Oil & Gas Stock Roundup: Pioneer, Cheniere & Devon's Q3

It was a week where oil prices fell into bear territory, while natural gas futures hit nearly two-year highs.

On the news front, energy biggies Pioneer Natural Resources Co. (NYSE:PXD) , Cheniere Energy, Inc. (NYSE:LNG) and Devon Energy Corp. (NYSE:DVN) reported third-quarter earnings.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures lost 4.7% to close at $60.19 per barrel, natural gas prices gained around 13% to $3.719 per million Btu (MMBtu).

The U.S. crude benchmark entered bear market territory – a decline of 20% below a recent high.

The U.S. crude benchmark tumbled to an eight-month low on Friday, reflecting rising supply from major producers and fear that an economic slowdown will dampen the outlook for demand. U.S. waivers on Iranian sanctions and data showing drillers in the United States adding oil rigs also contributed to the losses, while the dollar strength played spoilsport by making the greenback-priced crude dearer for investors holding foreign currency.

Meanwhile, natural gas prices reached their highest point since December 2016 as inventories remain significantly below their five-year average amid predictions strong demand with the early onset of cold weather.

Recap of the Week’s Most Important Stories

1. Pioneer Natural Resources reported third-quarter 2018 earnings of $2.07 per share, excluding one-time items, which surpassed the Zacks Consensus Estimate of $1.69 and the year-ago quarter figure of 48 cents. Higher production volumes of liquids and natural gas as well as increased oil equivalent price realizations supported the strong third-quarter results.

Total production in the reported quarter averaged 320.7 thousand barrels of oil equivalent per day (MBOE/d), which improved 16.3% year over year and beat the Zacks Consensus Estimate of 318 MBOE/d. The upside can be attributed to the Zacks Rank #2 (Buy) company’s higher activities in the Permian Basin.

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

On an oil equivalent basis, average realized price was $44.64 per barrel in the reported quarter compared with $33.72 a year ago. The company reported its average realized crude price at $57.54 a barrel, up from $45.35 in September quarter of 2017. (Read more Pioneer Natural Q3 Earnings Surpass Estimates, Rise Y/Y)

2. Cheniere Energy, Inc. reported third-quarter 2018 net earnings per share of 26 cents, marginally missing the Zacks Consensus Estimate of 27 cents. The weaker-than-expected results can be attributed to high costs incurred during the quarter. However, the bottom line turned around from the year-ago quarter’s net loss of $1.09 on the back of increased operations from the additional trains in the Sabine Pass project.

During the quarter, the company shipped 65 cargoes from the Sabine Pass liquefied natural gas terminal in Louisiana, reflecting an increase of 48% from a year ago. Total volumes of LNG exported in the reported quarter were 228 trillion British thermal units (TBtu) compared with 160 TBtu in the year-ago quarter.

Cheniere raised its EBITDA guidance for full-year 2018 and provided preliminary guidance for 2019. Adjusted EBITDA is now expected in the band of $2,450-$2,550 million compared with the prior forecast of $2,300-$2,500 million.

Distributable cash flow is now projected between $500 million and $600 million vis a vis the previous guided range of $400-$550 million. For 2019, the company anticipates its adjusted EBITDA within $2,900-$3,200 million, with distributable cash flow expected between $600 million and $800 million. (Read more Cheniere Q3 Earnings Lag by a Cent, Sales Top, View Up)

3. Devon Energy Corporation reported third-quarter 2018 adjusted earnings per share of 63 cents, which surpassed the Zacks Consensus Estimate of 43 cents by 46.5%. The bottom line was driven by strong realized prices.

In the third quarter of 2018, total production touched 522,000 barrels of oil equivalent (Boe) per day. Notably, the actual production was within the expected range of 517,000-541,000 Boe per day. U.S. production was 418,000 Boe per day, courtesy of strong contribution from the company’s Delaware and Eagle Ford assets.

Devon continues to advance on its $4 billion share repurchase plan. The company has repurchased 67 million shares, or nearly 13% of outstanding shares, at a total cost of approximately $2.7 billion. By the first quarter of 2019, it expects to exhaust the share repurchase authorization.

Currently, Devon’s divestiture program has reached $4.7 billion and it expects to achieve the $5 billion divestiture target around year-end. Year to date, the company retired $828 million long-term debt, which will lower its annual interest expenses by $66 million and is likely to have a positive impact on earnings. (Read more Devon Energy Q3 Earnings Top Estimates on Strong Prices)

4. Marathon Oil Corp. (NYSE:MRO) posted third-quarter adjusted income from continuing operations of 24 cents per share, surpassing the Zacks Consensus Estimate of 20 cents. The better-than-expected performance was driven by higher-than-anticipated production from both its United States Exploration & Production (E&P) unit and the International segment.

Precisely, the U.S. (E&P) output available for sale in the quarter under review totaled 304,000 barrels of oil equivalent per day (Boe/d), surpassing the consensus estimate of 300,00 Boe/d. Output from international operations came in at 115,000 Boe/d, topping the consensus estimate of 110,000 Boe/d.

Importantly, the company generated organic free cash flow of $320 million during the quarter, with year-to date free cash flow amounting to $632 million.

Driven by robust third-quarter performance, it increased its full-year production guidance to 405,000-415,000 Boe/d from prior expectation of 400,000-415,000 Boe/d. The company also hiked its guidance for annual resource play oil and Boe growth from prior expectation of 28-32% to 30-34%, with capital expenditure budget remaining intact at $2.3 billion. (Read more Marathon Oil Q3 Earnings Beat on Price & Output Gains)

5. Brazil's state-run energy giant Petrobras (NYSE:PBR) announced third-quarter earnings per ADS of 26 cents, missing the Zacks Consensus Estimate of 35 cents. The weaker-than-expected results can be attributed to lower oil and gas production and higher spending.

However, the bottom line was significantly higher than the year-earlier quarter’s profit of 2 cents, boosted by a rise in the price of oil. Net quarterly profit soared to R$6.6 billion from a mere R$266 million, while adjusted EBITDA also rose to R$29.9 billion from R$19.2 billion a year ago.

During the three months ended Sep 30, 2018, Petrobras’ capital investments and expenditures totaled R$13.9 billion, 47.8% higher than the R$9.4 billion incurred in the year-ago period. The hike in capital spending reflects an attempt by the company to reverse the declining production trend. As a result, free cash flow only came in at R$8.1 billion for the quarter, down 44.9% year over year. (Read more Petrobras Q3 Earnings Jump on Oil Surge, Output Falls)

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.

Bucking the week’s negative oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +1.4% return last week. The best performer was Houston-based energy explorer Occidental Petroleum Corp. (NYSE:OXY) whose stock jumped 7.7%.

Longer-term, over six months, the sector tracker is down 13.2%. Oilfield service biggie Schlumberger (NYSE:SLB) was the major loser during this period, experiencing a 30.9% price decline.

What’s Next in the Energy World?

With the 2018 Q3 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 and monthly reports from OPEC and the IEA.

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