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Oil & Gas Stock Roundup: Diamondback and Marathon Petroleum Report Q1 Earnings

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It was a week where oil prices settled lower but natural gas futures posted a gain.

On the news front, Permian pure play Diamondback Energy, Inc. (FANG - Free Report) reported better-than-expected first-quarter earnings. Meanwhile, refiner Marathon Petroleum Corp. (MPC - Free Report) swung to a surprise loss.  

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures fell a marginal 0.5% to close at $61.66 per barrel, natural gas prices rose 2% for the week to finish at $2.619 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Shell, BP & ConocoPhillips Post Q1 Earnings Beat)

The U.S. crude benchmark was pressured by the escalating trade dispute between China and the United States. The recent setback in relations with China is threatening to dampen global growth and affect oil demand. This was partly offset by the Energy Department's latest inventory release showed that stockpiles recorded a larger-than-expected weekly decrease.

Meanwhile, natural gas prices gained slightly after a government report showed in-line increase in supplies. However, the injection was higher than the five-year average as the mild spring weather continues to limit heating and air conditioning demand. While the fundamentals of natural gas consumption continue to be favorable, record high production in the United States and expectations for explosive growth through 2020 means that supply will keep pace with demand.

Recap of the Week’s Most Important Stories

1.    Independent oil refiner and marketer Marathon Petroleum reported weak first-quarter results on declining crude discounts. The company reported adjusted loss per share of 9 cents. The Zacks Consensus Estimate was for a profit of a penny, while in the year-ago period the company earned 8 cents per share.

The Refining & Marketing segment reported operating loss of $334 million compared with loss of $133 million in the year-ago quarter. The deterioration reflects narrower crude differentials, in addition to lower gasoline margins. This more than offset the impact of higher refining margins and rising throughputs following the 2018 acquisition of Andeavor.

In the reported quarter, Marathon Petroleum spent $1.3 billion on capital programs (62% on the Midstream segment). As of Mar 31, the company had cash and cash equivalents of $877 million and total debt of $28.1 billion, with a debt-to-capitalization ratio of 39.6%. During the first quarter, Marathon Petroleum returned $1.2 billion of capital to shareholders, including $885 million in share buybacks. (Read more Marathon Petroleum Swings to Q1 Loss, Revenues Miss)

2.    Diamondback Energy reported first-quarter adjusted net income per share of $1.39, above the Zacks Consensus Estimate of $1.36 on strong production. In more good news for investors, the energy explorer unveiled a new $2 billion share repurchase scheme through year-end 2020. Further, following up on its earlier announcement, the company raised its quarterly dividend by 50% to 18.75 cents per share (or 75 cents per share annualized).

The production of oil and natural gas averaged 262.6 MBOE/d (68% oil), up 156% from last year and slightly ahead of the Zacks Consensus Estimate of 261.8 MBOE/d. Diamondback’s oil production surged 137% year over year, while natural gas volumes more than tripled. The 2018 purchases of Energen Corporation and Ajax Resources has transformed Diamondback into one of the leading Permian Basin oil producers.

The company disclosed that it agreed to sell non-core Permian assets (some of it acquired during the Energen transaction) worth $322 million during the quarter. The sale – expected to be complete by Jul 1 – prompted Diamondback to revise its guidance for 2019. The company is now forecasting full-year output range of 272-287 MBOE/d, of which 68-70% is oil. The earlier prediction was for production between 275 MBOE/d and 299 MBOE/d. (Read more Diamondback Q1 Earnings Beat, Unveils $2B Buyback)

3.    Encana Corp. (ECA - Free Report) continued its trend of beating expectations and posted strong first-quarter 2019 profits. The Zacks Rank #2 (Buy) Canadian oil and natural gas producer reported operating earnings of 14 cents per share, outperforming the Zacks Consensus Estimate of 10 cents. Encana delivered its sixth earnings beat in as many quarters on the back of increased production volumes and higher oil price realizations.

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

Total first-quarter production (Encana plus Newfield combined) came in at 566,600 barrels of oil equivalent per day (BOE/d) compared with 500,900 BOE/d in the prior-year period. Natural gas production increased 11.4% year over year to 1,644 million cubic feet per day and liquids production rose 14.8% to 292,700 BOE/d. Production growths from its core assets— Permian, Anadarko and Montney—enabled the firm to deliver impressive year-over-year results. In fact, first quarter output from these properties rose more than 20% year over year to 443,300 BOE/d.

As of Mar 31, 2019, Encana had cash and cash equivalents were $479 million, and long-term debt was $6.3 billion. The debt-to-capitalization ratio came in at 37.8%. Encana, which completed the acquisition of Newfield Exploration Company in February, reiterated its 2019 capital expenditure guidance of $2.7-$2.9 billion. Of the total, three-fourths will be dedicated toward the firm’s three core plays (Permian, Montney and Anadarko). Encana sees 15% liquids production growth from these regions. (Read more Encana Extends Hot Streak as Q1 Earnings Top Estimates)

4.    Enbridge Inc. (ENB - Free Report) delivered first-quarter 2019 earnings per share (EPS) of 61 cents, which beat the Zacks Consensus Estimate of 52 cents but declined from the year-ago quarter’s 82 cents. The better-than-expected earnings results were supported by higher throughput in the Mainline System and increased volumes of distributed gas. The positives were partially offset by lower contributions from Canadian gas transmission activities.

Enbridge’sadjusted EBITDA of C$3.8 billion was up more than 11% from C$3.4 billion in the first quarter of 2018. Importantly, the company announced that it will proceed with a C$200 million expansion of the Dawn-Parkway gas transmission system.

Through the first quarter of 2019, the company raised its distributable cash flow (or DCF) to C$2.8 billion from C$2.3 billion a year ago. The company continues to expect 2019 DCF in the band of C$4.30 to C$4.60 per share. (Read more Enbridge Earnings Beat Estimates in Q1, Decline Y/Y)

5.     Viper Energy Partners LP’s (VNOM - Free Report) loss per unit came in at a penny against the Zacks Consensus Estimate of earnings of 4 cents. In the prior-year quarter, the partnership had reported earnings of 38 cents. The decline in realized commodity prices primarily attributed to the lower-than-expected quarterly results.

The partnership received authorization from the board of directors of its general partner to report cash distributions for the March quarter of 2019 at 38 cents per common unit.  The new distribution reflects a sequential decline of 25.5%.

The resources where the partnership has mineral interest produced 1,714 thousand oil equivalent barrels (MBoE) in the March quarter of 2019, up from 1,271 MBoE a year ago. Of the total volumes, oil accounted for 67%. Realized oil prices during the quarter were recorded at $45.31 per barrel, down from $61.41 a year ago. (Read more Viper Energy Misses Q1 Earnings on Lower Oil Price)

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%

-3%

CVX

+4%

+4%

COP

+0.4%

-4.4%

OXY

-5.1%

-24.9%

SLB

-4.2%

-18.9%

RIG

-3.9%

-23.9%

VLO

-5.3%

-0.4%

MPC

-11.4%

-21.5%

The Energy Select Sector SPDR – a popular way to track energy companies – edged down 0.3% last week. The worst performer was downstream operator Marathon Petroleum whose stock slumped 11.4% following a dismal earnings report.

Longer-term, over six months, the sector tracker is down 4%. Houston-based energy explorer Occidental Petroleum (OXY - Free Report) was the major loser during this period, experiencing a 24.9% price decline.

What’s Next in the Energy World?

With the 2019 Q1 earnings season essentially over, market participants will get back to 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.

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