It was a week where oil prices marked its highest finish in three-and-a-half years.
On the news front, oilfield service majors Schlumberger Ltd. SLB and Halliburton Company HAL kicked off the first-quarter energy earnings season. Both companies, apart from coming out with estimate-meeting numbers, indicated that the North American drilling market remains robust, driven by increased activity. Meanwhile, French oil giant TOTAL S.A. TOT agreed to acquire French utility Direct Energie for $1.73 billion.
Overall, it was another good week for the sector. West Texas Intermediate crude futures gained around 1.5% to close at $68.38 per barrel, while natural gas prices edged up a marginal 0.2% to $2.739 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: CVX's Gorgon Expansion, MDR & NOV's Operational Updates & More)
The U.S. oil benchmark recovered from President Trump’s tweet, posting a second straight weekly gain following bullish EIA crude inventory numbers and expectations that the OPEC-led group of exporters will continue with their supply cuts.
The federal government’s EIA report revealed that crude inventories were down by 1.1 million barrels for the week ended Apr 13. The analysts surveyed by S&P Global Platts – the leading independent commodities and energy data provider – had expected crude stocks to go up some 625,000 barrels. Oil stockpiles have actually shrunk in 38 of the last 54 weeks and are down more than 105 million barrels in the past year – a pointer to a tightening oil market.
The commodity was also supported by reports that the OPEC-Russian alliance would like production withholding pact to run beyond the scheduled closure at the end of 2018.
Natural gas prices also inched up northward last week following a larger-than-expected decrease in supplies. Investors were encouraged by another unseasonal inventory drawdown that further pushed back the commencement of the injection season.
Recap of the Week’s Most Important Stories
1. The world’s largest oilfield services provider, Schlumberger, reported first-quarter 2018 earnings of 38 cents per share (eliminating charges and credits) - in line with the Zacks Consensus Estimate. The bottom line rose from the year-earlier figure of 25 cents.
Surge in North American directional land drilling operations and awards for Integrated Production Services (IPS) contracts supported the first-quarter results. This was offset partially by operations related to Testing Services in Qatar, Egypt and Brazil.
As of Mar 31, 2018, Schlumberger had approximately $4,165 million in cash and short-term investments and $13,526 million in long-term debt. This represents a debt-to-capitalization ratio of 32.7%. In the January-to-March quarter, the company bought back 1.4 million shares.
For 2018, the company projects investments of $2 billion, almost in line with the 2017 and 2016 figures. (Read more: Schlumberger Q1 Earnings Meet, Investment Plan in Place)
2. Smaller rival Halliburton reported in-line first quarter profit after robust North American drilling activity on the back of oil pricing strength were offset by problems in Venezuela and frack sand delivery delays. Halliburton’s income from continuing operations (adjusted for Venezuela write-downs) came in at 41 cents per share, same as the Zacks Consensus Estimate. Moreover, revenues of $5,740 million missed the Zacks Consensus Estimate of $5,760 million.
However, Halliburton joined Schlumberger in affirming increased activity in U.S. shale, driven by strong oil and gas production in response to an improving crude environment.
Halliburton’s capital expenditure in the first quarter was $501 million. As of Mar 31, 2018, the company had approximately $2,332 million in cash/cash equivalents and $10,428 million in long-term debt, representing a debt-to-capitalization ratio of 55.4%. (Read more: Halliburton's Earnings Streak Comes to a Halt in Q1)
3. TOTAL S.A. announced that it has entered into a definite agreement with the controlling shareholders of Direct Energie to acquire 74.33% of its share capital. Price of each share is fixed at €42 ($51.96) and ex-dividend at €0.35 (43.3 cents) per share, representing an aggregate acquisition price of approximately €1.4 billion ($1.73 billion).
The acquisition of majority of Direct Energie’s interest will help TOTAL to expand its electric and gas generation, and distribution operation in France and Belgium. TOTAL aims to develop energy from alternate and clean sources like natural gas. Direct Energie’s acquisition will support the long-term plan of TOTAL, as it will bring in 1.35-gigawatt (GW) of installed capacity and supplement Zacks Rank #3 (Hold) TOTAL’s 900 megawatt (MW) installed capacity. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
TOTAL also aims to have a global capacity of at least 10 GW of installed clean power generation within five years. The acquisition of Direct Energie will add 1.35 GW of clean energy generation capacity to TOTAL’s production portfolio. TOTAL has a few more renewable projects under construction, which when completed will help the company reach its renewable goals. (Read more: TOTAL to Expand Electric & Gas Operation Via Acquisition)
4. SeaDrill Limited’s SDRL shares surged 64.68% on Apr 18, reflecting investors’ optimism on the stock after the company’s restructuring plan won approval from the U.S. Bankruptcy Court.
Seadrill has received virtually unanimous backing for its reorganization plan. The company’s financial restructuring plan received approval from 99.8% of the creditors and has also been officially confirmed by the U.S. Bankruptcy Court. The company now expects to emerge from Chapter 11 in two to three months.
Per the restructuring agreement, the international offshore drilling company will witness capital injection of $1.08 billion that would comprise $880 million secured loans and $200 million equity.
However, shareholders will be receiving a minimal recovery from their existing shares. Existing shareholders will receive only 1.9% stake in the post restructuring equity. (Read more: SeaDrill's Shares Ride High on Confirmed Restructuring Plans)
5. McDermott International, Inc. MDR recently announced that it will combine its operations with that of Chicago Bridge & Iron Company N.V., which is expected to close in May 2018. The news came following a dramatic chain of events wherein McDermott was approached by Norway-based offshore oil services provider Subsea 7 S.A. with an unsolicited, non-binding buyout proposal that was subject to the termination of the agreed-upon Chicago Bridge & Iron deal.
Subsea 7 was interested in acquiring McDermott as it would have made the combined company the leader in subsea equipment industry, with significant expansion in market share.
McDermott's board believed that the bid from Subsea 7 was undervalued. McDermott recently provided encouraging first-quarter 2018 operational update, while reaffirming its strong guidance for the whole year. Moreover, with a strong balance sheet, the company is well positioned to benefit from the deal with Chicago Bridge & Iron in the long term. Thus, McDermott ruled in favor of the $6 billion Chicago Bridge & Iron deal struck in December.( Read more: McDermott Sticks to CBI Brushing Aside Subsea 7, Stock Jumps)
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
Reflecting the bullish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +2.6% return last week. Downstream operator downstream operator Andeavor ANDV whose stock jumped 6.6%,
Longer-term, over six months, the sector tracker is up 9.2%. Another independent refiner Valero Energy Corporation VLO, is far and away the major gainer during this period, experiencing a 40.6% price apreciation.
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.
Finally, the 2018 Q1 earnings will remain under scrutiny this week, with some of the integrated energy majors coming out with quarterly results.
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McDermott International, Inc. (MDR) : Free Stock Analysis Report
Valero Energy Corporation (VLO) : Free Stock Analysis Report
Schlumberger Limited (SLB) : Free Stock Analysis Report
Halliburton Company (HAL) : Free Stock Analysis Report
TOTAL S.A. (TOT) : Free Stock Analysis Report
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