It was a week where both oil and gas prices ended little changed.
On the news front, integrated majors ExxonMobil XOM and Chevron CVX earmarked their growth actions in respective annual analyst meetings. Meanwhile, energy explorer ConocoPhillips COP won a $8.7 billion ruling against Venezuela.
Overall, it was a marginally positive week for the sector. West Texas Intermediate (WTI) crude futures edged up 0.5% to close at $56.07 per barrel, while natural gas prices rose a miniscule 0.2% to $2.865 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon's Giant Gas Find, BP's Project Start-Up & More)
The U.S. crude benchmark received support from the sharp drop in product inventories (gasoline and distillate) on higher demand. Oil was also pushed up by the so-called OPEC+ deal that is cutting production by around 1.2 million barrels per day until the end of June. U.S. sanctions against Venezuela and Iran continue to tighten the oil further but, these positives were partially offset by the massive weekly build in crude stockpiles on surging domestic oil production.
Meanwhile, natural gas prices gained on larger-than-expected decrease in supplies but were capped by forecasts of warmer weather, which might lead to the heating fuel’s tepid demand.
Recap of the Week’s Most Important Stories
1. ExxonMobil has revised production plan and expects a boost in annual earnings potential by more than 140% by 2025 compared with 2017 adjusted earnings. The forecasts are based on the assumption of oil price of $60 per barrel and 2017 margins.
Based on adjusted earnings in 2017, ExxonMobil’s updated earnings estimate compares with last year’s anticipated increase of 135% between 2017 and 2025. Annual cash flow from operations is anticipated to reach $60 billion in 2025. On the back of further improvements in investment portfolio and divestment plans, the company has augmented cumulative earnings potential from 2019 through 2025 has augmented by about $9 billion.
ExxonMobil has made alterations in the Permian Basin growth plans and expects to boost production by roughly 80% compared with initial estimates. The company now expects production from the Permian to increase to more than 1 million oil equivalent barrels per day by 2024 from the earlier projection of 600,000 barrels equivalent per day. (Read more ExxonMobil Revises Growth Plans With Upside Potential)
2. Chevron recently issued a statement at its latest annual analyst day, highlighting its production plans and aggressive drilling strategies in the prolific Permian play. The California-based supermajor, carrying a Zacks Rank #3 (Hold), also laid emphasis on its prudent capital expenditure program, strengthening of financials and cash flow generation.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The energy giant expects compounded annual output growth rate of 3-4% through 2023, with major contribution from the Permian Basin. Since 2017, Chevron has doubled its portfolio value in the Permian, with its current acreage standing at 2.2 million total net acres. It has also lifted its reserve estimates in Permian from 9 billion barrels of oil equivalent to 16.2 billion barrels of recoverable resources. Chevron now expects Permian production to reach 600,000 barrels per day (Bpd) by the end of the decade and 900,000 Bpd within 2023-end. This indicates a 40% increase from its previous growth plan.
Chevron plans to spend $19-$22 billion per annum from 2021 to 2023, in order to support its ambitious production plans. Chevron expects its cash flow to improve significantly on the back of cost reduction, while exiting unprofitable markets and streamlining the organization. The company expects cash generation of about $30 billion at $60 a barrel in 2019. Emphasizing on strengthening of its balance sheet, the company believes that free cash flow momentum will continue in the coming years as well. (Read more Chevron Banks on Permian, Prioritizes Cash Flow Growth)
3. ConocoPhillips recently received a favorable ruling from the World Bank’s International Centre for Settlement of Investment Disputes for the seizure of its assets by the Venezuelan government in 2007. Per the ruling, Venezuela has to pay $8.7 billion to ConocoPhillips, making it one of the largest arbitration settlements ever.
Earlier in 2013, the international arbitration panel ruled that the country violated one of its bilateral investment treaties as it seized the company’s stakes in three oil projects in the Orinoco Belt. The government is ordered to pay around $4.5 billion and $3.4 billion for ConocoPhillips' respective stakes in the Hamaca and Petrozuata projects, two heavy-oil programs in the Orinoco Belt. Moreover, Venezuela has to pay more than $562 million for seizing ConocoPhillips' Corocoro projects, located in the southwestern Gulf of Paria. The total amount of the award reflects around 40% of the company’s original claims.
ConocoPhillips may have to fight for collecting the payments, as the country has previously shown reluctance in paying up in other similar cases. Notably, the company was awarded $2 billion by the International Chamber of Commerce from PDVSA, the state-run energy company of Venezuela, for an arbitration process. While PDVSA was unwilling to pay up in the beginning, the U.S. energy major secured a court order, which slated an alternative way for collecting the amount. (Read more ConocoPhillips to Get $8.7B Compensation From Venezuela)
4. TOTAL S.A. TOT announced that it has signed a definitive agreement with Novatek for the acquisition of a direct 10% interest in Arctic LNG 2, a liquefied natural gas development led by Novatek on the Gydan Peninsula, Russia. Courtesy of TOTAL’s existing stake in Novatek and acquisition of fresh interest in the same, the company’s overall economic interest in this new LNG project will be nearly 21.6%.
Both the companies have consented that TOTAL will have the opportunity to acquire a 10-15% direct interest in all Novatek's future LNG projects located on the Yamal and Gydan peninsulas.
Per the LNG outlook of Royal Dutch Shell, global demand for LNG will increase in the range of 4-5% within the 2015-2030 time period. Given massive long-term growth prospects of LNG, TOTAL has undertaken various initiatives to strengthen its position in the LNG market. (Read more TOTAL Expands LNG Operation in Russia Via Acquisitions)
5. After delivering profits over the trailing eight quarters, Canadian Natural Resources Limited CNQ posted loss in the fourth quarter of 2018, leaving investors disappointed. The company recorded fourth-quarter adjusted loss per share of 16 cents against the Zacks Consensus Estimate of earnings of 14 cents. The underperformance can be primarily attributed to lower liquids price realizations. The bottom line was way lower than the prior-year earnings of 37 cents a share.
Canadian Natural reported quarterly production of 1,081,368 barrels of oil equivalent per day (BOE/d), up from 1,020,094 BOE/d in the prior-year quarter. Oil and natural gas liquids (NGLs) output (accounting for more than 77.1% of total volumes) increased to 833,358 barrels per day (Bbl/d) from 744,100 Bbl/d recorded a year ago.
Canadian Natural announced a quarterly cash dividend of 37.5 cents per share, marking the 19th consecutive annual payout hike. The dividend will be payable on Apr 1, to shareholders of record as of Mar 22, 2019. (Read more Canadian Natural Posts Q4 Loss Amid Weak Oil Prices)
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 6 Months
The Energy Select Sector SPDR – a popular way to track energy companies – generated a -3.8% return last week. The worst performer was Oilfield service biggie Schlumberger SLB whose stock slumped 8.6%.
Longer-term, over six months, the sector tracker is down 12.1%. Schlumberger was again the major loser during this period, experiencing a 30.8% 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.
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