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Oil & Gas Stock Roundup: Q1 Earnings From SLB, HAL, BKR, KMI & VLO

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It was a week wherein oil prices finished lower but natural gas futures logged a small gain.

On the news front, energy companies Schlumberger (SLB - Free Report) , Halliburton (HAL - Free Report) , Baker Hughes (BKR - Free Report) , Kinder Morgan (KMI - Free Report) and Valero Energy (VLO - Free Report) reported March-quarter earnings.

Overall, it was a mixed week for the sector. West Texas Intermediate (WTI) crude futures lost 1.7% to close at $62.14 per barrel, while natural gas prices rose 1.9% in the week to end at $2.73 per million British thermal units (MMBtu). In particular, the oil market hit a speed bump after posting a gain the previous week.

Coming back to the week ended Apr 23, oil prices fell, as rising inventories and a dramatic increase in COVID-19 cases in India (one of the world’s biggest importers of the fuel) outweighed stronger gasoline demand and a decline in distillate supplies.

Meanwhile, natural gas finished up on favorable weather predictions and the ongoing strength in liquefied natural gas demand.

Recap of the Week’s Most-Important Stories

1.  Schlumberger’s first-quarter 2021 earnings of 21 cents per share (excluding charges and credits) surpassed the Zacks Consensus Estimate of 19 cents. The better-than-expected bottom line can be attributed to higher contributions from Latin America and several other countries as well as increased profitability from Asset Performance Solutions projects.

Despite the company’s $112 million of severance payments through the March quarter, the oilfield service firm was able to generate free cash flow of $159 million. The figure was $179 million in the year-ago quarter. Capital expenditures for the quarter were recorded at $178 million, lower than the year-ago period’s $407 million. As of Mar 31, 2021, the company had approximately $2,910 million in cash and short-term investments plus $15,834 million of long-term debt. This represented a debt-to-capitalization of 55%.

Schlumberger believes that there has been an increase in optimism for fuel demand recovery in 2021, thanks to the rolling out of coronavirus vaccines and economic stimulus measures. Schlumberger expects demand to increase by 5-6 million barrels of oil per day (MMBbls/d) by 2021-end. It anticipates 2021 exit demand rate for oil to be only 2 MMBbls/d lower than the 2019 figure. This in turn will boost oilfield services and activities in international markets through 2021-end and beyond. (Schlumberger Q1 Earnings Beat on Latin America Growth)

2.   Smaller rival Halliburton beat the first-quarter Zacks Consensus Estimate for earnings with stronger-than-expected profit from its Drilling and Evaluation segment. The company reported net income per share of 19 cents, beating the Zacks Consensus Estimate of 17 cents.

The Drilling and Evaluation unit profit declined from $217 million in the first quarter of 2020 to $171 million in the corresponding period of 2021, thanks to ramped-down drilling-related operations in Asia. However, the segmental income outperformed the Zacks Consensus Estimate of $129 million, attributable to improved project management activity internationally, strengthened drilling-related facilities and wireline activity in the Western Hemisphere and Norway as well as increased software sales worldwide.

The world’s biggest provider of hydraulic fracking noted that the North American activity levels are finally gathering momentum. The company’s disciplined execution, cost-cutting measures, its emphasis on technological advancements and digital investments along with improvements in service offerings should lead to strong margins, internationally, as well as value optimization in North America. With the most encouraging macro backdrop in months and the sector’s recovery from the coronavirus-induced depths, Halliburton is targeting industry-leading returns and a strong free cash flow. (Halliburton Q1 Earnings Beat Estimates, Revenues Meet)

3.  Baker Hughes — the third major provider of technical products and services to drillers of oil and gas wells — reported first-quarter 2021 adjusted earnings of 12 cents per share, a penny ahead of the Zacks Consensus Estimate. The strong quarterly earnings were owing to higher contributions from the Turbomachinery & Process Solutions business unit and increased cost productivity.

As of Mar 31, 2021, the Zacks Rank #3 (Hold) company had cash and cash equivalents of $4,382 million. At first-quarter end, it had a long-term debt of $6,733 million, implying a debt to capitalization of 30.4%. Baker Hughes’ net capital expenditure for the first quarter totaled $180 million. Meanwhile, the company generated positive free cash flow of $498 million in the reported quarter.

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

The company believes that there will be recovery in oil demand and global economy in 2021 that has been hit badly by the coronavirus pandemic. The oilfield service firm also expects the industry to be in a footing for stronger recovery in 2022 as spending and activity levels are gradually gaining momentum. (Baker Hughes Q1 Earnings Beat Estimates, Increase Y/Y)

4.  Energy infrastructure provider Kinder Morgan posted first-quarter 2021 adjusted earnings per share of 60 cents, handsomely beating the Zacks Consensus Estimate of 23 cents. The strong quarterly earnings were aided by higher contribution from Texas intrastate systems and the Tennessee Gas Pipeline during the winter storm in February. Moreover, favorable conditions in the CO2 segment boosted the results.

The company announced a hike of 3% in first-quarter 2021 dividend from the fourth-quarter 2020 level, as previously planned. The latest dividend of 27 cents per share translates to $1.08 on an annualized basis. The dividend is expected to be paid on May 17 to Kinder Morgan’s shareholders of record as of Apr 30.

Notably, Kinder Morgan significantly raised its 2021 net income expectation to the range of $2.7-$2.9 billion. The company projects DCF for this year within $5.1-$5.3 billion. In 2021, the leading North American energy infrastructure company expects $900 million to be used in sustaining capital expenditures. The company further informed that its Louisiana Pipeline’s Acadiana expansion plan is expected to come online by first-quarter 2022. (Kinder Morgan Q1 Earnings Beat on Texas Winter Storm)

5.  Refining giant Valero Energy reported first-quarter 2021 loss of $1.73 per share, narrower than the Zacks Consensus Estimate of a loss of $1.91. This was attributable to improvement in product demand.

Refining margin per barrel of throughput decreased to $6.68 from the year-ago level of $7.24. Refining operating expense per barrel was $6.78 compared with $3.87 in the year-ago quarter. Depreciation and amortization expenses increased to $2.46 a barrel from $2.09 in the prior-year quarter. As such, adjusted refining operating loss was recorded at $2.56 per barrel of throughput against the year-ago profit of $1.28.

First-quarter capital investment totaled $582 million. Of the total amount, $333 million was allotted for sustaining the business. Through the March quarter, the leading independent refiner and marketer of petroleum products returned $400 million to stockholders as dividend payments. At quarter-end, Valero had cash and cash equivalents of $2,254 million. As of Mar 31, 2021, it had a total debt of $14,664 million, signifying a debt to capitalization of 45.2%. (Valero Energy Q1 Earnings Beat Estimates, Revenues Miss)

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%                +61.8%
CVX               -1.4%                +39.1%
COP              -2.7%                +52%
OXY               +1.1%               +140.5%
SLB              -2.2%                 +64%
RIG               -8.2%                 +281%
VLO              -3.2%                 +63.2%
MPC             -2.3%                 +74.2%

The Energy Select Sector SPDR — a popular way to track energy companies — was down 1.8% last week. The worst performer was offshore driller Transocean (RIG - Free Report) whose stock slumped 8.2%.

But over the past six months, the sector tracker has gained 55%. On the other end of the spectrum this time, Transocean was a major gainer, experiencing a 281% 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 and successful vaccine deployments, 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. There will also be 2021 Q1 earnings, with a number of S&P 500 components and ‘Big Oil’ companies coming up with quarterly results. Finally, news related to coronavirus vaccine approval/rollout/distribution will be of utmost importance.

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