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Oil & Gas Stock Roundup: BP, Apache & Concho's Q2

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It was a week where oil prices tilted lower but natural gas futures ended modestly up.

On the news front, major energy players BP plc (BP - Free Report) , Apache Corporation (APA - Free Report) and Concho Resources (CXO - Free Report) reported strong second-quarter earnings.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures edged down 0.3% to close at $68.49 per barrel, natural gas prices were up 2.6% to $2.853 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon, Chevron, Shell Earnings Miss Despite Oil Rally)

The U.S. crude benchmark slipped for the fourth time in five weeks on growing concerns about oversupply after the OPEC cartel hiked production by 340,000 barrels per day in July to 32.66 million barrels per day. The U.S. Energy Department's inventory release showing a shock weekly build in crude stockpiles also pressured oil futures.

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

Recap of the Week’s Most Important Stories

1.    British energy giant BPreported strong second-quarter 2018 results on increasing oil equivalent price realizations, ramped up key upstream projects and massive crude processing volumes.

The company’s adjusted earnings of 85 cents per American Depositary Share (ADS) – on a replacement cost basis, excluding non-operating items – matched the Zacks Consensus Estimate and improved from the year-ago quarter’s 21 cents. Total revenues were $76,907 million in the quarter, up from $57,366 million in the year-ago quarter.

Production averaged 2.465 million barrels of oil equivalent per day (MMBoe/d), 2% higher from the year-ago quarter. Moreover, Zacks Rank #3 (Hold) BP sold liquids at $67.24 a barrel in the second quarter as compared with $46.27 in the year-earlier quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BP's net debt was $39,277 million at the end of the second quarter, nominally lower than $39,794 million a year ago. Net debt ratio was 27.8%, slightly below 28.8% in the prior-year quarter. Through the first half of 2018, the integrated energy firm made a payment of $2.4 billion, after tax, associated with the oil spill incident in the Gulf of Mexico. For 2018, BP projects total payment to be marginally more than $3 billion.  (Read more BP Posts In-Line Q2 Earnings, Expects $3B Oil Spill Payment)

2.    U.S. energy firm Apachereported second-quarter earnings per share – excluding one-time items – of 50 cents, ahead of the Zacks Consensus Estimate of 35 cents and turned around from year-ago adjusted loss of 21 cents. The outperformance stems from higher oil realizations and strong volumes from the key Permian Basin region.

In the company's Permian Basin acreage, average production volumes improved to a record 201,832 BOE/d from 145,533 in the second quarter of 2017. Results were helped by operational progress and the high quality of Apache’s inventory. For 2018, the company forecasts its Permian resources to continue the high-return growth.

As of Jun 30, 2018, the oil giant, with a market capitalization of around $18 billion, had approximately $972 million in cash and cash equivalents. The company had long-term debt of $7.9 billion, representing a debt-to-capitalization ratio of 51.0%. (Read more Apache Q2 Earnings Beat on Oil Price, Permian Strength)

3.    Concho Resources reported strong second-quarter 2018 revenues and earnings on the back of higher commodity-price realizations and robust production growth. The company reported adjusted net earnings per share of $1.24, comfortably beating the Zacks Consensus Estimate of 92 cents. The bottom line also improved significantly from the prior-year quarter’s adjusted income of 52 cents per share.

Concho's average quarterly volume increased 24% year over year to 228.9 thousand barrels of oil equivalent per day (MBoe/d), within the company’s guidance range. Of the volume, 62.5% consisted of liquids. Daily oil output was up 26.5% to 143.2 thousand barrels while natural gas production was 514.7 million cubic feet (up 20%).

 

Considering the acquisition of RSP Permian, Inc., which got closed on Jul 19, 2018, Concho updated its full-year 2018 guidance. It expects production to average 260-263 MBoe/d in 2018. Notably, third-quarter output levels are expected between 280 MBoe/d and 285 MBoe/d. The company expects capex in the band of $2.5-$2.6 billion versus prior guidance of $2 billion. The increased capital expenditure budget reflects the company’s intention to drill several development projects in the second half of 2018. (Read Concho Q2 Earnings Beat on Price and Volume Gain)

4.    Energy Transfer Partners L.P. recently inked an agreement to merge with its general partner Energy Transfer Equity L.P. in an all-stock deal. This marks a long-awaited move by the pipeline giant in the energy MLP industry.

Subject to satisfactory closing conditions and unitholders’ approval, the transaction deal is expected to complete in the fourth quarter of 2018, post which the combined entity is estimated to be worth around $90 billion. 

The deal seems to be quite a prudent move, leading to several advantages for the Energy Transfer franchise. The move will simplify the organizational structure and boost the credit profile of the partnership, along with improving transparency of the investors. The merger seems to improve the combined partnership’s cost of capital by the elimination of IDRs of Energy Transfer Equity in its MLP. Elimination of IDRs will incentivize the combined partnership to manage operations efficiently, tap acquisition opportunities and improve cash generation from investments. (Read more Energy Transfer to Snap Up Its MLP in Consolidation Wave)

5.    Brazil's state-run energy giant Petrobras (PBR - Free Report) announced second-quarter earnings per ADS of 44 cents, ahead of the Zacks Consensus Estimate of 31 cents and the year-ago profit of 2 cents.

Rising crude prices were primarily responsible for the outperformance, which catapulted net quarterly profit to $2,794 million -- the highest since 2011. The strong earnings report assumes greater significance considering the truckers’ strike in the quarter that forced Petrobras to temporarily lower diesel prices at the pump.

Petrobras generated free cash flows of $8,546 million for the six months ended Jun 30, up 19% year over year as a result of operational improvement and lower investments. Moreover, adjusted EBITDA improved 17% from the prior period to $16,285 million.

The Rio de Janeiro-headquartered company’s total oil and gas production during the first half reached 2,669 thousand oil-equivalent barrels per day (MBOE/d) – 80% liquids – down from 2,791 MBOE/d in the same period of 2017. (Read more Petrobras Q2 Earnings Surge in Best Quarter Since 2011)

 

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

-2.1%

+4.2%

CVX

-1.5%

+7.8%

COP

-0.2%

+28.9%

OXY

-1.4%

+17.8%

SLB

-1.7%

-2.5%

RIG

+0.2%

+34.4%

VLO

-0.8%

+27.9%

MPC

-2.3%

+22.7%

Reflecting the week’s negative oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a -1.8% return last week. The worst performer was downstream operator Marathon Petroleum Corporation (MPC - Free Report) whose stock fell 2.3%.

Longer-term, over six months, the sector tracker is up 9.8%. Offshore drilling powerhouse Transocean Ltd. is far and away the major gainer during this period, experiencing a 34.4% 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 and monthly reports from the EIA and the IEA.

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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