The first-quarter 2019 earnings season is past the halfway mark for the energy sector, with majority of oil/gas biggies having already reported their quarterly numbers. With a host of companies slated to release quarterly results by the end of this week, let’s take a look at the oil and gas pricing scenario during the quarter, which is likely to affect energy companies’ fortunes.
Q1 Oil and Gas Price Report Card
Oil: Following the oil crash toward the end of 2018 that took everyone by storm, crude ended up posting the biggest quarterly gain in a decade. With oil popping up to $60.55 a barrel, the March quarter recorded the fastest rate of oil price hike since 2009 on the back of OPEC+ deal and other factors.
However, crude prices in first-quarter 2019 compared unfavorably with the year-ago period amid bearish outlook for Asian economies, increased inventories and softer y/y demand projections. Average West Texas Intermediate (WTI) crude prices in the month of January, February and March 2019 were recorded at $51.38, $55.01 and $58.17 per barrel, respectively, per data from the U.S. Energy Information Administration (EIA). These average prices were considerably lower than the year-ago respective prices of $63.55, $62.16 and $62.87. Hence, energy producers having an oil-weighted portfolio are likely to remain exposed to the vagaries of crude price fluctuations as they will derive less value for their products.
Natural Gas: Per the EIA data, the average spot prices of Henry Hub natural gas in the months of January, February and March of 2019 were recorded at $3.11, $2.69 and $2.80 per Million British thermal units (Btu), respectively. In the year-ago comparable months, the average prices of the commodity were recorded at $3.15, $2.65 and $2.70 per Million Btu, respectively, according to EIA. The y/y improved pricing scenario of the commodity over the last two months of first-quarter 2019 bodes well for the companies producing natural gas.
Picture Thus Far
Per the latest Earnings Preview report, the energy sector’s first-quarter 2019 earnings are expected to decline 19.3% from the year-ago period, while the top line is likely to improve 3.1%.
Notably, oilfield services giants Schlumberger and Halliburton posted weaker y/y first-quarter 2019 earnings amid international market weakness. The bottom line of integrated oil majors like Chevron, ExxonMobil, TOTAL and BP plc declined year over year primarily due to weaker crude price realizations and lower refining margins.
Key Releases on May 9
Given the relatively weaker y/y backdrop, let’s a take a look at what’s in store for these four energy explorers that are set to report first-quarter results tomorrow.
Canadian Natural Resources Limited CNQ: Calgary-based energy explorer is slated to release quarterly results before the opening bell.
According to our quantitative model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Note that we caution against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
In the last reported quarter, Canadian Natural reported a negative earnings surprise of 214.29% on lower liquids price realizations. Coming to earnings surprise history, the company missed estimates in two of the trailing four quarters, with average negative surprise of 39.58%.
Canadian Natural Resources Limited Price and EPS Surprise
Canadian Natural Resources Limited Price and EPS Surprise | Canadian Natural Resources Limited Quote
However, this time around, things are looking favorable for Canadian Natural according to our proven model, as the firm carries a Zacks Rank #1 and an Earnings ESP of +0.85%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for earnings is pegged at 39 cents a share on revenues of $3,726 million. However, the earnings and revenue expectation compares unfavorably with the year-ago figures of 62 cents a share and $4,538 million, respectively.
The company anticipates first-quarter 2019 liquids production within 759,000-817,000 barrels per day (bbl/d), indicating a decline from 854,558 bbl/d reported in first-quarter 2018. Further, natural gas output is projected in the band of 1,490-1,520 million cubic feet per day (MMcf/d), lower than the year-ago level of 1,614 MMcf/d. Alberta government’s mandated oil production cuts during the first quarter of 2019 is likely to result in lower y/y output. While natural gas price realizations may provide some respite, the company is likely to bear the brunt of lower y/y realized prices for liquids, which forms more than 75% of the firm’s total output levels.
Cheniere Energy, Inc. LNG: The largest U.S. liquefied natural gas exporter Cheniere Energy is slated to unveil quarterly numbers before the opening bell. In the last reported quarter, the company delivered a negative earnings surprise of 27.78% on high operating expenses. Coming to earnings surprise history, Cheniere Energy missed estimates in three of the last four quarters, delivering average negative earnings surprise of 15.76%.
