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Analyst Blog

Despite coming out with earnings beat last week, investors punished integrated oil biggies Exxon Mobil Corp. (XOM - Analyst Report) and Chevron Corp. (CVX - Analyst Report) on worries over their declining production trends.  

Overall, it was a mixed week for the sector. West Texas Intermediate (WTI) crude futures were down more than 4% during the period to close at $97.88 per barrel. However, natural gas prices snapped a six-week losing streak and ended the week at $3.8 per million Btu (MMBtu), up slightly from the previous week.

Oil prices tumbled to a six-month low to fall further below $100, as a bearish supply data renewed speculation about the commodity’s domestic demand, particularly that of fuel products like gasoline.

Natural gas fared better, helped by a smaller-than-expected supply gain. But this was mostly offset by expectations of tepid electric power demand with forecasts of mild weather conditions across most parts of the U.S.

Recap of the Week’s Most Important Stories

1.    Integrated supermajors Exxon Mobil and Chevron reported strong second quarter results due to higher realizations on their lucrative crude oil exploration and production business. But worryingly, the biggies continue to struggle to grow production despite spending billions in capital expenditures. Both the companies reported year-over-year decline in second quarter volumes. As a result, Exxon and Chevron lost 4% and 3.7%, respectively, over the past week.

2.    U.S. energy firm Apache Corp. (APA - Analyst Report) reported in-line second quarter earnings amid strong North American liquids production growth and higher commodity prices. Importantly, pressured by activist hedge fund Jana Partners LLC, Apache informed that it plans to exit from two major natural gas projects in Australia and Canada. The company emphasized that it is focused on rebalancing its portfolio, targeting predictable and profit-oriented production growth in North America. (Read More: Apache Q2 Earnings In Line, Pulling Out of LNG)

3.    Shares of Houston, TX-based oil and gas producer Halcon Resources Corp. (HK - Snapshot Report) fell more than 10% despite excellent second-quarter 2014 results. The company easily beat estimates, primarily on higher output from Williston Basin and increased oil price realization. However, investors were spooked by uncertainty in the Tuscaloosa Marine Shale (TMS), where Halcon is planning to drill eight operating wells by the second half of this year. The company’s delay in announcing the results of the TMS-based Black Stone 4H-2 well has made shareholders skeptical bout the feasibility of the unconventional play. (Read More: Halcon Resources Shares Fall on TMC Concern Post Q2 Earnings)

4.    Leading contract drilling company Noble Corp. (NE - Analyst Report) declared the completion of the spin-off of its affiliate Paragon Offshore plc (PGN) into a separate, publicly-traded entity. Regular-way trading of the ordinary shares of Paragon Offshore started on the NYSE yesterday. Paragon now possess the majority of standard specification drilling operations of Noble. Noble, on the other hand, will go on operating its high-specification businesses.

5.    Energy explorer Penn West Petroleum Ltd. (PWE - Snapshot Report) plunged 14.8% over the last two trading sessions to close at $7.85 on Jul 30. The fall was precipitated by the announcement on Jul 29 of an internal review of financial results in 2014 and four previous years. In the review, the historical numbers would be examined by the board’s audit committee and independent advisors. This review process however would delay the release of second-quarter financial results. (Read More: Penn West Petroleum Shares Plunge on Investigation News)

Price Performance

The following table shows the price movement of the major oil and gas players over the past week and during the last 6 months.

Company

Last Week

Last 6 Months

XOM

-4.05%

+11.78%

CVX

-3.69%

+17.03%

COP

-3.65%

+29.18%

OXY

+1.39%

+15.42%

SLB

-2.23%

+27.29%

RIG

-5.23%

-5.09%

VLO

+0.90%

+8.73%

TSO

+2.27%

+22.52%

Over the course of last week, refiner Tesoro Corp. (TSO - Analyst Report) was the best performer among the market heavyweights, adding 2.3% to its stock price. Though the downstream operator missed Q2 earnings estimates, it increased its quarterly dividend and announced a $1 billion stock repurchase program. On the other end of the spectrum, the biggest loser was offshore driller Transocean Ltd. (RIG - Analyst Report), which fell 5.2% during the period. The company continues to feel the effects of rig oversupply that has led the industry into a cyclical downturn.

Over the last 6 months, ConocoPhillips (COP - Analyst Report) – the largest U.S. independent oil and gas company – was the leader of the pack with its shares advancing 29.2%. ConocoPhillips has been reaping the rewards of steady production increase on the back of strong organic growth. But Transocean Ltd. witnessed a 5.1% price decline over the same time frame.

What’s Next in the Energy World?

Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking key reports on factory orders and the services sector, apart from some residual earnings reports. 

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