It was a week where both oil and gas prices logged handsome gains.
On the news front, oil refiners Valero Energy Corp. (VLO - Free Report) and Marathon Petroleum Corp. (MPC - Free Report) raised their respective quarterly dividends. Meanwhile, driller Helmerich & Payne Inc. (HP - Free Report) came out with better-than-expected first-quarter fiscal 2018 results.
Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained about 4.5% to close at $66.14 per barrel, while natural gas prices soared 10% to $3.505 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Schlumberger & Halliburton's Q4, BP's Horizon Woes & More)
The U.S. oil benchmark recorded its fifth increase in six weeks, attaining its highest closing since December 2014. The major catalyst was the Energy Department's inventory release, which revealed that crude stockpiles recorded another weekly draw. A tumbling dollar – that made the greenback-priced crude more affordable for investors holding foreign currency – provided further support.
Oil stockpiles have shrunk in 34 of the last 42 weeks and are down almost 114 million barrels since April. The gradual fall has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 411.6 million barrels, current crude supplies are 15.7% below the year-ago period and the lowest since February 2015.
Meanwhile, natural gas – one of 2017’s worst-performing commodities – had an excellent week of its own following a larger-than-expected decrease in supplies. The 288 billion cubic feet (Bcf) withdrawal was also was significantly higher than both last year’s drop of 137 Bcf and the five-year (2013-2017) average net shrinkage of 164 Bcf for the reported week.
Recap of the Week’s Most Important Stories
1. Valero Energy Corporation's board of directors recently announced plans to raise regular quarterly cash dividend to 80 cents per share from 70 cents per share, representing an increase of 14.3%.
Following the hike, the company’s new annualized dividend will amount to $3.20 per share, up from $2.80 distributed earlier. This revised quarterly stock dividend is expected to be payable on Mar 6, 2018, to stockholders of record on Feb 13, 2018. Notably, the company’s dividend per share has been witnessing a rising trend for the last three years.
Along with the decision to increase dividend, Valero announced that it has sanctioned share repurchase of $2.5 billion. We would like to remind investors that the company, per its previous declaration, has an authorization to repurchase $1.2 billion of shares. The latest addition takes the total authorization to $3.7 billion. (Read more Valero Hikes Dividend, Boosts Share Buyback Capacity)
2. The board of directors of Marathon Petroleum Corporation recently approved a 15% hike in its quarterly dividend. The Zacks Rank #1 (Strong Buy) company will now reward shareholders with a dividend of 46 cents per share compared with 40 cents earlier. This translates to an annualized dividend of $1.84 per share. The increased dividend will be paid on Mar 12, 2018 to shareholders of record as of Feb 21, 2018. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The oil refining and marketing giant was able to pull off the dividend hike due to the strategic actions it undertook last year for generating long-term cash flow. Notably, Marathon Petroleum's $8.1 billion drop-down deal with its midstream subsidiary MPLX L.P. bodes well for the company as it will lead to huge cash influx, boosting dividend and buyback programs. Moreover, the recent tax reform by the U.S. government has reduced the company's cash burden, leading to the hike.
Marathon Petroleum is known for raising dividends since it became a standalone public company in mid-2011. Additionally, it has an active share repurchase program. These highlight the company’s commitment to return more value to shareholders. Notably, the dividend hikes and buybacks, since the company's inception, have totaled $13 billion. (Read more Marathon to Reward Shareholders With 15% Dividend Hike)
3. Contract drilling services provider Helmerich & Payne Inc. reported first-quarter fiscal 2018 adjusted operating loss of 2 cents per share, narrower than the Zacks Consensus Estimate of a loss of 14 cents. The outperformance was primarily driven by higher drilling activity at its biggest segment – U.S. Land. The bottom line also compared favorably with the year-ago adjusted loss of 41 cents.
During the quarter, operating revenues at its U.S. Land unit totaled $461.6 million (81.8% of total revenues), up 75.1% year over year. While average rig revenue per operating day was $22,400 — 10.7% below the year-ago period — average rig margin per day was down 7.6% to $8,854. However, utilization levels of 57% in the quarter under review (versus 31% in first-quarter fiscal 2017) resulted in an operating income of 24.7 million at the segment marking a turnaround from the year-ago loss of $30.9 million.
The company expects activity in the U.S. land segment to rise by 3-4% sequentially during the second fiscal quarter of 2018. While the average rig revenue per day is likely to be flat compared with the first fiscal quarter, daily average rig cost is expected to be roughly $13,900 during next quarter.
During the quarter, Helmerich & Payne spent approximately $91.7 million on capital programs. As of Dec 31, 2017, the company had approximately $383.7 million in cash, while long-term debt stood at $493.2 million (debt-to-capitalization ratio of 9.7%). (Read more Helmerich & Payne Q1 Loss Narrows on Solid U.S. Land)
4. Shares of McDermott International, Inc. rallied around 14.3% to eventually close at $8.98 on Jan 24 after the company issued an upbeat guidance for full-year 2017.
The energy services player anticipates earnings per share between 60 cents and 63 cents as against the prior estimate of 53 cents. McDermott now expects the EBITDA to be in the range of $400-$410 million compared with the prior guidance (issued along with the third quarter results) of $395 million.
The improved outlook compares favorably with the 2016 EBITDA of $293 million. The year-over-year increase and the upbeat view primarily comes on the back of strong project execution and cost efficiencies during the fourth quarter.
Additionally, McDermott now expects the operating margin between 10.7% and 10.9% for full-year 2017 versus the earlier forecast of 9.8%. Also, the company expects the net income in the range of $170-$180 million as against the earlier forecast of $150 million. Further, the forecasted net income for the full year reflects a massive increase from the year ago reported figure of $89 million. (Read more: McDermott Rallies More Than 14% on Bullish 2017 Outlook)
5. Patterson-UTI Energy, Inc. (PTEN - Free Report) shares declined more than 2% in the wake of an explosion in a well in Quinton, OK, owned by Red Mountain Energy. The tragedy, one of the deadliest oil and gas related accidents in the last few years, occurred at one of Patterson-UTI's APEX 1500 rigs. The rig had operated for 10 days and dug 13,500 feet when the accident took place. Notably, the company has 25 drilling rigs online in the state.
Although the reason for the explosion is still not clear, gas from the well may have been a factor. Out of the 22 workers at the site, 16 managed to escape while five went missing. Their bodies were found in an adjacent building, one day after the explosion took place. Three of them were working for Patterson-UTI.
Halliburton’s well control and prevention service providing unit, Boots & Coots was summoned to extinguish the fire at this eastern Oklahoma site. Currently, the U.S. Chemical Safety Board and Occupational Safety and Health Administration of the United States are investigating the disaster. The public utilities commission of the state, Oklahoma Corp. Commission, is also examining the incident. (Read more Patterson-UTI Stock Falls After Explosion at Oklahoma Well)
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
In line with the week’s bullish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +1.4% return last week. The best performer was Houston-based energy explorer Occidental Petroleum Corp. (OXY - Free Report) whose stock slumped 2.4%.
Longer-term, over 6 months, the sector tracker is up 14.8%. Independent refiner Valero Energy Corporation was the major gainer during this period, experiencing a 44.5% price appreciation.
What’s Next in the Energy World?
As usual, market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas -- one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count.
However, the 2017 Q4 earnings again remain the primary focus this week, with some of the integrated energy majors coming out with quarterly results.
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