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Oil & Gas Stock Roundup: Schlumberger's Q4, Shell's Acquisition Plans & More

Nilanjan Choudhury
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It was a week wherein both oil and gas prices logged handsome gains.

On the news front, oilfield service major Schlumberger SLB reported fourth-quarter earnings that matched the Zacks Consensus Estimate, while Royal Dutch Shell RDS.A is contemplating the acquisition of sustainable energy provider Eneco.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures rose 4.3% to close at $53.80 per barrel, while natural gas prices gained some 12% to $3.482 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Shell's Olefins Unit Start-Up, SemGroup's JV & More)

The U.S. crude benchmark scored a third straight weekly gain after the Energy Department's inventory release showed that stockpiles recorded a larger-than-expected draw. Continued optimism surrounding talks between the United States and China to resolve the trade war boosted prices, while the commodity also drew support from the OPEC-agreed cutbacks. Data showing drillers in the United States cutting oil rigs by most in nearly three years brought further upside.

Meanwhile, natural gas prices also registered a weekly climb following an above-consensus decrease in supplies. Investors were also buoyed by forecasts of colder weather, which should lead to the heating fuel’s tepid demand.

Recap of the Week’s Most Important Stories

1.    The world’s largest oilfield services provider, Schlumberger, reported fourth-quarter 2018 earnings of 36 cents per share (eliminating charges and credits) -- in line with the Zacks Consensus Estimate. The bottom line, however, declined from 48 cents a year ago.

The improvement in drilling business on higher mobilized rigs for integrated projects, rise in sales of SIS software in international markets and increased activities associated with Testing Services in Oman, United Arab Emirates and Qatar aided the company’s fourth-quarter results. The positives were partially offset by the fall in OneStim revenues from the North American land market.

Schlumberger believes oil prices will recover gradually through 2019. However, the volatility in the commodity price has convinced explorers and producers to spend conservatively, the company added. In other words, a customer’s emphasis on free cash flow rather than capital spending owing to oil price volatility has made the outlook for onshore North American drilling and production businesses uncertain, said Schlumberger. (Read more Schlumberger Q4 Earnings Meet Estimates, Decline Y/Y)

2.    In a bid to bolster renewable energy business, Royal Dutch Shell is contemplating the acquisition of sustainable energy provider Eneco. Notably, the Anglo-Dutch giant has teamed up with pension fund manager PGGM to place a joint bid for the Eneco buyout.

The move comes after the government-held Eneco announced its decision last month to be privatized via an auction. Eneco, which is valued by analysts at around $3.4 billion, is heavily invested in green energy projects and complements Shell’s New Energies division quite well.

The move is in sync with Shell’s intention to ramp up its renewable foothold. In fact, the company will invest up to $2 billion per year till 2020 in its New Energies division, which will also serve as a hedge for reduced gasoline and diesel fuel demand. The company believes that pumping money into the New Energies unit is likely to significantly increase its customer base and drive revenues. (Read more Shell Eyes Eneco Buyout to Boost Renewables Business)

3.    Gulfport Energy Corporation GPOR recently released capital expenditure budget and production forecast for 2019. The Oklahoma-based upstream player expects 2019 capex in the band of $565-$600 million, lower than the 2018 level of $814 million. Notably, majority of the spending in 2019 will be directed toward drilling and completion activities, and around $40-$50 million will be allocated for land activities. Moreover, the company expects 2019 free cash flow to exceed $100 million.

Owing to solid operations in Utica and SCOOP basins, the Zacks Rank #3 (Hold) company projects 2019 production within 1,360-1,400 million cubic feet equivalent per day (MMcfe/d). This is almost consistent with the fourth-quarter 2018 output level of 1,392.8 million. Notably, full-year 2018 output averaged 1,360.3 MMcfe/d.

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

Gulfport, which is committed in returning value to its shareholders, announced the completion of $200-million stock buyback program in 2018. Bringing in pleasant news for investors, its board of directors authorized the repurchase of an additional $400 million of shares of the company’s common stock over the next two years. The company expects to fund the program by the generation of free cash flows and monetization of the non-core assets of the firm. (Read more Gulfport Unveils 2019 Capex & Guidance, Boosts Buyback)

4.    Petrobras PBR  recently released 2018 production numbers, which fell short of expectations. The Brazilian oil giant recorded a total production of 2.63 million barrels of oil equivalent per day (MMBoe/d), below the company’s forecast of 2.7 MMBoe/d. Further, the company’s domestic oil output came in at 2.03 million barrels per day (Bbl/d), lower than its expectation of 2.1 million Bbl/d. While the company’s assets disposal program shored up its financials to some extent, it has certainly affected the production volumes.

On an encouraging note, the company recorded a 3.3% monthly increase in production figures in December 2018. The total output in the said period amounted to 2.7 MMBoe/d, of which around 98% comprised domestic production. The increase in output is attributed to the interconnection of new wells in the Tartaruga Verde field and Campos Basin. Further, the culmination of maintenance outage in Sapinhoa and Marlim fields aided last month’s output numbers.

Notably, the year 2018 marked the start-up of four new production platforms for Petrobras, namely P-74, P-75 and P-69 in the pre-salt Santos Basin and FPSO Cidade de Campos dos Goytacazes in the post salt Campos Basin. (Read more Petrobras Misses 2018 Production & Divestment Targets)

5.    Reeling under discounted crude prices and pipeline crisis, the Canadian energy sector is struggling to find a path to growth. After touching multi-year highs last October, Brent crude plunged more than 30% on oversupplied market condition and weakening demand outlook. Amid the growing crisis, Calgary-based Crescent Point Energy Corporation CPG chopped 2019 capital expenditure by around C$500 million (or 30%) from the previous year.

Crescent Point forecasts 2019 capex in the band of C$1.2-C$1.3 billion. Further, it anticipates output in the range of 170,000-174,000 barrels of oil equivalent per day (BOE/d), lower than 2018’s forecast of 177,000 BOE/d owing to some of its asset sales last year. However, after adjusting for divested assets, the production guidance of the company for 2019 remains almost flat with 2018.

Markedly, Crescent Point expects to achieve its production guidance for 2018, and that too within its revised capex of C$1.745 billion, lower than previously forecasted investment of C$1.78 billion. (Read more Crescent Point Trims 2019 Capex: What Else Should You Know?)

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

+1.8%

-10.3%

CVX

+1.6%

-7.7%

COP

+2.3%

-3%

OXY

+1.2%

-19.7%

SLB

+7.2%

-32%

RIG

+7.1%

-30.1%

VLO

+5.3%

-22.3%

MPC

+1.9%

-9.5%

In line with the week’s positive oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +3% return last week. The best performer was oilfield service biggie Schlumbergerwhose stock jumped 7.2%.  

Longer-term, over six months, the sector tracker is down 14.4%. Surprisingly, it was Schlumberger, which was the major loser during this period, experiencing a 32% 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 and the 2018 Q4 earnings, with a few S&P 500 members coming out with quarterly results.

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