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Oil & Gas Stock Roundup: Shell, EOG Withstands Crude Crash to Q1 Beat

It was a week where both oil and gas prices finished lower.

With earnings remaining front and center, the major headlines came from Royal Dutch Shell plc RDS.A and EOG Resources Inc.’s EOG first quarter outperformance despite the dramatic fall in commodity prices.

Overall, it was a dismal week for the sector. West Texas Intermediate (WTI) crude futures dived 2.7% to close at $44.66 per barrel, while natural gas prices plunged 3.5% to $2.1010 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Halliburton-Baker Hughes Megadeal Falls Apart.)

Oil snapped a four-week winning streak after the U.S. Energy Department's latest inventory release showed a 2.8 million barrels rise in crude supplies to an all-time high of 543.4 million barrels. Things were further hampered by a soft April jobs data, underlining weak oil demand.

To some extent, these factors were offset by the huge wildfire in Canada and the subsequent production disruption. Additionally support came from the Baker Hughes report that showed another drop in oil-directed rigs to a fresh six-year low, indicating a break in shale drilling activities.

Natural gas also fared badly following a larger-than-expected storage injection.

Recap of the Week’s Most Important Stories

1.    Europe’s largest oil company Royal Dutch Shell plc reported better-than-expected first-quarter earnings on higher production. Shell’s upstream volumes averaged 2,828 thousand oil-equivalent barrels per day (MBOE/d), 11% higher than the year-ago period. While crude oil production increased 16%, natural gas output was up 6%. Liquids contributed approximately 55% to Shell’s total volumes, while natural gas accounted for the remaining portion.

However, the bottom line compared unfavorably with the year-ago adjusted profit of $1.17 amid the continued plunge in commodity prices. Shell’s worldwide realized liquids and natural gas prices were 36% below their respective year-earlier levels.

Amid the challenging industry fundamentals and following the completion of the $54 billion BG Group takeover earlier this year, Shell decided to cut 2016 spending by a further 10% to $30 billion. (See More: Royal Dutch Shell's Q1 Earnings Beat, Cuts Capex.)

2.    Notwithstanding sharply lower commodity prices, independent energy explorer EOG Resources Inc. reported narrower-than-expected weak first-quarter 2016 loss. The outperformance came on the back of cost reduction and improving well productivity. In the quarter, EOG’s per-unit lease and well expenses fell 29%, while transportation costs decreased 12% from the prior-year period.

Looking to stem the rot from plunging oil and gas prices, EOG has pegged its 2016 capital budget at $2.4–$2.6 billion, down 47% from last year’s level and 70% less than 2014. Further, the company plans to restrict its expenses to the highest return assets: the Eagle Ford and the Delaware Basin. (See More: EOG Resources Posts Lower-than-Expected Q1 Loss.)

3.    U.S. energy firm Apache Corp. APA reported first quarter loss per share – excluding one-time items – of 40 cents, narrower than the Zacks Consensus Estimate of a loss of 91 cents. The outperformance came on the back of strong North American liquids output and cost savings, which more than offset the plunge in commodity prices.

The production of oil and natural gas (excluding divested assets and non-controlling interests) averaged 478,659 oil-equivalent barrels per day (BOE/d) (65% liquids), essentially unchanged from last year.

Apache reiterated its 2016 capital expenditure budget at the previously announced band of $1.4-$1.8 billion. Using the midpoint of the range, this represents a 62% reduction from the company's 2015 total capital expenditures. Average proforma production in 2016 is expected to be approximately 438,000-458,000 BOE/d, some 5,000 BOE/d higher than the original guidance. This was mainly on account of strong North American onshore production. (See More: Apache Posts Narrow Q1 Loss, Ups Production View.)

4.    Houston, TX-based upstream energy firm Marathon Oil Corp. MRO posted first-quarter adjusted loss of 43 cents per share, narrower than the Zacks Consensus Estimate for a loss of 47 cents. The better-than-expected results came thanks to solid production (at the upper end of guidance) and cost control initiatives. However, the bottom line deteriorated from the first-quarter 2015 adjusted loss of 37 cents amid a freefall in oil prices.

The company’s exploration expenses for the quarter came at $24 million, significantly lower than $90 million in the year-earlier quarter. Moreover, Marathon Oil’s total quarterly cost and expenses fell 30% to 1,328 million. (See More: Marathon Oil Q1 Loss Narrower than Expected.)

5.    Independent refiner Tesoro Corp. TSO reported first-quarter 2016 adjusted earnings from continuing operations of $1.19 per share, which surpassed the Zacks Consensus Estimate of $1.04. The bottom line also came higher than the year-ago quarter figure of 98 cents. Significant contribution from the marketing segment following considerable consumer demand supported the results. This was negated partially by the plunge in refining margin.

Manufacturing costs before depreciation and amortization decreased 12.3% from the year-earlier level to $5.55 per barrel. Total refined product sales averaged 952 thousand barrels per day, 6% higher than the year-ago quarter. Average price realized on product sales fell 26% year over year to $54.79 per barrel and average cost per barrel was down 25% to $48.93 per barrel. (See More: Tesoro Q1 Earnings Strong on High Consumer Demand.)

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

+0.20%

+7.55%

CVX

-2.19%

+7.64%

COP

-9.67%

-23.79%

OXY

+0.10%

-0.94%

SLB

-7.32%

-7.62%

RIG

-9.04%

-33.51%

VLO

-5.21%

-22.91%

TSO

-5.94%

-34.22%

Over the course of last week, ‘The Energy Select Sector SPDR’ slumped 4.61% on lingering supply concerns. Consequently, investors witnessed a selling spree in most large companies. The worst performer was offshore drilling giant Transocean Ltd. RIG that lost 9.04% of its stock price.

Longer-term, over the last 6 months, the sector tracker is down 6.93%. Downstream operator Tesoro Corp. was the main casualty during this period, experiencing a 34.22% price decrease.

What’s Next in the Energy World?

As usual, market participants will be closely tracking the regular weekly releases i.e. the U.S. government data on oil and natural gas. And with the 2016 Q1 earnings season almost over, oil prices will again determine the fate of stocks in the days ahead.

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TESORO CORP (TSO): Free Stock Analysis Report
 
ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report
 
TRANSOCEAN LTD (RIG): Free Stock Analysis Report
 
APACHE CORP (APA): Free Stock Analysis Report
 
EOG RES INC (EOG): Free Stock Analysis Report
 
MARATHON OIL CP (MRO): Free Stock Analysis Report
 
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