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Oil & Gas Stock Roundup: Q1 Earnings Show Schlumberger Miss, Halliburton Delay

It was a week where oil futures reached their highest levels of the year and natural gas settled above the psychologically important $2 threshold.

On the news front, Schlumberger Ltd. SLB kicked off the earnings season with a narrow miss, while smaller rival Halliburton Co. HAL postponed its release.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures rallied 4.7% to close at $43.73 per barrel, while natural gas prices jumped 12.5% to $2.14 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Chevron Sells Wheatstone Gas, Carlyle Eyes Halliburton-Baker Hughes Assets.)

Oil prices moved north for a third straight week after a strike by oil workers in Kuwait disrupted supply eased the ill-effects from the failed Doha summit. Bullish comments from the IEA and continued decline in U.S. crude production also propped up the commodity. 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.

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

Recap of the Week’s Most Important Stories

1.    The world’s largest oilfield services provider Schlumberger Ltd. reported disappointing first-quarter 2016 results. The challenging market conditions (especially in North America, which has been the hardest hit during this downturn) – both in terms of pricing and activity – led to the underperformance.

Schlumberger – which closed the previously announced acquisition of oil drilling equipment maker Cameron International Corp. on Apr 1 – reported adjusted earnings per share of 40 cents, a penny below the Zacks Consensus Estimate and way off the year-ago quarter earnings of $1.06. All groups – Reservoir Characterization, Drilling and Group – registered year-over-year fall in sales and income.

Schlumberger said that it cut another 2,000 jobs during the first quarter, bringing the total layoffs to about 36,000 since the 2014 crude price collapse. (See More: Schlumberger Earnings Falter Amid Oil Crash, Cuts More Jobs.)

2.     Another oilfield giant Halliburton Co. announced its decision to defer its first-quarter 2016 earnings conference call until May 3 to accommodate information related to the Baker Hughes Inc. merger – the deadline of which is Apr 30, 2016. The company was scheduled to report on Monday, Apr 25.

However, the company has come up with operating updates for the first quarter. In the Jan–Mar period, Halliburton reported revenues of $4.2 billion, 40.8% lower than that the prior-year quarter figure but comfortably surpassed the Zacks Consensus Estimate.

The Houston-based company also said that it reduced headcount by more than 6,000 during the first quarter. In fact, following the weakness in oil prices since late 2014, the company cut almost one third of its jobs. (See More: Halliburton Postpones Q1 Earnings Call, Slashes 6K Jobs.)

3.    British energy giant BP plc BP came out with better-than-expected first quarter numbers on higher production. The company reported adjusted earnings of 17 cents per ADS, contrary to the Zacks Consensus Estimate for a loss of 30 cents. However, sharply lower commodity prices and narrower refining margins meant that results deteriorated from year-ago levels.

BP expects second-quarter production to be lower sequentially, reflecting PSA entitlement impact, seasonal turnaround and maintenance activity. In the downstream space the company expects a significantly higher level of turnaround activity, particularly in the U.S., and some seasonal improvement in industry refining margins.

4.    Integrated oil major Exxon Mobil Corp. XOM announced that production of oil has started at the Julia oil field in the Gulf of Mexico (GoM) – that too under budget and ahead of schedule. With the first well online, the company expects the second well to go onstream in the next couple of weeks. The Maersk Viking drillship is currently drilling a third well that is expected to come online in early 2017.

Discovered in 2007, the Julia field has five leases in the ultra-deepwater Walker Ridge area of the GoM, which is 265 miles southwest of New Orleans. The resource is located 30,000 feet below the surface of the ocean. The ownership of the Julia unit is equally shared between the operators, Exxon Mobil and Norway’s Statoil ASA. The oil field includes six wells with subsea tie-backs to Chevron Corp.’s production facility Jack & St. Malo. (See More: Exxon Mobil Commences Production at Julia Oil Field in GoM.)

5.    Independent natural gas operator Southwestern Energy Co. SWN reported narrower-than-expected first quarter loss as increased production growth more than offset lower price realizations.

During the reported quarter, the company’s oil and gas production grew 2% year over year to 237 billion cubic feet equivalent (Bcfe), driven by increased Northeast Appalachia volumes. However, the company’s average realized gas price for the quarter, including hedges, fell to $1.48 per thousand cubic feet (Mcf) from $2.99 per Mcf in the year-ago period. Oil was sold at $18.65 per barrel, significantly down from the year-earlier level of $30.90 per barrel. Natural gas liquids were sold at $4.98 per barrel, a steep decline from $10.35 in the year-ago period. (See More: Southwestern Energy Q1 Loss Narrower than Expected.)

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

+1.76%

+7.52%

CVX

+2.58%

+14.35%

COP

+2.43%

-12.62%

OXY

+2.46%

+4.80%

SLB

+1.12%

+2.10%

RIG

+3.84%

-32.01%

VLO

+1.65%

-0.21%

TSO

+4.49%

-16.35%

Over the course of last week, ‘The Energy Select Sector SPDR’ was up 2.63% on signs of slowing production. Consequently, investors witnessed a buying spree in most large companies. The best performer was San Antonio-based refiner Tesoro Corp. TSO that added 4.49% to its stock price.

But longer-term, over the last 6 months, the sector tracker is down 2.89%. Offshore drilling giant Transocean Ltd. RIG was the main casualty during this period, experiencing a 32.01% 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 housing, durable orders, personal spending and GDP. However, the 2016 Q1 earnings remain the primary focus this week, with some S&P 500 members coming out with quarterly results.

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SOUTHWESTRN ENE (SWN): Free Stock Analysis Report
 
TESORO CORP (TSO): Free Stock Analysis Report
 
SCHLUMBERGER LT (SLB): Free Stock Analysis Report
 
HALLIBURTON CO (HAL): Free Stock Analysis Report
 
BP PLC (BP): Free Stock Analysis Report
 
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
 
TRANSOCEAN LTD (RIG): Free Stock Analysis Report
 
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