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Oil & Gas Stock Roundup: Exxon, Chevron, Shell Earnings Miss Despite Oil Rally

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It was a week where both oil and natural gas finished modestly higher.

On the news front, integrated majors ExxonMobil (XOM - Free Report) , Chevron (CVX - Free Report) and Royal Dutch Shell (RDS.A - Free Report) reported second-quarter earnings that improved year over year but came under the Zacks Consensus Estimate.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures edged up 0.6% to close at $68.69 per barrel, while natural gas prices rose some 0.9% to $2.782 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Schlumberger, Halliburton & Baker Hughes' Q2)

The U.S. crude benchmark gained for the first time in four weeks on growing concerns about supply disruption after Saudi Arabia temporarily halted the commodity’s shipments through the strategic Red Sea route following attacks on two of its tankers by Yemen’s Iran-aligned Houthis. The U.S. Energy Department's inventory release showing a larger-than-expected decline in crude stockpiles also buoyed oil futures.

Meanwhile, natural gas prices too moved higher last week following a smaller-than-expected increase in supplies.

Recap of the Week’s Most Important Stories

1.    Energy giant ExxonMobil posted lower-than-expected earnings in second-quarter 2018, thanks to a plunge in oil equivalent production. The rise in energy and feedstock cost and significant maintenance and turnaround work hurt the bottom line. This was partially offset by increased price realizations from liquids. To be precise, the company reported earnings of 92 cents per share, which missed the Zacks Consensus Estimate of $1.26.

Despite ramped up oil equivalent volumes in Permian and Bakken regions, total production averaged 3.647 million barrels of oil-equivalent per day (MMBOE/d), lower than 3.922 MMBOE/d in the year-ago quarter.

During the quarter under review, ExxonMobil generated cash flow of $8.1 billion from operations and asset divestments, higher than $7.1 billion in the year-ago quarter. The energy giant returned $3.5 billion to shareholders through dividends. Capital and exploration spending rose roughly 69% year over year to almost $6.6 billion. (Read more ExxonMobil Earnings Miss Estimates in Q2, Rise Y/Y)

2.    Smaller rival Chevron reported weaker-than-expected second-quarter earnings, pressured by drop in profits in its downstream business, which refines crude oil into fuels like gasoline and diesel oil. The U.S. energy major reported earnings per share of $1.78, lagging the Zacks Consensus Estimate of $2.06. However, the bottom line improved significantly from the year-ago profit of 77 cents amid the recovery in oil prices and production gains.

Chevron’s total production of crude oil and natural gas increased 1.7% compared with last year’s corresponding period to 2,826 thousand oil-equivalent barrels per day (MBOE/d). Apart from the shale assets in the prolific Permian Basin, the rise in output could be attributed to contributions from major capital projects – Gorgon and Wheatstone LNG developments in Australia.

Importantly, Chevron delivered a good cash flow performance this quarter – an important gauge for the oil and gas industry – with $6,855 million in cash flow from operations, up from $4,971 million a year ago. The significant cash flow allowed the company to announce a $3 billion per year share buyback program. (Read more Chevron Sets $3B Buyback Plan Even as Q2 Earnings Miss)

3.    Europe’s largest oil company Royal Dutch Shell plc reported weaker-than-expected second-quarter earnings as lower downstream results more than offset strong contributions from the upstream and the integrated gas segment. The Hague-based Shell reported earnings per ADS (on a current cost of supplies basis, excluding items - the market’s preferred measure) of $1.12, below the Zacks Consensus Estimate of $1.41 but above the year-ago profit of 88 cents.

However, investors looking for clarity on Zacks Rank #2 (Buy) Shell’s promised share buybacks were in for some good news as the company will start the program to repurchase at least $25 billion in common stock in the period 2018-2020. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

During the quarter under review, Shell generated cash flow from operations of $9,500 million, returned $3,900 million to shareholders through dividends and spent $5,771 million on capital projects. Despite falling from the year-ago period, the company’s resilient cash generation has helped it to cover cash dividend payments and interest.

Shell has already aborted its two-and-a half-year long scrip dividend program as cost-containment efforts and divestment strategies have paid off. Importantly, the group raked in $9,529 million in free cash flow during the second quarter. (Read more Shell's Q2 Earnings Miss, Reveals $25B Share Buyback)

4.    French supermajor TOTAL S.A. (TOT - Free Report) reported second-quarter 2018 operating earnings of $1.31 per share (€1.10 per share), lagging the Zacks Consensus Estimate of $1.50 by 12.7%. However, the bottom line improved 35.1% from the year-ago figure of 97 cents (€0.88 per share) on operational performance, improvement in commodity prices and new project ramp ups, boosting production.

Total hydrocarbon production during the second quarter averaged 2,717 thousand barrels of oil equivalent per day, up 9% year over year. The increase was due to higher contribution from Kashagan, Moho Nord, Fort Hills, Edradour-Glenlivet, Libra, Timimoun and Yamal LNG, partially offset by natural field decline, PSC price effect, and heavy seasonal maintenance.

TOTAL’s upstream production is expected to increase 7% in 2018, up 100 basis points from the earlier expectation, driven by higher contribution from the new assets. The company continues to undertake cost-management initiatives and expects to generate cost savings of more than $4 billion in 2018. Organic and acquisitions net of asset sales are expected within $16-$17 billion in 2018. (Read TOTAL Q2 Earnings Lag, Revenues Up on High Production)

5.    ConocoPhillips (COP - Free Report) reported second-quarter 2018 adjusted earnings per share of $1.09, beating the Zacks Consensus Estimate of $1.06 and improving from the year-ago 14 cents. Higher oil and natural gas price realizations primarily drove the bottom line, partially negated by field declines.

Production from continuing operations averaged 1,249 thousand barrels of oil equivalent per day (MBOED) in the quarter, lower than 1,437 MBOED in the year-ago quarter.

Average realized price for oil was $70.55 a barrel, up from $48.16 in the year-earlier quarter. Natural gas liquids were sold at $29.94 a barrel, higher than $20.99 in the year-ago quarter. The price of natural gas was $5.18 per thousand cubic feet, up from $3.83 in second-quarter 2017.

ConocoPhillips raised its 2018 capital spending projection from $5.5 billion to $6 billion. For the July-to-September quarter of this year, the company projects production in the range of 1,215-1,255 MBOED. For 2018, the company’s production projection was raised from 1,200-1,240 MBOED to 1,225-1,255 MBOED. (Read more ConocoPhillips Beats on Q2 Earnings, Lifts Output View)

Price Performance

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.

Company

Last Week

Last 6 Months

XOM

+0.6%

-8.2%

CVX

+3%

+2%

COP

+2.1%

+21.8%

OXY

+0.5%

+9.5%

SLB

+1.4%

-10.5%

RIG

+1.6%

+24%

VLO

+9.5%

+22.2%

MPC

+11.7%

+17.7%

Reflecting the week’s positive oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +2.3% return last week. The best performer was downstream operator Marathon Petroleum Corporation (MPC - Free Report) whose stock surged 11.7%.

Longer-term, over six months, the sector tracker is up 3.2%. Offshore drilling powerhouse Transocean Ltd. (RIG - Free Report) is far and away the major gainer during this period, experiencing a 24% 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 2018 Q2 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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