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Oil & Gas Stock Roundup: Halliburton-Baker Hughes Megadeal Falls Apart

It was a week where oil futures reached their highest in nearly 6 months and natural gas settled at their best level since Jan.

Though earnings remained front and center, the major headline came from the collapse of the planned tie-up between oilfield services behemoths Halliburton Co. HAL and Baker Hughes Inc. BHI.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures rallied 5% to close at $45.92 per barrel, while natural gas prices inched up 2% to $2.178 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Q1 Earnings Show Schlumberger Miss, Halliburton Delay.)

Oil prices moved north for a fourth straight week on a continued decline in U.S. crude production. Things were further helped by the Baker Hughes report that showed another drop in oil-directed rigs – indicating a break in shale drilling activities – to the lowest level since November 2009. A weak U.S. dollar also propped up the commodity.

Natural gas also fared well after warmer weather lifted prospects of the commodity’s requirement for power burn.

Recap of the Week’s Most Important Stories

1.    Amid stiff resistance from both U.S. and European antitrust agencies, oilfield services providers Halliburton Co. and Baker Hughes Inc. called off their planned merger.

The regulators were of the opinion that if Halliburton merges with Baker Hughes then the oilfield service industry will be dominated by the combined company and Schlumberger Ltd., the largest player. The primary threats to the market include elimination of competition and increasing prices. The proposed $28 billion deal might also impede the innovations in the industry.

Per the terms of the transaction, Halliburton will pay Baker Hughes an agreed-upon breakup fee of $3.5 billion.

2.    The world’s largest publicly traded oil company Exxon Mobil Corp. XOM posted first-quarter earnings of 43 cents per share that beat the Zacks Consensus Estimate of 31 cents. A resilient integrated business model enabled the energy behemoth to beat estimates despite the current environment of relentlessly falling commodity prices.

The bottom line, however, deteriorated from $1.17 in the year-ago quarter. The impact of sharply lower commodity prices and weaker refining margins were partly offset by strong Chemical results.

Production averaged 4.325 million barrels of oil-equivalent per day (MMBOE/d), up 1.8% year over year. Liquid production increased 11.5% year over year to 2.538 million barrels per day. Natural gas production was 10,724 MCF/d (millions of cubic feet per day), down 1,104 MCF/d from the year-ago period. (See More: Exxon Mobil Tops Q1 Earnings and Revenue Estimates.)

3.    U.S. energy giant Chevron Corp. CVX reported dismal first-quarter results as the oil market slump continues to deepen and refining margins weakened. The company reported loss per share of 39 cents, wider than the Zacks Consensus Estimate for a loss of 18 cents. Last year, Chevron earned $1.37 per share during the period. Quarterly revenue fell 32% year over year to $23,553 million but was able to beat the Zacks Consensus Estimate of $23,547 million on stable production.

Despite continued pricing pressure, Chevron’s production outlook remains one of the most robust in its peer group, with a number of major initiatives scheduled to come online during the next few years. Major start-ups during the year include the Chuandongbei Project in China and the Gorgon natural gas project in Australia. (See More: Chevron Reports Big Q1 Loss on Oil Collapse.)

4.    Houston-based energy major ConocoPhillips COP reported narrower-than-expected first quarter loss as robust volumes were partially offset by struggling crude prices. Daily production from continuing operations averaged 1.578 million barrels of oil equivalent (MMBOE) in the quarter, up from 1.54 MMBOE in the year-ago quarter (after adjusting for dispositions). However, average realized price for oil was $31.47 per barrel, compared with $48.05 in the year-earlier quarter.

For 2016, ConocoPhillips has reduced its capital expenditure guidance to $5.7 billion from $6.4 billion. The decrease is mainly attributable to reduced deepwater exploration activity, deferrals and lower costs across the portfolio. The company expects to meet its full-year production guidance of about 1.525 MMBOE. For the second quarter, production from continuing operations is expected at 1.500–1.540 MMBOE. (See More: ConocoPhillips Posts Lower-than-Expected Loss in Q1.)

5.    Downstream operator Phillips 66 PSX posted adjusted first-quarter 2016 earnings of 67 cents per share, lagging the Zacks Consensus Estimate of 86 cents and the year-ago earnings of $1.51 per share. Dismal performance by the company’s Refining and Marketing segments led to the underperformance.

The segment generated adjusted earnings of $86 million compared with $538 million in the prior-year quarter. Worldwide lower gasoline and distillate margins led to the decline.

Capital spending for the quarter was $750 million, while distributing $687 million to shareholders in the form of dividends and repurchases. (See More: Phillips 66 Q1 Earnings Miss, Revenues Beat Estimates.)

Price Performance

The following table shows the price movement of the major oil and gas players over the past week and during the last 6 months.

Company

Last Week

Last 6 Months

XOM

+1.86%

+2.63%

CVX

+1.59%

+5.27%

COP

+1.06%

-17.42%

OXY

+0.69%

-0.35%

SLB

+0.46%

-2.60%

RIG

+5.29%

-34.54%

VLO

-3.13%

-14.05%

TSO

-6.99%

-27.99%

Over the course of last week, ‘The Energy Select Sector SPDR’ was up 1.72% on continued signs of slowing production. Consequently, investors witnessed a buying spree in most large companies. The best performer was offshore drilling giant Transocean Ltd. RIG that added 5.29% to its stock price.

But longer-term, over the last 6 months, the sector tracker is down 3.15%. Interestingly, Transocean was the main casualty during this period, experiencing a 34.54% price decrease.

What’s Next in the Energy World?

Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking a series of top-tier economic readings, including those on personal spending, manufacturing, services, construction spending and factory orders. However, the 2016 Q1 earnings remain the primary focus this week, with a number of S&P 500 members coming out with quarterly results.

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BAKER-HUGHES (BHI): Free Stock Analysis Report
 
HALLIBURTON CO (HAL): Free Stock Analysis Report
 
CHEVRON CORP (CVX): Free Stock Analysis Report
 
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
 
TRANSOCEAN LTD (RIG): Free Stock Analysis Report
 
CONOCOPHILLIPS (COP): Free Stock Analysis Report
 
PHILLIPS 66 (PSX): Free Stock Analysis Report
 
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