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Oil & Gas Stock Roundup: Exxon, Chevron, TOTAL Report Strong Q3

It was a week where the price of oil spiked to its highest mark in nearly eight months. However, natural gas futures fell sharply.

On the news front, integrated majors ExxonMobil Corp. XOM, Chevron Corp. CVX and TOTAL S.A. TOT came up with stronger-than-expected earnings reports, driven by higher oil prices.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures gained about 4% to close at $53.90 per barrel, natural gas prices slumped 5.6% to $2.752 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: SLB & HAL's Q3, RIG's New Contract & More.)

The U.S. oil benchmark rallied on expectations that OPEC and other major producers will agree to expand their output-cut deal beyond March. The agreement, already renewed once, keeps 1.8 million barrels a day off the market in an attempt to clear a supply glut.

Further support came from the U.S. Energy Department's inventory release, which showed steep declines in domestic gasoline and distillate inventories on rising exports.

Upbeat third-quarter U.S. GDP data and signs of recovery in global demand growth was also bullish for oil prices.

Meanwhile, natural gas futures finished the week down despite a smaller-than-expected increase in supplies. Unfavorable weather forecasts and strength in the commodity’s production, induced the drop in prices.

Recap of the Week’s Most Important Stories

1.    Energy giant ExxonMobil Corp. posted strong third-quarter 2017 results, courtesy of increased price realizations from liquids and gas and improved margins at the refinery business.

Production averaged 3.878 million barrels of oil equivalent per day (MMBOE/d), marginally higher than 3.811 MMBOE/d in the year-ago quarter. Ramp up in Australian projects supported the upside.

ExxonMobil’s downstream segment recorded profits of $1.5 billion, $303 million higher than the July-September quarter of 2016. This improvement was backed by improved margins from refining activities.

During the quarter under review, ExxonMobil generated cash flow of $8.4 billion from operations and asset sales. The energy giant returned $3.3 billion to shareholders through dividends. Capital and exploration spending increased 43% year over year to almost $6 billion. (Read more: ExxonMobil Earnings Beat Estimates in Q3, Rise Y/Y.)

2.    Smaller rival Chevron Corp. reported strong third-quarter results amid the recovery in commodity prices, production gains and robust refining profits. The company reported earnings per share of $1.03, higher than the Zacks Consensus Estimate of 99 cents and the year-ago profit of 68 cents.

Chevron’s total production of crude oil and natural gas increased 8.1% compared with last year’s corresponding period to 2,717 thousand oil-equivalent barrels per day (MBOE/d). The U.S. output decreased 2.4% year over year to 681 MBOE/d but the company’s international operations (accounting for 75% of the total) was up 12.2% to 2,036 MBOE/d.

Exploration costs fell from $258 million in the third quarter of 2016 to $239 million. The company spent $4,456 million in capital expenditures during the quarter, a considerable decline from the $5,175 million incurred a year ago. Roughly 88% of the total outlays pertained to upstream projects.

Importantly, Chevron delivered a good cash flow performance this quarter – an important gauge for the oil and gas industry – with $5,370 million in cash flow from operations, up from $5,311 million a year ago. (Read more Refining, Higher Oil Power Chevron's Q3 Earnings Beat)

3.    France-based supermajor TOTAL S.A. reported third-quarter 2017 operating earnings of $1.04 per share (€0.88 per share), beating the Zacks Consensus Estimate of 99 cents by 5%. The outperformance was due to good operational performance, steadily decreasing breakeven production costs, improvement in the realized prices of commodities and new projects ramp ups, boosting production.

Despite the impact of Hurricane Harvey on its American operations, favorable refining margins resulted in 18% sequential growth of its Downstream business. The cost reduction initiatives will result in savings in excess of $3.6 billion in 2017.Through its ongoing initiatives to lower operating costs, TOTAL aims to reduce costs by $5 billion by 2020.

Cash and cash equivalents as of Sep 30, 2017 were $28.58 billion compared with $24.80 billion as of Sep 30, 2016. Net debt-to-equity ratio was 18% at the end of the quarter, down from 30.6% at the end of third-quarter 2016.

TOTAL expects production from the upstream segment to improve 5% year over year. The company continues to work on cost management initiatives and expects to generate cost savings of $3.6 billion in 2017. (Read more TOTAL Beats Q3 Earnings, to Lower 2017 Costs by $3.6B)

4.    Upstream energy player ConocoPhillips COP reported third-quarter 2017 adjusted earnings of 16 cents per share that surpassed the Zacks Consensus Estimate of 9 cents. In the prior-year quarter, the Zacks Rank #1 (Strong Buy) company had posted a loss of 66 cents. Strong third-quarter numbers were supported by higher oil and natural gas price realizations. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Production from continuing operations averaged 1,226 thousand barrels of oil equivalent per day (MBOED) in the quarter, as compared with 1,557 MBOED in the year-ago quarter. The deterioration was led by field decline and production outage owing to the impact of hurricanes.

As of Sep 30, 2017, the company had total cash and cash equivalents of $6.9 billion and debt of $21 billion, with a debt-to-capitalization ratio of 41%. In the reported quarter, ConocoPhillips generated $1.1 billion in cash from operating activities. The company’s capital expenditures and investments totaled $1.1 billion and dividends payments grossed $324 million.

ConocoPhillips' fourth-quarter 2017 production guidance is pegged at the range of 1,195-1,235 MBOED, excluding production from Libya. The company slashed its 2017 capital budget from the earlier projection of $4.8 billion to $4.5 billion. (Read more ConocoPhillips Beats on Q3 Earnings, Cuts Capex View)

5.    Oil refining and marketing player Valero Energy Corporation VLO posted adjusted third-quarter 2017 income of $1.91 per share that surpassed the Zacks Consensus Estimate of $1.83 and the year-ago adjusted profit of $1.24. Higher throughput margin owing to high throughput capacity utilization supported the strong results.

Company-wide throughput margins increased to $10.94 per barrel from the year-ago level of $8.72. Throughput capacity utilization of 92% during this quarter supported the outperformance.

Third-quarter capital expenditure totaled $565 million, including $73 million for turnarounds and catalyst expenditure. At the end of the quarter under review, the company had cash and temporary cash investments of $5.2 billion and debt of $8.5 billion. Valero Energy also rewarded shareholders with dividends and share buybacks worth $600 million. (Read more Valero Energy Q3 Earnings & Revenues Beat, Rise Y/Y)

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

+1.2%

+2.3%

CVX

-3.9%

+7.2%

COP

+3%

+7.3%

OXY

+0.3%

+5.6%

SLB

-1.5%

-11.7%

RIG

+1.6%

-5.8%

VLO

+0.2%

+21.3%

ANDV

+0.8%

+31.6%

Notwithstanding the bullish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies –  failed to keep up and generated a -0.4% return last week. The worst performer was U.S. major Chevron whose stock fell by 3.9%.

Longer-term, over 6 months, the sector tracker is down a marginal 0.2%. Oilfield services behemoth Schlumberger Ltd. SLB was the major laggard during this period, experiencing a 11.7% 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.

However, the 2017 Q3 earnings again remain the primary focus this week, with a number of S&P 500 members coming out with quarterly results.

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Valero Energy Corporation (VLO): Free Stock Analysis Report
 
Schlumberger N.V. (SLB): Free Stock Analysis Report
 
Chevron Corporation (CVX): Free Stock Analysis Report
 
TotalFinaElf, S.A. (TOT): Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM): Free Stock Analysis Report
 
ConocoPhillips (COP): Free Stock Analysis Report
 
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