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Oil & Gas Stock Roundup: Shell, Chevron Report Strong Q2, Exxon Misses

It was a week where oil prices moved closer to the $50-a-barrel mark but natural gas ended slightly lower.

On the news front, integrated majors Royal Dutch Shell plc RDS.A and Chevron Corp. CVX came up with stronger-than-expected earnings reports, but the world's largest publicly traded oil producer, ExxonMobil Corp. XOM, fell short of estimates.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures soared 8.6% to close at $49.71 per barrel, natural gas prices edged down 0.7% to $2.941 per million Btu (MMBtu).

Notching up some of the year’s strongest gains, oil prices were bolstered by the U.S. Energy Department's inventory release that showed a sharp decline in crude stockpiles for the fourth week in a row. Importantly, the massive 7.2 million barrels drawdown – a sign of market rebalancing – was accompanied by draws in gasoline and distillate inventories.

It’s this comprehensive decline in oil and product inventories the energy traders have been waiting to see all this while. Investors were also encouraged by Saudi Arabia’s pledge of deeper cuts to its crude exports.

Meanwhile, natural gas turned marginally 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.    Energy giant ExxonMobil Corp. posted an earnings miss in second-quarter 2017 owing to a decline in liquid volumes and lower margin from chemical businesses. This was partially offset by increased price realizations from liquids and gas and improved refinery volumes.

Production averaged 3.922 million barrels of oil equivalent per day (MMBOE/d), almost in line with the year-ago quarter. However, liquid output fell 3% year over year to 2.269 million barrels per day, owing to field decline.

During the quarter, ExxonMobil generated cash flow of $7.1 billion from operations and asset sales. The company returned $3.3 billion to shareholders through dividends. Capital and exploration spending decreased 24% year over year to $3.9 billion. (Read more: Exxon Mobil Q2 Earnings Miss on Lower Volumes.)

2.    Europe’s largest oil company Royal Dutch Shell plc reported strong second-quarter results, as its upstream business swung to a profit on rebounding oil prices and refining operations remained robust amid successful cost containment efforts.

Upstream segment recorded a profit of $339 million (excluding items) during the quarter, turning around from the $1,325 million (adjusted) loss in the year-ago period. Shell’s upstream volumes averaged 2,672 thousand oil-equivalent barrels per day (MBOE/d), 2% higher than the year-ago period. Shell’s worldwide realized liquids prices were 16% above the year-earlier levels while natural gas prices were up 31%.

During the quarter under review, Shell generated cash flow from operations of $11,285 million – the most since the oil price plunge started three years ago – returned $3,900 million to shareholders through dividends and spent $6,766 million on capital projects. The company’s resilient cash generation has helped it to cover dividend payments. Importantly, the group raked in $12,157 million in free cash flow during the second quarter, as against a loss of $3,158 million a year ago. (Read more: Shell's Q2 Earnings Soar as Cost Cuts Pay Off.)

3.    Smaller rival Chevron Corp. reported strong second-quarter results amid the recovery in commodity prices, production gains and the success of its cost savings initiatives. The company reported earnings per share (excluding special items) of 91 cents, higher than the Zacks Consensus Estimate of 89 cents and the year-ago profit of 48 cents.

Chevron’s total production of crude oil and natural gas increased 10% compared with last year’s corresponding period to 2,780 thousand oil-equivalent barrels per day (MBOE/d). The U.S. output increased 3% year over year to 701 MBOE/d, while the company’s international operations (accounting for 75% of the total) was up 13% to 2,079 MBOE/d.

Exploration costs fell from $214 million in the second quarter of 2016 to $125 million. The second-largest U.S. oil company by market value after ExxonMobil spent $4,538 million in capital expenditures during the quarter, a considerable decline from the $5,523 million incurred a year ago.

Importantly, Chevron delivered a good cash flow performance this quarter – an important gauge for the oil and gas industry – with $5,036 million in cash flow from operations, up from $2,531 million a year ago. (Read more: Chevron Q2 Earnings Beat on Oil Rally, Output Rise.)

4.    Upstream energy player ConocoPhillips COP reported second-quarter 2017 adjusted earnings of 14 cents per share that compared favorably with the Zacks Consensus Estimate of a loss of 2 cents and year-ago-quarter loss of 79 cents. Higher realized prices from commodities sold primarily led to the strong Q2 numbers.

Average realized price for oil was $48.16 per barrel, compared with $42.72 in the year-earlier quarter. Natural gas liquids were sold at $20.99 a barrel versus $16.55 a year ago. The price of natural gas was $3.83 per thousand cubic feet, compared with $2.49 in second-quarter 2016.

Zacks Rank #3 (Hold) ConocoPhillips' third-quarter 2017 production guidance is pegged at the range of 1,170–1,210 MBOED, excluding production from Libya. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Weak oil and gas pricing scenario compelled the company to slash 2017 capital budget from the earlier projection of $5 billion to $4.8 billion. (Read more: ConocoPhillips Posts Earnings in Q2, Cuts Capex View.)

5.    Ohio-based independent oil refiner and marketer Marathon Petroleum Corp. MPC reported marginally weaker-than-expected second-quarter earnings on lower gross margins and elevated costs. The company’s earnings per share (adjusted for special items) came in at $1.03, a penny below the Zacks Consensus Estimate.

Operating income from the Refining & Marketing segment – which is the main contributor to Marathon Petroleum earnings – was $562 million compared with $1,025 million in the year-ago quarter. The deterioration reflects narrower gross margin.

Marathon Petroleum reported expenses of $17,326 million in second-quarter 2017, 12% higher than $15,475 million in the year-ago quarter.

Prior to the earnings release, Marathon Petroleum also announced that its board of directors declared a quarterly cash dividend of 40 cents a share, an 11% increase over the current quarterly dividend of 36 cents a share. The dividend will be paid to stockholders of record on Sep 11 and paid on Aug 16. (Read more: Marathon Petroleum Q2 Earnings Miss as Cost Increases.)

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.


Last Week

Last 6 Months

























Over the course of last week, the Energy Select Sector SPDR – a popular way to track energy companies –  rose by +1.75%. The best performer was multinational oil company ConocoPhillips whose stock price was up +3.83%.

Longer-term, over the last 6 months, the sector tracker is down -7.93%. The major laggard during this period was offshore drilling powerhouse Transocean Ltd. RIG, experiencing a -38.17% price decline.

What’s Next in the Energy World?

The 2017 Q2 earnings will again remain the primary focus this week, with a number of S&P 500 members coming out with quarterly results.

Market participants will also be 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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Marathon Petroleum Corporation (MPC): Free Stock Analysis Report
Chevron Corporation (CVX): Free Stock Analysis Report
Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report
Exxon Mobil Corporation (XOM): Free Stock Analysis Report
Transocean Ltd. (RIG): Free Stock Analysis Report
ConocoPhillips (COP): Free Stock Analysis Report
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