Oil & Gas Stock Roundup: Chevron Tops Q1 Earnings, Exxon & TOTAL Flops

It was a week where oil prices settled lower but natural gas futures gained.

On the news front, integrated majors ExxonMobil (NYSE:XOM) , Chevron (NYSE:CVX) and TOTAL S.A. (NYSE:TOT) reported first-quarter earnings.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures fell 1.2% to close at $63.30 per barrel, natural gas prices gained 3.1% for the week to finish at $2.566 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Schlumberger & Halliburton (NYSE:HAL)'s Q1, ConocoPhillips (NYSE:COP)' Asset Sale)

The U.S. crude benchmark pulled back from multi-month highs after the Energy Department's latest inventory release showed that stockpiles recorded a surprise weekly increase. The commodity’s downward movement could also be attributed to the prevailing uncertainty in the market following President Donald Trump’s statement that he asked OPEC to bring down prices.

Nevertheless, oil has climbed more than 40% this year, underpinned mainly by production cuts from the OPEC-led group of exporters, and drop in supply from Venezuela and Iran. The so-called OPEC+ deal (an alliance of OPEC, Russia and other non-member countries) is withholding output by around 1.2 million barrels per day until the end of June. U.S. sanctions against Venezuela and Iran also continue to tighten the commodity’s fundamentals.

Meanwhile, natural gas prices rebounded slightly from their three year lows despite a government report showing higher-than-expected increase in supplies. The gain could be attributed to weather-associated tailwinds that might lead to robust heating demand. While the fundamentals of natural gas consumption continue to be favorable, record high production in the United States and expectations for explosive growth through 2020 means that supply will keep pace with demand.

Recap of the Week’s Most Important Stories

1. The largest publicly-traded integrated energy company, ExxonMobil, reported weak first-quarter 2019 results due to significant lower contributions from its downstream and chemical businesses. The supermajor’s earnings per share of 55 cents lagged the Zacks Consensus Estimate of 75 cents. Moreover, the bottom line declined significantly from the year-earlier figure of $1.09.

Liquid production increased year over year to 2.327 million barrels per day (MMB/D) from 2.216 MMB/D, courtesy of the ramped-up activities in the prolific Permian Basin. However, natural gas production was 9.924 BCF/d (billions of cubic feet per day), down from 10.038 BCF/d in the year-ago period.

During the quarter under review, ExxonMobil generated cash flow of $8.5 billion from operations and asset divestments, down from almost $10 billion in the year-ago quarter. This energy giant returned $3.5 billion to its shareholders through dividends. Following its significant investment in the prolific Permian Basin in the United States, the company’s capital and exploration spending shot up 42% year over year to $6.9 billion. (Read more ExxonMobil Earnings & Revenues Miss Estimates in Q1)

2. America's No. 2 energy producer Chevron reported better-than-expected first-quarter earnings, boosted by production gains. The U.S. energy major reported earnings per share of $1.39, ahead of the Zacks Consensus Estimate of $1.26. However, the Zacks Rank #2 (Buy)company’s bottom line fell from the year-ago profit of $1.90 on lower crude price realizations and drop in profits in its downstream business, which refines crude oil into fuels like gasoline and diesel oil.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chevron’s total production of crude oil and natural gas increased 6.5% compared with last year’s corresponding period to 3,038 thousand oil-equivalent barrels per day (MBOE/d) – the second successive quarter where volumes exceeded 3 million barrels per day. The U.S. output rose 21% year over year to 884 MBOE/d while the company’s international operations (accounting for 71% of the total) increased 1.7% to 2,154 MBOE/d.

Chevron delivered a solid cash flow performance this quarter – an important gauge for the oil and gas industry – with $5.1 billion in cash flow from operations, up marginally from $5 billion a year ago.. (Read more Chevron Q1 Earnings Beat, Downstream Woes Continue)

3. French oil major TOTALreported first-quarter 2019 operating earnings of $1.02 per share (€0.90 per share), lagging the Zacks Consensus Estimate of $1.09 by 6.4%. The bottom line also declined 6.4% from the year-ago figure of $1.09 per share (€0.89 per share). This decline was primarily due to softness in the prices of commodities compared with the previous year.

