It was a week where both oil and prices stayed rather flat.
On the news front, integrated major TOTAL S.A. (TOT - Free Report) wrapped up 2016 with strong fourth quarter results, while oil and gas producer Parsley Energy (PE - Free Report) purchased more properties in the oil-rich Permian Basin for about $2.8 billion.
Overall, it was an uneventful week for the sector. While West Texas Intermediate (WTI) crude futures remained essentially unchanged for the week to close at $53.86 per barrel, natural gas prices inched down 1% to $3.034 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon, Shell's Contrasting Q4 Numbers and More.)
Oil prices again found themselves locked in a sideways trading range, as the tug-of-war over two powerful, opposing supply narratives continue.
Reports indicated an impressive 90% compliance level from the OPEC producers who pledged output cuts in an effort to tackle the three-year supply glut. A publication from energy watchdog IEA showing an increased global oil demand growth forecast provided further support.
However, a fifth-consecutive weekly rise in domestic oil supplies and a burgeoning rig count – pointing to the resurgence in shale drilling activities – kept prices under check.
Meanwhile, natural gas also showed a lack of movement as an in-line supply report was offset by predictions of warming trend that could restrict the fuel’s demand.
Recap of the Week’s Most Important Stories
1. Higher production and realized prices helped French integrated oil and gas company TOTAL S.A. report fourth-quarter 2016 operating earnings of 96 cents per share (€0.89 per share), ahead of the Zacks Consensus Estimate of 92 cents. The fourth-quarter operating earnings improved 9% from the year-ago tally of 88 cents per share (€0.80 per share).
Total hydrocarbon production during fourth-quarter 2016 averaged 2,462 thousand barrels of oil equivalent (kboe) per day, up 4.7% year over year. The increase was primarily driven by new project startups, partially offset by the natural field decline and maintenance operations. Meanwhile, realized hydrocarbon prices gained 8% to $35.6 per barrels of oil equivalent (boe) from $33.1 in fourth-quarter 2015. TOTAL currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For 2017, TOTAL expects production from the upstream segment to improve by 4% year over year. The company also continues to work on cost management initiatives and targets cost savings of $3.5 billion in 2017. (Read more: TOTAL Beats Q4 Earnings Estimates; Issues '17 Outlook.)
2. U.S.-based upstream company Parsley Energy Inc. recently entered into an agreement with Double Eagle Energy Permian, LLC to acquire certain assets in the oil-rich Permian basin for $2.8 billion.
Half of the consideration amount will be paid in cash financed through equity and debt offerings. The other half will consist of 39.4 million units of Parsley’s stock, valued at $1.4 billion.
Upon the execution of the deal, the acquisition will add about 71,000 net acres in the Midland Basin bringing the total Permian Basin net acreage portfolio to 227,000 acres. The deal is expected to close by Apr 20 subject to purchase price adjustments and customary closing conditions.
Most of the energy companies are boosting their acquisition activities in the Permian region due to the region’s extensive pipeline network, ample labor supplies and favorable climate. This is Parsley’s second Permian deal in less than a month after it announced the acquisition of Permian acreage on Jan 10, for $607 million. The company plans to enhance its drilling and completion activity on its expanded asset base and therefore has revised its capex and operating guidance. (Read more: Parsley Inks Permian Acquisition Deal, Updates Guidance.)
3. Houston-based energy explorer Occidental Petroleum Corp. (OXY - Free Report) reported fourth-quarter 2016 loss of 13 cents per share, wider than the Zacks Consensus Estimate of a loss of 3 cents on lower production. The company’s average daily net oil, liquids and gas production volume decreased 10.7% year over year to 607,000 barrels of oil equivalents per day (Boe/d).
However, results improved from the year-ago quarter loss of 17 cents on cost cuts and higher realizations. Realized prices for worldwide crude oil increased 17% year over year to $45.08 per barrel. Worldwide realized NGL prices increased 31% to $18.36 per barrel, while natural gas prices were up 42.4% to $1.88 per thousand cubic feet. As it is, over the two-year downturn Occidental have been able to lower its operating expenses by 27% on a per-barrels of oil-equivalent basis and reduced drilling and completion costs 33%.
The company estimates its 2017 total capital program to be between $3 billion and $3.6 billion, while expecting production from core assets to grow 4-7%. (Read more: Occidental Petroleum Q4 Loss Wider, Revenues Beat)
4. Integrated energy player EQT Corp. (EQT - Free Report) declared that it has succeeded in winning a bankruptcy auction bid to purchase 53,400 net acres of land in the core Marcellus area. The transaction is anticipated to complete on Feb 28.
EQT is likely to buy the acres for approximately $527 million from independent oil and natural gas finder Stone Energy Corp. The acquisition comprises drilling rights from 44,100 net acres of land in the Utica shale along with present natural gas production of roughly 80 MMcfe (million cubic feet equivalent) every day. Location wise, Utica is situated a few thousand feet below the Marcellus Shale.
The company added that to-be-purchased properties are inside its core operating regions that are liquid rich. Most importantly, the areas will complement the adjacent operations of EQT Corporation. With the acquisition, the company will likely have 173 new Marcellus areas, comprising 174 Marcellus wells. Out of the total, 123 wells have been developed while the remaining 51 are in progress. The assets also include gathering pipeline – covering 20 miles – along with 32,000 acres of area located outside the core operating locality of EQT. (Read more: EQT Corporation to Purchase Marcellus Acres for $527M.)
5. Leading upstream energy company Pioneer Natural Resources Co. (PXD - Free Report) reported fourth-quarter 2016 earnings, excluding one-time items, of 49 cents per share. The bottom line surpassed the Zacks Consensus Estimate of 30 cents per share. Notably, the company had posted adjusted loss of 18 cents per share in the year-earlier quarter. Significantly high commodity prices realizations, along with Spraberry/Wolfcamp horizontal drilling program, mainly resulted in the strong fourth-quarter results.
Total production in the reported quarter averaged approximately 242 thousand barrels of oil equivalent per day (MBOE/d), up 12.6% year over year. The Spraberry/Wolfcamp horizontal drilling program of the company led to the outperformance. On an oil equivalent basis, average realized price was $33.84 per barrel in the reported quarter as against $25.72 a year ago.
For 2017, Pioneer intends to spend $2.8 billion in total. Of this, it has planned drilling and completion capex of $2.5 billion and capital for water infrastructure, vertical integration and field facilities of $275 million. Pioneer expects production to average between 243 MBOE/d and 248 MBOE/d in the first quarter of 2017. The company expects production growth in 2017 between 15% and 18%. (Read more: Pioneer Natural Q4 Earnings Beat, Reserves Increase)
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.
Last 6 Months
Over the course of last week, ‘The Energy Select Sector SPDR’ was up 1.33%. Consequently, investors witnessed buying in most market heavyweights. The best performer was refiner Tesoro Corp. whose stock price rose 6.85%.
Longer-term, over the last 6 months, the sector tracker gained 6.02%. Offshore drilling giant Transocean Ltd. (RIG - Free Report) was one of the major beneficiaries during this period, experiencing a 28.48% 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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