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Oil & Gas Stock Roundup: Pioneer & Apache's Q2 Numbers, Genesis Energy's Alkali Buy & More

It was a week where both oil and natural gas prices suffered losses.

On the news front, upstream biggies Pioneer Natural Resources Co. PXD and Apache Corp. APA came up with contrasting second quarter results, while pipeline firm Genesis Energy L.P. GEL is set to enter the chemical industry with the acquisition of the alkali business of Tronox Ltd.

Overall, it was a dismal week for the sector. West Texas Intermediate (WTI) crude futures edged down 0.3% to close at $49.58 per barrel, while natural gas prices declined 5.7% to $2.7740 per million Btu (MMBtu).

Following the year’s best week, oil prices logged a slight drop this time around. The commodity was affected by lingering concerns over OPEC and its allies' success in rebalancing the market after a survey showed that the cartel's output climbed to the highest level of the year in July and its exports were at record levels. Meanwhile, domestic production rose to a 2-year high.

However, most of the negativity was offset by the U.S. Energy Department's inventory release that showed a sharp increase in refinery demand. Investors also cheered a lower rig count as it pointed to the softening of shale drilling activities.  

Natural gas also turned lower amid worries over the fuel’s tepid demand on the back of bearish weather predictions and a steady increase in production.

Recap of the Week’s Most Important Stories

1.    Leading upstream energy company Pioneer Natural Resourcesreported second-quarter 2017 earnings, excluding one-time items, of 21 cents per share. The bottom line surpassed the Zacks Consensus Estimate of 11 cents per share. Notably, the company had incurred adjusted loss of 22 cents per share in the year-earlier quarter. Significantly high commodity price realizations along with the Spraberry/Wolfcamp horizontal drilling program resulted in the strong quarterly performance.

Total production in the reported quarter averaged 259.1 thousand barrels of oil equivalent per day (MBOE/d), up 12% year over year. The Spraberry/Wolfcamp horizontal drilling program of the company led to the outperformance. On an oil equivalent basis, average realized price was $32.56 per barrel in the reported quarter as compared with $28.95 a year ago.

For 2017, Pioneer intends to spend $2.7 billion, lower than the prior projection of $2.8 billion. Of this, it has planned drilling and completion capex of $2.4 billion and spending budget for water infrastructure, vertical integration and field facilities of $275 million. Pioneer expects production in the range of 274 MBOE/d to 279 MBOE/d for the third quarter of 2017.(Read more: Pioneer Natural Q2 Earnings Top on Increased Drilling.)

2.    U.S. energy firm Apache Corp. reported second-quarter loss per share – excluding one-time items – of 21 cents against the Zacks Consensus Estimate for a profit of a penny. The underperformance stems from a dip in output due to a conservative capital budget over the past two years. However, the bottom line improved from the year-ago loss of 26 cents amid higher realizations.

The production of oil and natural gas (excluding divested assets and non-controlling interests) averaged 387,562 oil-equivalent barrels per day (BOE/d) (65% liquids), down 16% from last year.

The average realized crude oil price during the second quarter was $46.89 per barrel, representing an increase of 9% from the year-ago realization of $43.14. Moreover, the average realized natural gas price during the Jun quarter of 2017 was $2.60 per thousand cubic feet (Mcf), up 27% from the year-ago period.

After aligning its spending plans with the low-price environment during the oil rout, Apache is now looking to increase its capital investment after achieving cost rationalization. With returns-focused growth in mind, Apache announced a 2017 capital budget of $3.1 billion, representing a 60% increase over its 2016 spend.

Keeping with the company’s planned shift in strategic objective, Apache’s oil and gas capital investments totaled $738 million during the Apr-Jun period, 85% higher than the $400 million incurred a year ago. (Read more Apache Reports Q2 Loss on Reduced Production.)

3.    Oil and gas transportation and refining partnership, Genesis Energy, L.P. recently announced that it will enter the chemical industry with the acquisition of the alkali business of Stamford, CT-based Tronox Ltd. Per the deal, Genesis Energy will be shelling out $1.325 billion in cash to the chemicals and minerals maker for the assets.