Total hydrocarbon production during the first quarter averaged 2,946 thousand barrels of oil equivalent per day, up 9% year over year. The increase was due to higher contribution from Egina in Nigeria, Kaombo North in Angola, Ichthys in Australia, and Yamal LNG in Russia, along with the integration of Maersk Oil, partially offset by natural field decline and deterioration of safety conditions in Venezeula.

TOTAL’s 2019 upstream production is expected to increase 9% from a year ago. It expects the startup of lara 1 in Brazil, Kaombo South in Angola, Culzean in the U.K., Johan Sverdrup in Norway and the ones already started in 2018 to boost production levels. In 2019, it aims to invest in the range of $15-$16 billion and is targeting cost reduction of $4.7 billion. (Read more TOTAL Q1 Earnings Miss Estimates, Volatile Price Hurts)

4. Independent refiner Valero Energy Corporation (NYSE:VLO) posted first-quarter 2019 income of 34 cents per share, beating the Zacks Consensus Estimate of 20 cents. The topline of $24.3 billion also surpassed the Zacks Consensus Estimate of $23.6 billion. The better-than-expected results can be attributed to higher average ethanol production volumes and the expansion of the Diamond Green Diesel plant.

Valero returned $411 million to its shareholders, of which $36 million was used to repurchase around 414,000 shares of its common stock and award shareholders with dividends worth $375 million.

Valero expects capital expenditure of $2.5 billion for 2019 and 2020. Around 40% of the budget will be used in growth projects. Notably, the company’s Houston alkylation unit and central Texas pipelines and terminals are projected to be completed in the second and third quarters of 2019, respectively. The Pasadena terminal, St. Charles alkylation unit and Pembroke cogeneration unit are expected to come online in 2020. Moreover, the company’s Diamond Green Diesel expansion and Port Arthur Coker projects are scheduled to be completed in 2021 and 2022, respectively. (Read more Valero Q1 Earnings & Sales Beat on Higher Ethanol Output)

5. Hess Corporation (NYSE:HES) reported adjusted first-quarter 2019 earnings per share of 9 cents against the Zacks Consensus Estimate of a loss of 26 cents and the year-ago quarter adjusted loss of 27 cents. Revenues increased to $1.6 billion from $1.4 billion in the year-ago quarter. The top line also surpassed the Zacks Consensus Estimate of $1.5 billion. The strong first-quarter results were attributed to higher hydrocarbon production, backed by prolific plays like Bakken and Gulf of Mexico.

Quarterly hydrocarbon production was 299 thousand barrels of oil equivalent per day, up 17.3% year over year. Crude oil production increased from 134 thousand barrels per day in first-quarter 2018 to 164 thousand barrels per day in first-quarter 2019. Natural gas liquids production totaled 40 thousand barrels compared, up from 37 thousand barrels in the prior-year quarter.

Quarterly net cash flow from operations was $238 million at the end of the first quarter. Hess’ capital expenditures for exploration and production activities totaled $542 million, up 41.1% from $384 million in the prior-year quarter. As of Mar 31, 2019, the company had $2,300 million in cash & cash equivalents and $6,550 million in long-term debt. The debt-to-capitalization ratio at the end of the quarter was 39.4%. (Read more Hess' Q1 Earnings Beat on Bakken Production Volumes)

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.

The Energy Select Sector SPDR – a popular way to track energy companies – edged down 1.4% last week. The worst performer was oilfield bellwether Schlumberger (NYSE:SLB) whose stock slumped 5%.

Longer-term, over six months, the sector tracker is down 2.3%. Offshore driller Transocean Ltd. (NYSE:RIG) was the major loser during this period, experiencing a 28.3% price decline.

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 and the 2019 Q1 earnings, with a number of S&P 500 members plus few supermajors coming out with quarterly results.

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