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Oil & Gas Stock Roundup Headlined by Shell, BP, Phillips 66 & Valero Q1 Updates

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

On the news front, energy biggies Royal Dutch Shell (RDS.A - Free Report) , BP plc (BP - Free Report) , Phillips 66 (PSX - Free Report) and Valero Energy (VLO - Free Report) issued updates on their upcoming Q1 earnings. Meanwhile, Canada’s Enerplus (ERF - Free Report) struck a deal to buy some of Hess’ (HES - Free Report) Williston Basin assets for $312 million.

Overall, it was a not-so-good week for the sector. West Texas Intermediate (WTI) crude futures lost 3.5% to close at $59.32 per barrel and natural gas prices fell 4.3% in the week to end at $2.53 per million British thermal units (MMBtu). In particular, the oil market hit a speed bump after posting a small gain the previous week.

Coming back to the week ended Apr 9, oil prices posted a decline, as rising COVID-19 cases in densely populated countries like Brazil and India heightened worries about energy demand. Prices were also dragged down by the U.S. government data showing a weekly build in gasoline and distillate supplies.

Natural gas finished down too on the prospect of moderate spring temperatures and dull power demand.

Recap of the Week’s Most-Important Stories

1.  Royal Dutch Shell recently provided an update on its first-quarter 2021 guidance. The Texas winter storm disrupted the company’s operations and is estimated to bear a negative impact of up to $200 million on its adjusted earnings.

The upstream production is projected between 2,400 and 2,475 thousand barrels of oil equivalent per day (boe/d). Shell had earlier predicted its first-quarter 2021 upstream volumes to be 2,400-2,600 thousand boe/d. The narrower range reflects the impact of the Texas winter storm. Taking into account the improvement in currently realized liquid prices, the Zacks Rank #1 (Strong Buy) company expects to recognize positive adjusted earnings from this segment. Shell estimates first-quarter oil product sales in the band of 3,700-4,700 thousand barrels per day.

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

The company’s chemical sales volumes are predicted between 3,500 and 3,700 thousand tons with the plant utilization of 77-81% of the producing volumes. The company expects first-quarter LNG liquefaction volumes to contract to 7.8-8.4 million tons from its previous year’s quarterly output of 8.88 million tons. (Shell Renews Q1 View, Foresees Lower Upstream Output)

2.  BP is expected to have reached the $35-billion net debt goal in first-quarter 2021, as announced by the company. Following the announcement, the stock jumped 3.5% as its debt burden has been a concern for investors for a long time. Reaching the debt-reduction target early will boost its financial flexibility.

The company had net debt of $38.9 billion at fourth quarter-end. On the earnings call during that period, management highlighted its target of reaching $35 billion net debt by fourth-quarter 2021 or first quarter next year. A strong first-quarter performance supported by trading activities and earlier-than-expected proceeds received from disposals have enabled the company to reach the goal well ahead of schedule.

In the March quarter, the company received about $4.7 billion in proceeds from disposal, which included stake sale in Oman’s Block 61, global petrochemical divestment to INEOS and others. As a result, the British energy giant is now expecting 2021 disposal proceeds to be at the upper limit of the $4-6 billion guided range. It expects to generate a total of $25 billion from asset sale by 2025, of which it has already received $10 billion. (BP Reduces Debt Load Ahead of Schedule on Strong Q1 Show)

3.  Phillips 66 has provided preliminary financial information about the March quarter of this year. The diversified energy manufacturing and logistics company announced that its operations in the Central and Gulf Coast regions were significantly affected by the severe winter storms. Notably, the storm caused havoc to power and gas supply systems in U.S. central and southern states, thereby affecting the utilization of the company’s assets. The storm also led to higher expenses associated with utility, maintenance and repair across the company’s Midstream, Chemicals and Refining business units. With the surge in natural gas and electricity prices across several markets, following the winter storm-induced supply outages, the company witnessed an uptick in utility expenses.

Phillips 66 added that dented global demand for refined petroleum products owing to the coronavirus pandemic continued to hurt its Refining and Marketing and Specialties segments in the first quarter of this year. It is to be noted that the company projects its utilization of the chemical plants at mid-70% in the March quarter, lower than its prior guidance of mid-90%.

Importantly, Phillips 66 projects adjusted net loss of $550 million to $700 million for the first quarter. This is owing to the fierce winter storm that hurt the production line and bumped up costs. (Phillips 66 Sees US Storm Impact on Q1 Bottom Line)

4.  Valero Energy recently provided an update on its March quarter. The international manufacturer and marketer of transportation fuels and petrochemical products added that its refining and ethanol business segments were impacted significantly by a severe winter and ice storm, dubbed unofficially as Winter Storm Uri.

Notably, the storm, which caused havoc to power systems in Texas, led the company to predict higher-than-expected incurrence of costs associated to natural gas and electricity through the first quarter of 2021 by its refining and ethanol units.

The company has made the estimation of the excess energy costs in the range of $520 million to $535 million. The company added that the excess costs mostly affected its refining businesses across the U.S. Gulf Coast region and U.S. Mid-Continent region. Following the severe impact of the winter storm, Valero Energy now projects first-quarter net loss attributable to its stockholders in the band of $1.81 to $2.05 per share. (Valero Sees Winter Storm Uri Impact on Q1 Bottom Line)

5.  Enerplus recently announced an agreement with Hess. Notably, the companies have valued the transaction at $312 million of cash considerations. Per the accord, likely to get closed in May 2021, Enerplus will be acquiring assets in the Williston Basin. The to-be acquired assets signify 78,700 largely contiguous net acres in Dunn County, North Dakota. Importantly, the core acreage has a strong inventory of premium drilling locations, brightening the production outlook.

Enerplus, an independent oil and gas exploration and production company in North America, also recently made a major update to its guidance for 2021 in connection with the acquisition of the assets. The company has revised its 2021 daily production guidance from 103,500 to 108,500 barrel of oil equivalent (BoE) to 111,000 to 115,000 BoE. Enerplus has also revised its capital spending guidance for this year from $335-$385 million to $360-$400 million.

The company also predicts cumulative free cashflow of $1.2 billion to $1.8 billion from 2021 to 2025 with the assumption that West Texas Intermediate (WTI) crude price will be between $50 per barrel and $55 per barrel. (Enerplus Signs Deal With Hess to Acquire Williston Acres)

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               -2.6%                +61.3%
CVX               -2.7%                 +38.1%
COP              -5.2%                 +43.9%
OXY               -10.2%              +127.5%
SLB               -4.8%                 +66%
RIG               -10.2%                +308.3%
VLO               -5.6%                  +65%.
MPC              -5.3%                  +73.3%

The Energy Select Sector SPDR — a popular way to track energy companies — was down 4.2% last week. The worst performer was offshore driller Transocean (RIG - Free Report) whose stock slumped 10.2%.

But over the past six months, the sector tracker has risen 56.1%. On the other end of the spectrum this time, Transocean was a major gainer, experiencing a 308.3% price appreciation.

What’s Next in the Energy World?

As global oil consumption gradually ticks up from the depths of coronavirus amid the OPEC+ led calibrated supply cuts, 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 closely followed too. Finally, news related to coronavirus vaccine approval/rollout/distribution will be of utmost importance.

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