Oil & Gas Stock Roundup: Concho (CXO) & Devon's (DVN) Q4, EQT's Spin-Off & More

It was a week where both oil and gas prices logged gains.

On the news front, upstream energy biggies Concho Resources Inc. (NYSE:CXO) and Devon Energy Corp. (NYSE:DVN) came up with their respective earnings reports, while natural gas operator EQT Corp. (NYSE:EQT) announced plans to separate its midstream business into a new publicly traded company.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained about 3.3% to close at $63.55 per barrel, while natural gas prices increased 3.9% to $2.657 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Occidental, Williams, Marathon Report Strong Q4)

The U.S. oil benchmark scored its second consecutive weekly bump. The major catalyst was the Energy Department's inventory release, which revealed that crude stockpiles recorded a surprise drop.

Oil stockpiles have shrunk in 35 of the last 46 weeks and are down more than 110 million barrels since April last year. The gradual fall – stemming from a combination of lower imports and spiraling exports – has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 420.5 million barrels, current crude supplies are 18.9% below the year-ago period.

Meanwhile, natural gas prices moved higher last week following a larger-than-expected decrease in supplies. The improvement was primarily on account of strength in the commodity’s production amid the upcoming conclusion to the winter heating season.

Recap of the Week’s Most Important Stories

1. Concho Resources reported strong fourth-quarter results on the back of higher commodity price realizations and robust production growth. The independent energy explorer came out with net earnings per share of 66 cents, comfortably beating the Zacks Consensus Estimate of 46 cents. The bottom line also improved significantly from the prior-year quarter adjusted income of 20 cents per share.

Concho Resources' average quarterly volume increased 28% year over year to 211 thousand barrels of oil equivalent per day (exceeding the high-end of the company’s guidance range), of which 61.6% was liquids. Overall, the Zacks Rank #1 (Strong Buy) company fetched $40.18 per barrel compared with $34.70 a year ago. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Concho Resources has provided a preliminary guidance for 2018. The company expects its total production to grow 16-20%, with crude oil growth about 20%. The upstream player forecasts its output to grow at 20% CAGR over the 2017-2020 timeframe. Capital expenditures for 2018 are estimated to be around $2 billion. (Read more Concho's Q4 Earnings Top on Price, Output Gains)

2. Devon Energy reported fourth-quarter 2017 adjusted earnings per share of 38 cents, lagging the Zacks Consensus Estimate of 60 cents by 36.7%. The underperformance primarily stemmed from an accounting change and lower-than-expected production volumes, partly offset by higher realized prices.

In the fourth quarter of 2017, total production touched 548,000 barrels of oil equivalent (Boe) per day. The actual production was lower than the expected range of 551,000-571,000 Boe per day. Meanwhile, realized oil prices in the quarter were $42.21 per barrel, up 20.9% from $34.90 per barrel in the year-ago quarter. Realized prices for natural gas were up 11.2% to $2.48 per thousand cubic feet (Mcf) from $2.23 per Mcf in the prior-year quarter.

Devon estimates total production from its assets in the first quarter of 2018 in the range of 530,000-554,000 Boe per day. Full-year production is expected in the range of 552,000-576,000 Boe per day. Capital expenditure (capex) in the first quarter of 2018 is anticipated within $585-$700 million. 2018 capex is expected in the range of $2.33-$2.61 billion.(Read more Devon's Q4 Earnings Lag Estimates, Expands Reserves)

3. Natural gas producer EQT Corporation’s board of directors has finally succumbed to months of pressure from investors and agreed to separate the company's upstream and midstream businesses. It will form an independent publicly traded company (NewCo), whose operations will focus on the midstream businesses of EQT. The deal is devised to be tax-free for the company's shareholders, who will retain their EQT shares and receive a pro-rata share of the NewCo.

The spin-off is expected to enable the company to concentrate on its upstream assets, and exploration and production business. The deal will leave EQT with 680,000 core Marcellus acres and 65,000 Ohio Utica acres.

With the shale production to ramp up in the coming quarters, this move can help the company benefit largely through efficient allocation of capital, compared with the previous company set-up that constrained the company's returns in the recent years. Additionally, $2.3-$2.8 billion of free cash flow over the 2019-2023 timeframe is expected to trickle down from the move, which forecasts 10-15% annual production growth. (Read more Will EQT's Spin-Off of Midstream Businesses Prove Beneficial?)

4. U.S. energy firm Apache Corporation (NYSE:APA) reported fourth-quarter earnings per share – excluding one-time items – of 33 cents, ahead of the Zacks Consensus Estimate of 21 cents. The bottom line also turned around from the year-ago adjusted loss of 6 cents. The outperformance stems from higher oil realizations, and lower cost.

The production of oil and natural gas (excluding divested assets and non-controlling interests) averaged 362,251 oil-equivalent barrels per day (BOE/d) (68% liquids), essentially flat from last year. The company aims to grow production by 7-13% in the next year. The average realized crude oil price during the fourth quarter was $58.36 per barrel, representing an increase of 23.1% from the year-ago realization of $47.39.

Apache’s fourth quarter lease operating expenses totaled $334 million, down 10.9% from the year-ago quarter. Moreover, total costs and expenses fell 16.4% from the fourth quarter of 2016 to $1,308 million. (Read more: Apache Posts Q4 Earnings Beat on Oil Price, Cost Cuts)

5. U.S. gas exporter Cheniere Energy, Inc. (NYSE:LNG) reported strong fourth-quarter results on robust production volumes and strong pricing. The company’s net income per share came in at 54 cents, ahead of the Zacks Consensus Estimate of 49 cents and the comparable 2016 period profit of 48 cents.

During the quarter, the company shipped 70 cargoes from Sabine Pass liquefied natural gas terminal in Louisiana. Total volumes lifted in the reported quarter were 252 trillion British thermal units.

Overall costs and expenses soared 190% to $1,305 million from the same quarter last year. The increase is mainly attributed to the higher cost of sales which jumped to $980 million compared with $229 million in the prior-year quarter, while operating and maintenance expenses rose 87.7% year-over-year to $137 million.

Cheniere Energy raised its EBITDA guidance for full-year 2018 following the better-than-expected profit. The upbeat forecast reflects higher-than-anticipated realized margins on marketing volumes. The adjusted EBITDA is now expected to be between $2,000 million and $2,200 million, compared to the prior guidance of anything between $1,900 million and $2,100 million.

Meanwhile, distributable cash flow is likely to be between $200 million and $400 million, in line with the previous prediction. (Read more Cheniere Energy Q4 Earnings Beat on Pricing, 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.

In line with the week’s positive oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +0.8% return last week. The best performer was offshore drilling powerhouse Transocean Ltd. (NYSE:RIG) whose stock soared 5.1%.

Longer-term, over six months, the sector tracker is up 9.9%. Independent refinerValero Energy Corp. (NYSE:VLO) was the major gainer during this period, experiencing a 37.9% price appreciation.

What’s Next in the Energy World?

With the 2017 Q4 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 - one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count.

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