Investors should know that Tronox's alkali business, located at its Green River, WY. facilities, which is one of the biggest in the world, includes the trona and trona-based marketing, mining, exploring, processing, producing, and selling operations. It produces approximately 28% - 4 million tons - of the world's natural soda ash (sodium bicarbonate) output every year. It is used for various purposes like glass making, baking of goods, detergents, industrial chemical production, etc.

Genesis Energy – carrying a Zacks Rank #3 (Hold) – believes the alkali business has a reserve life of more than 100 years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The buyout will help Genesis Energy in terms of its current asset base and aid the partnership to serve the refineries and petrochemical facilities connected with its pipelines better. It is in line with Genesis Energy’s strategy to diversify its business.

Per the partnership, the soda ash assets generate stable cash flow, which might help with its $3.02 billion debt, as reported in second-quarter 2017. The estimated EBITDA from the business for the last 12-month period, which ended on Jun 30, 2017, was $166 million. (Read more: Genesis Energy Eyes Chemical Industry with Alkali Unit Buyout.)

4.    Houston, TX-based leading upstream energy firm Marathon Oil Corp. MRO posted second-quarter adjusted loss of 24 cents per share, wider than the Zacks Consensus Estimate of a loss of 14 cents. Lower-than-expected production from the U.S. land markets impacted results.

Marathon Oil reported North American production available for sale of 222,000 oil-equivalent barrels per day (BOE/d), down from 224,000 BOE/d in the second quarter of 2016. The deterioration was mainly due to reduced drilling and completion activities mainly in the Eagle Ford and Bakken Basins.

Marathon Oil’s total quarterly cost and expenses declined by 10.1% to $1,085 million in the reported quarter compared with the prior-year figure of $1,207 million. The decrease is attributed to the lower exploration, production, marketing and general/administrative costs. However, the decrease was partially offset by higher depreciation expenses and other operating costs.

Marathon Oil has raised its production guidance for the full-year 2017 and expects the production available for sale from the combined North America and International E&P segments, excluding Libya, to average 345,000–360,000 BOE/d, about 7% higher than 2016. (Read more: Marathon Oil Q2 Loss Wider than Expected, Revenues Beat.)

5.    U.S. refiner HollyFrontier Corp. HFC reported strong second-quarter results, helped by improving refining margins, higher production and contribution from the newly acquired PCLI unit.

Net income from the Refining segment – which is the main contributor to HollyFrontier earnings – was $86.6 million, turning around from the loss of $436.2 million in the year-ago quarter. The improvement reflects wider gross margins, which jumped 29% to $11.47 per barrel.

Total refined product sales volumes averaged 483,210 barrels per day (bpd), up 9% from the 442,660 bpd in the year-ago quarter. Moreover, throughput increased from 428,590 bpd in the year-ago quarter to 467,090 bpd. Capacity utilization, at 102.13%, was up from 101.7% in the second quarter of 2016.

Income from the newly acquired Petro-Canada Lubricants Inc. (or PCLI) business – bought from Canadian oil and gas giant Suncor Energy Inc. SU earlier this year – totaled $12.6 million. Product sales averaged 23,720 bpd, while production and throughput came in at 20,880 bpd and 21,470 bpd, respectively. (Read more: HollyFrontier Q2 Earnings, Revenues Surpass Estimates.)

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

-0.46%

-3.10%

CVX

+3.45%

-2.39%

COP

+3.57%

-8.99%

OXY

+0.81%

-10.40%

SLB

+0.55%

-20.29%

RIG

+6.33%

-35.81%

VLO

+0.22%

+0.47%

ANDV

-3.39%

+12.28%

Over the course of the last week, the Energy Select Sector SPDR – a popular way to track energy companies –  fell by -0.39%. Longer-term, over the last 6 months, the sector tracker is down -11.30%.

What’s Next in the Energy World?

With the 2017 Q2 earnings season essentially over, market participants will get back to closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas and the Baker Hughes data on rig count.

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Genesis Energy, L.P. (GEL): Free Stock Analysis Report
 
HollyFrontier Corporation (HFC): Free Stock Analysis Report
 
Suncor Energy Inc. (SU): Free Stock Analysis Report
 
Pioneer Natural Resources Company (PXD): Free Stock Analysis Report
 
Apache Corporation (APA): Free Stock Analysis Report
 
Marathon Oil Corporation (MRO): Free Stock Analysis Report
 
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