundup Headlined by Exxon, Shell & BP's Q4 Earnings

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Nilanjan Choudhury
·8 min read
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It was a week when both oil and natural gas prices settled sharply higher.

On the news front, integrated supermajors ExxonMobil XOM, Royal Dutch Shell RDS.A and BP plc BP reported December-quarter earnings. Meanwhile, oil major Chevron CVX entered into an agreement to buy the remaining Noble Midstream NBLX units not currently held by the company in a deal valuing the partnership at $1.13 billion

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained 8.9% to close at $56.85 per barrel, while natural gas prices rose around 12% in the week to end at $2.863 per million Btu (MMBtu).

The crude benchmark rallied on continued vaccine-related developments and their successful deployment around the world that offer hope for an earlier-than-expected pickup in the commodity’s demand. Crude has been driven up further by the lid on production from OPEC+ members and on top of that, optimism related to the passage of the latest stimulus from Washington.

Natural gas finished higher too after a cold spell across the country led to a spike in the commodity’s demand for heating.

Recap of the Week’s Most-Important Stories

1.  Energy major ExxonMobil’s fourth-quarter 2020 earnings per share of 3 cents — excluding identified items — beat the Zacks Consensus Estimate of a penny. However, the bottom line declined from the year-ago quarter’s earnings of 41 cents per share. The better-than-expected earnings were owing to higher chemical margins, partially offset by lower oil-equivalent production volumes and commodity prices.

During the quarter under review, ExxonMobil generated cash flow of $4.8 billion from operations and asset divestments. The company's capital and exploration spending declined 43.6% year over year to $4.8 billion. At the end of fourth-quarter 2020, total cash and cash equivalents were $4.4 billion and debt amounted to $67.6 billion.

The energy giant expects its capital spending for 2021 to get covered by cash flows with the assumption that Brent crude oil price will be at the $50 per barrel mark. Moreover, compared to 2019, this integrated energy firm projects annual structural expense savings of $6 billion by 2023. (ExxonMobil Q4 Earnings Beat on Solid Chemical Margin)

2.  Europe’s largest oil company Royal Dutch Shell reported fourth-quarter earnings per ADS (on a current cost of supplies basis, excluding items — the market’s preferred measure) — of 10 cents. The bottom line came in below the Zacks Consensus Estimate of 17 cents and plunged from the year-ago profit of 74 cents per ADS. The underperformance mainly stemmed from the coronavirus-induced commodity price collapse, together with lower production and refining margins.

On a somewhat encouraging note for investors, the Zacks Rank #1 (Strong Buy) company boosted its quarterly dividend by about 4% to 17.35 cents — the second consecutive hike in payout — after cutting it by two-thirds last year.

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

As of Dec 31, 2020, Shell, which trimmed its payout for the first time since World War II in April last year, had $31.8 billion in cash and $108 billion in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 32.2%, up from 29.3% a year ago. (Shell Q4 Earnings Miss, Sales Slump, Dividend Raised)

3.  London-based BP plc reported fourth-quarter 2020 adjusted earnings of 3 cents per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The bottom line missed the Zacks Consensus Estimate for earnings of 12 cents per share and even decreased from the year-ago earnings of 76 cents. The weak quarterly earnings reflect lower oil equivalent production, prices and refinery throughput.

BP's net debt — including leases — was $48,196 million at fourth-quarter end, lower than $55,006 million in the prior-year quarter. Gearing was recorded at 36% compared with 35.3% in the prior-year quarter.

The British energy giant expects underlying production in 2021 to be marginally higher than 2020, thanks to the ramp-up of key projects. Moreover, in the March quarter of 2021, the integrated energy firm projects a sequential rise in production. However, the company has a cloudy outlook for the industry’s refining margins and utilization in the first quarter of 2021. Notably, in 2021, the company expects $4 billion to $6 billion of proceeds from divestments and disposals. (BP Q4 Earnings Miss Estimates on Lower Refinery Throughput)

4.  Upstream biggie ConocoPhillips COP reported fourth-quarter 2020 adjusted loss per share of 19 cents, narrower than the Zacks Consensus Estimate by a penny. The better-than-expected fourth-quarter results stemmed from increased output in Canada. Moreover, overall bitumen production rose from the year-ago period. Additionally, production and operating expenses declined for the quarter.

As of Dec 31, 2020, the oil giant had $2,991 million in total cash and cash equivalents, up from the third-quarter level of $2,490 million. The company had a total long-term debt of $14,750 million, down sequentially from $14,905 million. It had a debt-to-capitalization ratio of 0.34. At fourth quarter-end, the company had a short-term debt of $619 million.

The Concho Resources acquisition is expected to bring about an interesting era for ConocoPhillips. A detailed outlook for 2021 of the combined entity will likely be announced in March. A glimpse has already been provided by the company, with its 2021 capital budget being set at $5.5 billion, higher than the 2020 level of around $4.7 billion. The total amount incorporates $5.1 billion that will be used to sustain the current production level and $400 million for growth project investments. The projects are primarily located in Alaska. Notably, 2021 production will likely be 1.5 million Boe/d. (ConocoPhillips Beats on Q4 Earnings, Ups '21 Budget)

5.  Supermajor Chevron announced that it offered to purchase shares in Noble Midstream Partners LP in an all-stock deal, subsequent to the acquisition of its parent enterprise Noble Energy Inc. in 2020.
Chevron is the majority shareholder, with a 62% equitable interest, and the largest customer of pipeline operator Noble Midstream. Notably, the pipeline operator provides crude oil and natural gas, and offers several midstream services to Chevron in the DJ Basin of Colorado as well as Texas's Delaware Basin.

The company filed a proposition to the board of directors of Noble Midstream GP LLC, a general partner of Noble Midstream, to acquire all the outstanding units not currently held by Chevron. The deal places the equity value of the partnership at $1.13 billion. Per Chevron, the company offered to purchase the remaining stocks of Noble Midstream at $12.47 per common unit, which is in accordance with its closing price as of Feb 4, 2021. (Chevron Offers to Buy All Outstanding Units in Noble Midstream)

Price Performance

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                +11.4%               +16.6%
CVX                 +4.8%                 +4.8%
COP                +11%                   +22.4%
OXY                 +12.5%               +59.6%
SLB                 +12.6%               +32.5%
RIG                  +4.5%                 +62.5%
VLO                 +9.4%                  +22.7%
MPC                +10.4%                +33.3%

The Energy Select Sector SPDR — a popular way to track energy companies — was up 8.2% last week. The best performer was oilfield services major Schlumberger SLB whose stock surged 12.6%.

For the longer term, over six months, the sector tracker is up 18%. Offshore driller Transocean RIG was the major gainer during the period, experiencing a 62.5% price appreciation.

What’s Next in the Energy World?

As global oil consumption gradually ticks up from the depths of coronavirus, 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’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. There will also be 2020 Q4 earnings, with a number of S&P 500 components coming up with quarterly results. Finally, news related to coronavirus vaccination and additional U.S. stimulus will be of utmost importance.

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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Transocean Ltd. (RIG) : Free Stock Analysis Report
Chevron Corporation (CVX) : Free Stock Analysis Report
Schlumberger Limited (SLB) : Free Stock Analysis Report
ConocoPhillips (COP) : Free Stock Analysis Report
BP p.l.c. (BP) : Free Stock Analysis Report
Noble Midstream Partners LP (NBLX) : Free Stock Analysis Report
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