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Oil & Gas Stock Roundup: Shell, EOG, Concho Report Strong Q3

It was a week where the price of oil spiked to its highest mark in more than two years and natural gas futures rose marginally.

On the news front, integrated major Royal Dutch Shell plc RDS.A, as well as Permian-focused upstream oil and gas explorers –  EOG Resources Inc. EOG and Concho Resources Inc. CXO – came up with stronger-than-expected earnings reports, driven by higher commodity prices.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained about 3.2% to close at $55.64 per barrel, while natural gas prices edged up 0.7% to $2.984 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon, Chevron, TOTAL Report Strong Q3.)

The U.S. oil benchmark rallied to its highest settlement since July 2015 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, apart from a bigger-than-expected fall in domestic crude supplies.

Upbeat U.S. economic data sets and signs of recovery in global demand growth was also bullish for oil prices.

Meanwhile, natural gas futures logged a small gain following an in-line increase in supplies. Favorable weather forecasts and strength in the commodity’s demand provided further upside.

Recap of the Week’s Most Important Stories

1.    Europe’s largest oil company Royal Dutch Shell reported strong third-quarter results on all round contribution from all its segments. In particular, rebounding commodity prices and cost cuts helped the Zacks Rank #2 (Buy) company come out with better-than-expected numbers. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

During the quarter under review, Shell generated cash flow from operations of $7,582 million, returned $4,000 million to shareholders through dividends and spent $5,742 million on capital projects. Despite falling from the year-ago period, the company’s resilient cash generation has helped it to cover dividend payments. Importantly, the group raked in $3,670 million in free cash flow during the third quarter, up from $3,324 million a year ago.

As of Sep 30, 2017, the company had $20,699 million in cash and $88,356 million in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 25.4%, down from 29.2% a year ago following the BG Group acquisition. The improvement in the group’s debt ratio was helped by cost cuts and asset sales (worth more than $26 billion since 2016). (Read more: Shell's Q3 Earnings Beat Amid Higher Oil, Cost Cuts.)

2.    Upstream energy company EOG Resources reported third-quarter 2017 adjusted earnings of 19 cents, beating the Zacks Consensus Estimate of 10 cents supported by higher oil equivalent production and increased commodity price realizations. The bottom line also compared favorably with the year-ago quarter loss of 40 cents per share.

In the quarter, EOG Resources’ total volume improved 7.6% year over year to 55 million barrels of oil equivalent (MMBoe). Average price realization for crude oil and condensates rose 10.3% year over year to $48.11 a barrel. Quarterly NGL prices also improved 50% year over year from $14.92 to $22.38 per barrel. Natural gas was sold at $2.19 per thousand cubic feet (Mcf), up 12.3% year over year.

The company expects crude oil equivalent volumes in the fourth quarter of 2017 to be in the range of 328.1-662.2 thousand barrels of oil equivalent per day. Capital expenditure for the fourth quarter is expected to lie within $3,000-$3,350 million.

Along with the strong results, the company announced that it has added two premium crude acreages to its portfolio with net resource potential of 750 million barrels of oil equivalent. (Read more EOG Resources Q3 Earnings Gain on Increased Volumes.)

3.    Permian-focused energy explorer Concho Resourcesreported strong third-quarter revenues and earnings results on the back of higher commodity price realizations and robust production growth.

Concho Resources' average quarterly volume increased 26% year over year to 193.2 thousand barrels of oil equivalent per day (exceeding the high end of the company’s guidance range), of which 62% was liquids. Daily oil output was up 31% to 119.6 thousand barrels, while natural gas production came in at 441.6 million cubic feet (up 19%).

The average realized natural gas price jumped 31% from the year-ago quarter to $3.18 per thousand cubic feet, while average oil price realization increased 9.1% to $45.29 per barrel. Overall, the company fetched $35.29 per barrel as against $30.61 a year back.

