It was a week where oil prices logged a modest gain, while natural gas futures slumped to multi-month lows.

On the news front, integrated majors Exxon Mobil Corp. (XOM Quick QuoteXOM - Free Report) and Royal Dutch Shell plc reported contrasting fourth quarter results.

Overall, it was another mixed week for the sector. While West Texas Intermediate (WTI) crude futures inched up 1.2% for the week to close at $53.83 per barrel, natural gas prices dived 8.8% to $3.063 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Chevron, Baker Hughes' Q4; Valero's Dividend Hike and More.)

Oil prices tallied a modest gain buoyed by more data showing compliance on the part of major producers adhering to their agreed output cut quotas, which will eventually reduce the global inventory glut. However, a fourth-consecutive weekly rise in domestic oil supplies and a burgeoning rig count – pointing to the resurgence in shale drilling activities – kept prices in a narrow trading range.

Meanwhile, natural gas turned sharply lower after the U.S. Energy Department's weekly inventory release showed a decrease in supplies that was way below average. This was mainly on account of a bout of unseasonably mild weather restricting heating demand. Moreover, with the latest weather update pointing to the lack of any cold blast over the next 10-15 days, the commodity came under further pressure.

Recap of the Week’s Most Important Stories

1.    Energy giant Exxon Mobil Corp. posted strong fourth-quarter 2016 results. Increased realizations for liquids primarily drove the outperformance. However, the improvement was partially offset by lower refining and marketing margins.

Adjusted quarterly earnings for the upstream segment increased $528 million from the fourth quarter of 2015 to $1.4 billion. Increased realizations for liquids favored earnings by a net amount of $510 million. Production averaged 4.121 million barrels of oil-equivalent per day (MMBOE/d), down 3% year over year.

Meanwhile, the downstream segment recorded profits of $1.2 billion. The reported figure is $110 million lower than the October–December quarter of 2015. Decreased refining and marketing margins hurt earnings.

During the quarter, ExxonMobil generated cash flow of $9.5 billion from operations and asset sales. The company returned $3.1 billion to shareholders through dividends. Capital and exploration spending decreased 35% year over year to $4.8 billion. (Read more: Exxon Mobil Tops Q4 Earnings on Higher Realizations.)

2.    Europe’s largest oil company Royal Dutch Shell plc reported weaker-than-expected fourth-quarter results, as profits in its downstream business slipped on depressed refining margins. Revenues of $64,767 million missed the Zacks Consensus Estimate of $68,600 million but were up 11% year over year amid higher oil prices and production.

In the Downstream segment, the Anglo-Dutch super-major reported adjusted income of $1,339 million, 12% less than the $1,524 million earned in the year-ago period. The negative comparison reflects the impact of weaker results from refining operations and higher taxation, partly offset by lower operating costs.

Shell’s upstream volumes averaged 2,997 thousand oil-equivalent barrels per day (MBOE/d), 25% higher than the year-ago period. While crude oil production increased 30%, natural gas output was up 17% - thanks to the contribution from BG Group that was acquired last year. Liquids contributed approximately 58% to Shell’s total volumes, while natural gas accounted for the remaining portion.

During the quarter under review, Shell generated cash flow from operations of $9,170 million, returned $3,800 million to shareholders through dividends and spent $6,900 million on capital projects. (Read more: Royal Dutch Shell's Q4 Earnings Hit by Refining Woes.)

3.    Upstream energy player ConocoPhillips (COP Quick QuoteCOP - Free Report) reported fourth-quarter 2016 adjusted loss of 26 cents per share, narrower than the Zacks Consensus Estimate of a loss of 38 cents and the year-ago-quarter adjusted loss of 90 cents. Significantly low expenses as well as higher commodity price realizations led to the improvement, which was partially offset by normal field declines and dispositions.

