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Oil & Gas Stock Roundup: Schlumberger & Halliburton Report Q3 Earnings

Nilanjan Choudhury

It was a week where oil prices ended lower but natural gas futures rallied.

On the news front, oilfield service majors Schlumberger SLB and Halliburton HAL reported second-quarter earnings. While the North America business environment continues to be challenging, both companies expect international drilling activity to remain robust, confirming the region’s broad-based recovery.    

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures moved down 1.7% to close at $53.78 per barrel, natural gas prices rose 4.8% for the week to finish at 2.32 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: ConocoPhillips' Australia Asset Sale, Phillips 66's Buyback & More)

The U.S. crude benchmark finished lower last week, dragged by weak economic data from China and a larger-than-anticipated build in domestic stockpiles.

Meanwhile, natural gas prices finished higher after the weekly inventory release showed a slightly smaller-than-expected increase in supplies.

Recap of the Week’s Most Important Stories

1.  Schlumberger’s third-quarter 2019 earnings of 43 cents per share (excluding charges and credits) beat the Zacks Consensus Estimate of 40 cents. The bottom line, however, declined from 46 cents a year ago.

Higher wireline activities in Russia and Australia along with contributions from drilling operations in the international market led to the better-than-expected results. The improvement was partially offset by lower activities in Argentina and softer pricing in onshore North America.

The oilfield service firm added that surging investments by clients in the international market aided its year-to-date revenue growth from outside North America. However, conservative capital spending by customers in North America hurt fracking activities in the September quarter, thereby affecting the company’s domestic oilfield service business. (Read more Schlumberger Beats Q3 Earnings & Revenue Estimates)

2.   Smaller rival Halliburton reported in-line third quarter profit as robust international activity offset headwinds in North America. The company saw its net income come in at 34 cents per share, same as the Zacks Consensus Estimate.

The world’s biggest provider of hydraulic fracking noted that North American activity levels in the third quarter declined but the company continues to successfully ride the changing market dynamics through excellent execution and management of the controllable factors.

Phillips Meanwhile, Halliburton is witnessing broad-based, steady recovery in its international business. This is clearly reflected by the 10% increase in the region’s year-to-date sales.  The company still anticipates its international revenue to grow at a high single-digit rate in 2019. Importantly, Halliburton sees customers reviving spending across multiple regions outside North America. (Read more Halliburton Q3 Earnings Meet Estimates, Revenues Miss)

3.   Kinder Morgan Inc. KMI posted third-quarter 2019 adjusted earnings per share of 22 cents, in line with the Zacks Consensus Estimate. The bottom line also improved from the year-ago quarter’s 21 cents.

The Zacks Rank #3 (Hold) company’s strong quarterly earnings were backed by increased transported volumes of natural gas, diesel and jet fuels. This was partially negated by higher lease expenses at Kinder Morgan’s Edmonton South Terminal.

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

The company’s third-quarter distributable cash flow increased to $1,140 million from $1,093 million a year ago. Kinder Morgan recorded project backlog at $4.1 billion at third quarter’s end. Moreover, the company maintains adjusted EBITDA and DCF for 2019 at $7.8 billion and $5 billion, respectively, and still expends to spend $3.1 billion on growth developments and joint ventures. (Read more Kinder Morgan Q3 Earnings Meet, Revenues Lag Estimates)

4.  Parsley Energy PE has reached an agreement to acquire smaller rival Jagged Peak Energy JAG in an all-stock deal worth $2.27 billion comprising $625-million net debt as of Jun 30.

Per Parsley Energy, this “low premium” deal will leave an immediate positive impact on its 2020 cash flow along with net asset value and returns on invested capital. Additionally, the Permian pure play will be able to curb general and administrative costs by almost $25 million in the first year followed by $40-$50 million annual savings subsequently.

Parsley Energy’s assets are said to well complement Jagged Peak’s high-margin, oil-heavy assets in the Delaware Basin. The integration between the two companies is expected to make a significant contiguous impression on the Delaware Basin, resulting in more optimized lease geometry with additional extended lateral walls. Of the 267,000 Permian Basin net acres that Parsley Energy will hold, 147,000 net acres will be in the Midland Basin and the remaining 120,000 in the Delaware Basin. (Read more Parsley Energy Inks Acquisition Deal With Jagged Peak)

5.   TechnipFMC plc. FTI announced the receipt of a subsea infrastructure contract from state-owned PetroVietnam Gas. The scope of the work includes engineering, procurement and construction (EPC) of Vietnam’s Nam Con Son 2 Phase 2 Pipeline.

Per TechnipFMC, this multi-million-dollar deal will bring in revenues, expected between $75 million and $250 million. In order to tie back the existing Nam Con Son 2 Phase 1 gas pipeline to the Long Hai Landfall Station, the project will be responsible for engineering and installing a 118-kilometer long rigid pipeline along with constructing subsea structures.

The PetroVietnam Gas award further cements the company’s position in the high-growth Asia Pacific market and recognizes TechnipFMC’s strong marine capabilities and extensive offshore construction experience. (Read more TechnipFMC Inks Subsea Contract With PetroVietnam Gas)

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

-2%

-17.1%

CVX

-1.2%

-4.3%

COP

-3.7%

-16.4%

OXY

-1.6%

-35.3%

SLB

-0.5%

-26.7%

RIG

-0.7%

-52.4%

VLO

+3.5%

+2.3%

MPC

+2.7%

+5.8%

The Energy Select Sector SPDR – a popular way to track energy companies – was down 1.5% last week. The worst performer was independent oil and gas producer ConocoPhillips COP whose stock fell 3.7%.

Longer-term, over six months, the sector tracker lost 15.4%. Offshore driller Transocean Ltd. (RIG) was the major loser during this period, experiencing a 52.4% price plunge.

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 and the 2019 Q3 earnings, with a few S&P 500 members coming out with quarterly results.

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TechnipFMC plc (FTI) : Free Stock Analysis Report
 
Halliburton Company (HAL) : Free Stock Analysis Report
 
Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Kinder Morgan, Inc. (KMI) : Free Stock Analysis Report
 
Parsley Energy, Inc. (PE) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
Jagged Peak Energy Inc. (JAG) : Free Stock Analysis Report
 
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