The company expects production growth above the high end of its annual guidance range of 24-26%, with oil output growth expected to exceed 27%. The company has provided fourth quarter net production guidance of 200-204 thousand barrels of oil equivalent per day. Capital expenditures for 2017 are estimated to be between $1,600 million and $1,800 million. (Read more Concho Resources Tops Q3 Earnings & Sales Estimates)

4.    U.S. energy firm Apache Corp. APA reported third-quarter earnings per share – excluding one-time items – of 4 cents, versus the Zacks Consensus Estimate for a loss of 5 cents. The bottom line also turned around from the year-ago adjusted loss of 3 cents. The outperformance stems from higher oil and gas realizations, and lower cost.

The average realized crude oil price during the third quarter was $49.34 per barrel, representing an increase of 11.3% from the year-ago realization of $44.35. Moreover, the average realized natural gas price during the September quarter of 2017 was $2.75 per thousand cubic feet (Mcf), up 6.2% from the year-ago period.

Apache’s third quarter lease operating expenses totaled $358 million, down 6.3% from the year-ago quarter. Moreover, total costs and expenses fell 36.7% from the third quarter of 2016 to $1,482 million.

During the oil rout, Apache aligned its spending plans with the low-price environment. But Apache is now looking to increase its capital investment after achieving cost rationalization. Keeping with the company’s planned shift in strategic objective, Apache’s oil and gas capital investments totaled $843 million during the July-September period, 95.1% higher than the $432 million incurred a year ago. (Read more Apache Posts Q3 Earnings on Oil Rebound, Cost Cuts)

5.    Chinese oil and gas giant PetroChina Company Limited PTR announced third-quarter 2017 earnings of RMB 4,690 million or RMB 0.03 per diluted share, compared with RMB 1,200 million or RMB 0.01 per diluted share a year earlier. The positive comparisons can be primarily attributable to higher oil prices and strict cost control, which helped its biggest unit — exploration and production — to swing to profitability.

Average realized crude oil price during the first nine months of 2017 was $48.76 per barrel, representing a 36.2% jump from the year-ago period. Further, natural gas price rose 8.6% year-over-year to $5.07 per thousand cubic feet (Mcf). This helped PetroChina’s upstream (or exploration & production) achieve an operating income of RMB 10,983 million — turning around from the year-ago operating loss of RMB 3,949 million. A tight leash on oil and gas lifting costs that decreased 1.9% from the same period last year, also helped results.

As of Sep 30, 2017, PetroChina’s cash balance was RMB 169,469 million, while net cash flow from operating activities was RMB 244,295 million for the first three quarters of this year. Capital expenditure for the period was RMB 124,552 million, 9.1% higher than the year-ago level. (Read more PetroChina Q3 Earnings Jump on Oil Rebound, Cost Cuts)

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

-0.4%

+2.1%

CVX

-2.9%

+10.6%

COP

+2.9%

+14.8%

OXY

+5.6%

+13.9%

SLB

+0.3%

-6.8%

RIG

+7%

+0.6%

VLO

+6%

+24.7%

ANDV

+5.2%

+38%

Reflecting the bullish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +2.2% return last week. The best performer was Houston-based energy explorer Occidental Petroleum Corp. OXY whose stock rose by 5.6%.

Longer-term, over 6 months, the sector tracker is up 4.4%. Downstream operator Andeavor ANDV was the major gainer during this period, experiencing a 38% price appreciation.

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.

The 2017 Q3 earnings will again garner some attention this week, with a few energy companies coming out with quarterly results.

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PetroChina Company Limited (PTR): Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report
 
Apache Corporation (APA): Free Stock Analysis Report
 
EOG Resources, Inc. (EOG): Free Stock Analysis Report
 
Concho Resources Inc. (CXO): Free Stock Analysis Report
 
Occidental Petroleum Corporation (OXY): Free Stock Analysis Report
 
Tesoro Corporation (ANDV): Free Stock Analysis Report
 
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