The company reported expenses of $7.3 billion in the fourth quarter as against $11.8 billion in the October–December quarter of 2015. Average realized price for oil was $47.05 per barrel compared with $40.35 in the year-earlier quarter. Natural gas liquids were sold at $21.82 per barrel as against $16.42 a year ago. The price of natural gas was $3.44 per thousand cubic feet compared with $3.36 in fourth-quarter 2015.  

Daily production from continuing operations averaged 1.596 million barrels of oil equivalent (MMBOE) in the quarter as against 1.599 MMBOE in the year-ago quarter. ConocoPhillips' first-quarter 2017 production guidance is in the range of 1,540–1,580 MBOED. For 2017, ConocoPhillips projects output between 1,540 MBOED and 1,570 MBOED. Also, the company anticipates 2017 capital expenditures of $5 billion. (Read more: ConocoPhillips Incurs Narrower-than-Expected Q4 Loss.)

4.    Despite a challenging margin environment, Ohio-based independent oil refiner and marketer Marathon Petroleum Corp. (MPC Quick QuoteMPC - Free Report) reported strong fourth-quarter earnings on the back of solid operational performance.

Amid pressure from hedge fund Elliott Management to enhance shareholder value, Marathon Petroleum said that it would speed up the previously announced plan to dropdown certain assets to its midstream partnership MPLX L.P. The company added that a designated committee to review the separation of its Speedway retail unit – another demand from the activist investor that owns 4% of Marathon Petroleum stock – is expected to provide an update by mid-2017.

Further, the downstream operator announced a cutback in its investments in a project that aims to connect integrate its Galveston Bay and Texas City refineries, by $500 million to $1.5 billion. (Read more: Marathon Petroleum Overcomes Low Margins to Q4 Beat.)

5.    Brazilian state-run integrated energy player Petrobras (PBR Quick QuotePBR - Free Report) announced shareholder approval for the sale of the company’s subsidiary, Liquigas Distribuidora S.A. The decision was taken in the recently held Extraordinary General Meeting. The unit would be sold to local fuel and petrochemical holding firm, Ultrapar Participacoes SA (UGP Quick QuoteUGP - Free Report) , in a deal amounting to R$2.67 billion or $819 million. The closure of the deal is still contingent on the negotiated preceding terms and conditions. Ultrapar currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Petrobras had also announced the divestiture of two other subsidiaries, Suape and Citepe, to Mexico’s Alpek in a deal worth $385 million in late 2016. These units have not been profitable for the company and had led to negative cash flow, requiring regular capital infusion. However, the sale of these units was not included in the agenda of the shareholder meeting as the court has decreed suspension of the sale of these petrochemical units. If the sale is not implemented, Petrobras would have to close the Citepe-Suape Complex as the additional capital requirement is a burden on the company. Petrobras is taking measures to protect shareholders' interest.

These divestiture transactions are in sync with Petrobras’ strategic management plan of 2017–2021 to move out of the petrochemical and LPG distribution business. Further, the company has ambitious asset sales plan of $19.5 billion for 2017–2018 to mitigate its debt/EBITDA ratio to 2.5 times by 2018. (Read more: Petrobras Gets Shareholder Approval for Liquigas Sale.)

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.

Over the course of last week, ‘The Energy Select Sector SPDR’ was down 2.07%. Consequently, investors witnessed selling in most market heavyweights. The worst performer was offshore rig supplier Transocean Ltd. (RIG Quick QuoteRIG - Free Report) whose stock price fell 8.75%.

But longer-term, over the last 6 months, the sector tracker gained 6.36%. Houston, TX-based energy explorer ConocoPhillips was one of the major beneficiaries during this period, experiencing a 20.52% price increase.

What’s Next in the Energy World?

As usual, market participants will be closely tracking the regular releases i.e. the U.S. government data on oil and natural gas. Energy traders will also be focusing on the Baker Hughes data on rig count. However, the 2016 Q4 earnings again remain the primary focus this week, with a number of S&P 500 members coming out with quarterly results.

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