Cheniere Energy, Inc. Price and EPS Surprise
Cheniere Energy, Inc. Price and EPS Surprise | Cheniere Energy, Inc. Quote
Per our proven model, the company is unlikely to beat earnings estimates this time as well, as it has a Zacks Rank #3 and an Earnings ESP of -4.13%. The Zacks Consensus Estimate for earnings stands at 26 cents a share on revenues of $1,691 million. Notably, the earnings and sales projection suggests a y/y decline of 78% and 25%, respectively.
With a first-mover advantage in the LNG export market, Cheniere Energy is expected to gain from increasing y/y volumes of LNG exports. However, exporting natural gas — by setting up large liquefaction plants — is a capital-intensive business. As it is, the company is bearing the brunt of high costs since the last several quarters. High operating expenses and interest payment obligations associated with huge debt burden are likely to limit its profits.
Crescent Point Energy Corporation CPG: The Calgary-based upstream player is set to post quarterly results before the market opens. In the last reported quarter, the company delivered a negative earnings surprise of 122.22% on lower y/y output levels and weak crude price realizations. However, it managed to surpass earnings estimates in three of the preceding four quarters, delivering average positive surprise of 15.49%.
Crescent Point Energy Corporation Price and EPS Surprise
Crescent Point Energy Corporation Price and EPS Surprise | Crescent Point Energy Corporation Quote
However, our proven model does not predict an earnings beat for Crescent Point in the to-be-reported quarter because the company has an Earnings ESP of 0.00% and a Zacks Rank #1. The Zacks Consensus Estimate for earnings stands at 2 cents a share on revenues of $622 million. Notably, the earnings and sales expectation compares unfavorably with the year-ago reported figures of 9 cents a share and $740 million, respectively.
Crescent Point’s attractive light-oil reserves and new leadership bode well. Management’s recent emphasis on focusing more on strengthening financials and reducing costs versus its historical priority of simple volume growth provides a ray of hope. Initiatives like capex and dividend cuts, along with the initiation of a divestment program to shore up the balance sheet are likely to boost its prospects in the first quarter. However, the company’s results are likely to be affected by lower realized prices of liquids (constituting 91% of total volumes) and reduced output levels amid production cuts mandated by Alberta, as well as a shift in its strategic focus. Notably, the company envisions annual average production in 2019 in the band of 170,000-174,000 barrels of oil equivalent per day (Boe/d), implying a decline from 178,166 Boe/d recorded in 2018.
Jagged Peak Energy Inc. JAG: This Denver-based Permian pure player is set to come out with quarterly results after the closing bell. The upstream explorer reported a negative earnings surprise of 18.75% in the last reported quarter amid weak commodity price realizations. Nonetheless, the firm managed to surpass estimates in three of the trailing four quarters, with average positive earnings surprise of 20.92%.
Jagged Peak Energy Inc. Price and EPS Surprise
Jagged Peak Energy Inc. Price and EPS Surprise | Jagged Peak Energy Inc. Quote
However, an earnings beat seems unlikely for Jagged Peak in the quarter to be reported as it carries a Zacks Rank #3 and an Earnings ESP of -3.47%. The Zacks Consensus Estimate for earnings stands at 11 cents a share on revenues of $134 million. While the earnings estimate is a penny lower than the year-ago figure of 12 cents a share, the revenue estimate compares favorably with $129 million recorded in the corresponding quarter of 2018.
Two major indicators — commodity price realizations and production growth — are sending mixed signals in regard to Jagged Peak’s first-quarter results. The company estimates total first-quarter production within 36,500-37,900 Boe/d, way higher than the output level of 27,596 Boe/d recorded in the year-ago period. While the surge in production levels is likely to aid earnings, lower price realizations for oil, which accounts for three-fourth of the firm’s total output, may dent overall results.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +98%, +119% and +164% in as little as 1 month. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Crescent Point Energy Corporation (CPG) : Free Stock Analysis Report
Canadian Natural Resources Limited (CNQ) : Free Stock Analysis Report
Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report
Jagged Peak Energy Inc. (JAG) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research