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Oil & Gas Stock Roundup: Breaking Down Big Oil Q3 Earnings

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It was a week when oil prices hit a five-month low but natural gas crossed the $3 threshold.

On the news front, integrated supermajors ExxonMobil (XOM - Free Report) , Chevron (CVX - Free Report) , Royal Dutch Shell (RDS.A - Free Report) , BP plc (BP - Free Report) and TOTAL SE reported September-quarter earnings.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures slumped 10.2% to close at $35.79 per barrel, natural gas prices jumped 12.9% for the week to finish at 3.354 per million Btu (MMBtu).

Oil prices fell to its lowest level since June as the acceleration of coronavirus cases and the subsequent reintroduction of stay-at-home orders in many countries threaten to slow down the fragile recovery in consumption.

On the other hand, natural gas surged to a 21-month high on the back of booming LNG export. and expectations of cold weather that should result in the heating fuel’s increased demand.

Recap of the Week’s Most-Important Stories

1.  America’s biggest energy company ExxonMobil reported better-than-expected third-quarter bottom line numbers owing to higher margins from the Chemical business in the United States. The integrated energy giant’s adjusted loss per share of 18 cents was narrower than the Zacks Consensus Estimate of a loss of 28 cents.

During the quarter under review, ExxonMobil generated cash flow of $4.5 billion from operations and asset divestments, substantially down from $9.5 billion a year ago. The company's capital and exploration spending declined 46.5% year over year to $4.1 billion. At the end of third-quarter 2020, total cash and cash equivalents were $8.8 billion and debt amounted to $68.8 billion.

Total production averaged 3.672 million barrels of oil-equivalent per day (MMBoE/D), 5.8% lower than a year ago, reflecting the coronavirus-induced drop in fuel demand and curtailment in volumes as mandated by the government. (ExxonMobil Tops Q3 Earnings Estimates on Chemical Margin)

2.  Rival Chevron reported adjusted third-quarter earnings per share of 11 cents. The Zacks Consensus Estimate was of a loss of 29 cents. The outperformance reflects the integrated energy major’s successful cost-reduction initiatives, which allowed it to lower operating expenses and capital spending by 12% and 48%, respectively, from the year-ago levels in the face of falling commodity prices.

The company recorded $3.5 billion in cash flow from operations, down from $7.9 billion a year ago. The plunge in cash flow could be attributed to lower price realizations in the upstream business. In the third quarter, Chevron paid out $2.4 billion in dividends.

Chevron spent $2.6 billion in capital and exploratory expenditures during the quarter, down significantly from the year-ago period’s $5 billion. More than 78% of the total outlays pertained to upstream projects. As of Sep 30, the San Ramon, CA-based company had $6.9 billion in cash and cash equivalents and total debt of $34.8 billion, with a debt-to-total capitalization of about 20.9%. (Chevron Q3 Earnings Top Estimates, Cost Cuts Help)

3.  Europe’s largest oil company Royal Dutch Shell plc reported third-quarter earnings per ADS (on a current cost of supplies basis, excluding items — the market’s preferred measure) of 24 cents. The Zacks Consensus Estimate was of a loss of 6 cents. The outperformance reflects strong retail gains. On an encouraging note for investors, Royal Dutch Shell boosted its quarterly dividend by about 4% to 16.65 cents after cutting it by two-thirds earlier this year.

As of Sep 30, 2020, the Zacks Rank #3 (Hold) company, which earlier trimmed its payout for the first time since World War II in April, had $35.7 billion in cash and $109.1 billion in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 31.4%, up from 27.9% a year ago. During the quarter under review, Shell generated cash flow from operations of $10.4 billion, returned $1.2 billion to its shareholders through dividends and spent $3.7 billion cash on capital projects.

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

The company’s cash flow from operations fell 15% from the year-earlier level. Meanwhile, the group raked in $76 billion in free cash flow during the third quarter, down from $10.1 billion a year ago. (Shell Q3 Earnings Top, Sales Slump, Dividend Raised)

4.  London-based BP reported third-quarter 2020 adjusted earnings of 3 cents per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The bottom line compared favorably with the Zacks Consensus Estimate of a loss of 9 cents per ADS. The earnings beat was owing to recovering fuel demand and commodity prices in the September quarter since strict social-distancing measures, to combat the coronavirus, were eased across the world.

BP's net debt — including leases — was $49,620 million at third-quarter end, lower than $55,936 million in the prior-year quarter. Gearing was recorded at 33% compared with 31.7% in the prior-year quarter.

Despite the challenging business scenario owing to the pandemic, the integrated major expects the recovery in crude oil demand, which started in spring, to continue. The optimistic view was supported by rising fuel demand in Asia, added BP. However, the company’s view on the refining business is not encouraging. The British energy major issued a challenging outlook for refining margin since demand recovery for gasoline and jet fuel has leveled off and the inventory levels have increased. (BP Tops Q3 Earnings Estimates, Expects Continued Oil Recovery)

5.  French energy giant TOTAL reported third-quarter 2020 operating earnings of 29 cents (€0.24) per share, which beat the Zacks Consensus Estimate of 8 cents by 262.5%. The outperformance reflects successful cost-cut initiatives and the revival of road transportation fuels.

Cash and cash equivalents as of Sep 30, 2020 were $30.6 billion compared with $27.4 billion at 2019 end. Net debt to capital was 22% at quarter end, up from 20.7% at 2019-end. Due to a sharp drop in third-quarter commodity prices, cash flow of the company decreased roughly 46.9% year over year to $4.35 billion.

TOTAL — taking into consideration lower hydrocarbon production in North America, and cash and cash equivalents — expects 2020 production below 290,000 barrels of oil equivalent per day. Given the unprecedented drop in oil prices and global demand for commodities, the company decided to preserve liquidity by cutting down planned capital expenditure. TOTAL now aims to invest $13 billion in 2020, of which $2 billion will be allotted to renewable and electricity. Management expects that it will be able to lower costs by more than $1 billion in 2020 from 2019 levels through cost-saving initiatives. (TOTAL Q3 Earnings Beat Estimates, Production Drops Y/Y)

Price Performance

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

Company    Last Week    Last 6 Months

XOM                -4.5%              -20.7%
CVX                -4.2%               -19.3%
COP               -12%                -22.8%
OXY                -8.9%               -36.7%
SLB                -3%                   -1.1%
RIG                 -20.2%             -41.7%
VLO                -8%                   -32.1%
MPC               -1.3%                +7.1%

The Energy Select Sector SPDR — a popular way to track energy companies — lost 5.5% last week. The worst performer was offshore driller Transocean (RIG - Free Report) whose stock slumped 20.2%.

For the longer term, over six months, the sector tracker has lost 17.2%.Transocean was a major loser during the period, experiencing a 41.7% price decline.

What’s Next in the Energy World?

With rapidly rising new coronavirus cases around the world leading to reimposition of lockdowns and the looming threat of another bout of oil demand weakness, market participants will be closely tracking the regular releases to watch for signs that could validate a revival. In this context, the U.S. government’s statistics on oil and natural gas — one of the few solid indicators that comes out regularly — will be on energy traders' radar. Data on rig count from energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is also closely followed.

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