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Oil & Gas Stock Roundup Headlined by SLB, KMI & BKR's Q4 Earnings

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It was a week when both oil and natural gas prices settled lower.

On the news front, energy companies Schlumberger (SLB - Free Report) , Kinder Morgan (KMI - Free Report) and Baker Hughes (BKR - Free Report) reported December-quarter earnings.

Overall, it was not a good week for the sector. West Texas Intermediate (WTI) crude futures edged down a marginal 0.3% to close at $52.27 per barrel, while natural gas prices fell around 11% in the week to end at $2.446 per million Btu (MMBtu). In particular, the oil market hit a speed bump after posting a gain in the previous three weeks.

Coming back to the week ended Jan 22, oil prices fell after a U.S. government data showed a surprise increase in crude stockpiles. The commodity’s negative price reaction was also blamed on a fresh COVID-19 outbreak in China that triggered a new wave of lockdowns — inflicting another blow to fuel consumption.

Natural gas finished down too following the prospect of less heating consumption due to unfavorable changes in the weather data.

Recap of the Week’s Most-Important Stories

1.  Schlumberger’s fourth-quarter 2020 earnings of 22 cents per share (excluding charges and credits) surpassed the Zacks Consensus Estimate by 18 cents. The better-than-expected bottom line can be attributed to contributions from digital solutions and multiclient seismic license sales.

Despite the company’s $144 million of severance payments through the December quarter, the oilfield service firm was able to generate free cash flow of $554 million. Capital expenditures in the quarter were recorded at $258 million. As of Dec 31, 2020, the company had approximately $3,006 million in cash and short-term investments plus $16,036 million of long-term debt. This represented a debt-to-capitalization ratio of 57.5%.

The world’s largest oilfield services firm believes that there has been an increase in optimism for fuel demand recovery in 2021, thanks to the rise in oil price owing to the rolling out of coronavirus vaccines and economic stimulus measures. Schlumberger added that it will take no later than 2023 for crude demand to rebound back to the pre-pandemic levels of 2019. This in turn will boost oilfield services and activities in North America and the international markets. (Schlumberger Q4 Earnings & Revenues Beat Estimates)

2.  Energy infrastructure provider Kinder Morgan posted fourth-quarter 2020 adjusted earnings per share of 27 cents, beating the Zacks Consensus Estimate of 24 cents. The bottom line also increased from the year-ago quarter’s profit of 26 cents.  The strong quarterly earnings were aided by contributions from the Texas Intrastate systems and Natural Gas Pipeline of America.

As of Dec 31, 2020, Kinder Morgan reported $1,184 million in cash and cash equivalents. The company’s long-term debt amounted to $30,838 million at quarter-end. Total debt-to-capitalization ratio at the end of the fourth quarter was 51.2%.

The midstream infrastructure provider expects its board of directors to hike dividend payment for 2021 by 3% to $1.08 per share (annualized). Notably, Kinder Morgan projects 2021 net income of $2.1 billion or earnings of 92 cents per share. The company also projects DCF for this year at roughly $4.4 billion. In 2021, the leading North American energy infrastructure company is planning to invest $800 million in expansion projects and contributions to joint ventures. (Kinder Morgan Q4 Earnings & Revenues Beat Estimates)

3.  Baker Hughes — a provider of technical products and services to drillers of oil and gas wells — reported fourth-quarter 2020 adjusted loss of 7 cents per share against the Zacks Consensus Estimate of a profit of 16 cents. The year-ago adjusted profit was 27 cents per share. The weak earnings were primarily due to lower profits from the company’s Oilfield Services and Digital Solutions units.

As of Dec 31, 2020, the Zacks Rank #3 (Hold) company had cash and cash equivalents of $4,132 million, up from $4,061 million in the third quarter. At fourth-quarter end, it had a long-term debt of $6,744 million, down sequentially from $6,754 million. It had debt to capitalization of 27%.

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

The company, being able to overcome oil market volatility in 2020, expects market activity to stabilize going forward. Baker Hughes is cautiously optimistic as it expects the world economy and demand for oil to recover in 2021. In the first half of the year, the company expects tepid investment in hydrocarbons, which will gain momentum with time. (Baker Hughes Q4 Earnings Lag, Oil Demand to Recover in 2021)

4.  In keeping with his campaign promise, the new U.S. President Joe Biden revoked the permit of Keystone XL pipeline — TC Energy’s (TRP - Free Report) contentious project that would have transported crude from the oil sands region of Canada to the American markets. Designed to carry 830,000 barrels of crude a day from Alberta’s oil sands to U.S. Gulf Coast refineries, the 1,947-kilometer conduit was seen as a solution to the takeaway constraints in Canada.

While the company could appeal the rejection through the courts or the New North American trade deal, it seems that TC Energy has essentially given up on the project. In a press release, the company expressed “disappointment” with the action and said that it will halt work on the pipeline. With the project construction already starting last year (after the Alberta government took an equity interest of $1.1 billion), the executive order meant that TC Energy will have to let go in excess of 1,000 workers.

Following the Keystone XL axe, Canadian oil sands producers would have to wait a little longer for the takeaway capacity issue to be resolved. However, the coronavirus-induced slump in production and the impending Enbridge expansion should solve most of the issues surrounding the availability of the export pipeline in the near future.(Keystone XL's Doom Clouds Regulatory Landscape for Pipelines)

5.  Eni’s (E - Free Report) majority-owned subsidiary Var Energi AS has been granted 10 exploration licenses by the Norwegian Ministry of Petroleum and Energy. Var Energi is one of the largest exploration and production companies on the Norwegian Continental Shelf and has been awarded the licenses as part of the Awards in Predefined Areas 2020 licensing process.

Notably, Eni has a 69.85% equity interest in the company, while HitecVision AS owns the remaining stake. HitecVision is a Norway-based private investment company, which focuses on the upstream segment of the energy industry.

Of the 10 exploration licenses, the Italian energy giant acquired five of the licenses as operators and five as partners. Importantly, the license area of all the awards covers the three major oil and gas provinces in the Norwegian Continental Shelf, including the North Sea, the Norwegian Sea and the Barents Sea. (Eni's Var Energi Wins 10 Exploration Licenses in Norway)

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                 -1%                  +9.2%
CVX                  -0.4%              +1.8%
COP                 -5.4%              +6%
OXY                  -4%                 +28.4%
SLB                  -2%                 +25.3%
RIG                   -16.5%           +22.4%
VLO                  +2%                +2.5%
MPC                 +4%                +18.2%

The Energy Select Sector SPDR — a popular way to track energy companies — was down1.6% last week. The worst performer was offshore driller Transocean (RIG - Free Report) whose stock slumped 16.5%.

But for the longer term, over six months, the sector tracker is up 12.2%. Houston-based oil and gas producer Occidental Petroleum (OXY - Free Report) was the major gainer during the period, experiencing a 28.4% price appreciation.

What’s Next in the Energy World?

As global oil consumption gradually ticks up from the depths of coronavirus, market participants will be closely tracking the regular releases to watch for signs that could further validate a rebound. 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. Finally, news related to coronavirus vaccination and additional U.S. stimulus will be of utmost importance.

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