It was a week where oil prices tallied a small gain but natural gas futures settled lower.
On the news front, Linde plc (LIN - Free Report) and Helmerich & Payne Inc. (HP - Free Report) reported better-than-expected September quarter earnings.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures moved up 1.7% to close at $57.72 per barrel, natural gas prices fell 3.6% for the week to finish at 2.688 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: EOG & Occidental Report Q3 Earnings)
The U.S. crude benchmark finished higher last week, aided by positive murmurings about the ‘phase one’ of U.S.-China trade negotiations. Data showing drillers in the United States removing oil rigs a fourth consecutive week – pointing to signs of declining domestic supplies – brought further upside.
Meanwhile, natural gas prices finished lower on expectations of moderating temperatures over the next few days that could hamper power sector demand for the heating fuel amid overwhelming production.
Recap of the Week’s Most Important Stories
1. Leading industrial gas producer and distributor Linde reported adjusted earnings from continuing operations of $1.94 per share in third-quarter 2019, beating the Zacks Consensus Estimate of $1.78. Moreover, the bottom line increased from the year-ago figure of $1.54 per share. The Zacks Rank #2 (Buy) company’s strong quarterly earnings were supported by improved prices across all the business segments.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Pro forma sales from the Americas unit (Linde’s largest business segment) in the September-end quarter of 2019 were $2,771 million, up from $2,627 million in the year-ago comparable period. Moreover, the segment contributed $671 million of pro forma operating profit, mirroring an improvement from $622 million in third-quarter 2018. Higher prices primarily contributed to the outperformance.
The company expects adjusted earnings per share (EPS) of $7.25-$7.30 for 2019, suggesting a year-over-year improvement of 17-18%. This is the third time that Linde has revised its 2019 EPS estimates higher. (Read more Linde Surpasses Q3 Earnings Estimates, Ups EPS View)
2. Helmerich & Payne recently released fourth-quarter fiscal 2019 results wherein it delivered comprehensive earnings beat on the back of improved contribution from the H&P Technologies business, which benefited from a change in contingent liability accounting. The contract driller posted adjusted quarterly earnings of 39 cents a share, surpassing the Zacks Consensus Estimate of 24. The bottom line also improved from the year-ago figure of 19 cents.
In the reported quarter, Helmerich & Payne spent $54.8 million on capital programs. As of Sep 30, 2019, the company had $347.9 million in cash and cash equivalents while long-term debt was $479.3 million (debt-to-capitalization ratio of 10.6%).
Helmerich & Payne expects activity in the U.S. land segment (which represents 90% of its total fleet and makes up around 84% of the oilfield service provider’s revenues) to decrease 5.5-6.5% sequentially during first-quarter fiscal 2020. While average rig revenue per day is likely to be in the band of $24,750-$25,250, daily average rig cost is expected within $14,350-$14,850. (Read more Helmerich & Payne Q4 Earnings Beat, Sales Miss Mark)
3. Chesapeake Energy Corporation’s (CHK - Free Report) shares have plunged more than 50%, hitting 25-year low in the process, since its earnings announcement on Nov 5. The reasons for the decline were weak third-quarter earnings and concerns expressed by the company in its SEC 10-Q filing regarding the impact of a tepid commodity price environment. The company stated, “If continued depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant, our ability to comply with the leverage ratio covenant during the next 12 months will be adversely affected which raises substantial doubt about our ability to continue as a going concern.”
Chesapeake reported third-quarter 2019 loss per share (excluding special items) of 11 cents, wider than the Zacks Consensus Estimate of a loss of 10 cents. The bottom line was also wider than the year-ago loss of a penny per share.
The company reiterated its production guidance for 2019 in the range of 484,000-505,000 Boe per day. It expects production expense for 2019 in the range of $3.20-$3.40 per Boe. Notably, the company maintained its total capital budget for 2019 at $2,105-$2,305 million. For 2020, the company expects oil production to remain flat with 2019. It also plans to slash 2020 capital expenditure by 30%. (Read more Chesapeake Down 57% Since Q3 Earnings, Hits 25-Year Low)
4. Cheniere Energy, Inc. (LNG - Free Report) recently incurred a loss when it reported third-quarter 2019 results. This largest U.S. liquefied natural gas exporter posted loss per share of $1.25. However, the Zacks Consensus Estimate was for earnings of 8 cents per share. High operating costs and expenses caused this underperformance. The loss also compares unfavorably with the year-ago earnings of 26 cents.
But owing to higher LNG volumes, quarterly revenues increased 19.3% to $2,170 million from $1,819 million a year ago. The top line also surpassed the Zacks Consensus Estimate of $2,118 million in the quarter under review.The company posted adjusted EBITDA of $694 million with DCF of around $520 million. During the quarter, Cheniere shipped 108 cargoes, reflecting a 66% surge from the year-earlier figure. Total volumes of LNG exported were 384 trillion British thermal units (TBtu) compared with 228 TBtu in the prior year.
Cheniere reiterated its guidance for 2019. It anticipates adjusted EBITDA within $2,900-$3,200 million with distributable cash flow between $600 million and $800 million. For 2020, the company projects its adjusted EBITDA to increase 30% and come in the range $3,800-$4,100 million with distributable cash flow between $1000 million and $1300 million. (Read more Cheniere Reports Q3 Loss on Higher Operating Expenses)
5. Chinese energy giant PetroChina Company Limited (PTR - Free Report) announced third-quarter 2019 earnings per ADR of 68 cents that missed the Zacks Consensus Estimate of $1.45 and were below the year-ago profit of $1.69. The company’s earnings were dragged down by lower commodity prices, weaker downstream results and massive gas import losses.
The Beijing-based company’s ‘Refining & Chemicals’ business generated an operating income of RMB 7,133 million. This was down 81.7% from the year-earlier period earnings of RMB 38,906 million. The plunge in the downstream division was due to domestic refined products oversupply, narrowing profit margin and lower chemicals prices.
However, the country’s dominant oil and gas producer’s total revenue for the quarter rose 1.8% from the year-ago period to RMB 618,143 million on higher oil and gas production. PetroChina posted higher upstream output during the nine months ended Sep 30, 2019. Crude oil volumes – accounting for 58.6% of the total – rose 2.9% from the year-ago period to 682.7 million barrels, while marketable natural gas output was up by 8.7% to 2,892.8 billion cubic feet. As a result, PetroChina’s overall production of oil and natural gas increased 5.2% year over year to 1,165 million barrels of oil equivalent.(Read more PetroChina Q3 Earnings Miss Despite Upstream Strength)
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
Contrary to oil’s weekly climb, the Energy Select Sector SPDR – a popular way to track energy companies – was down 1% last week. The worst performer was offshore driller Transocean Ltd. (RIG - Free Report) whose stock lost 9.8%.
Longer-term, over six months, the sector tracker lost 6.9%. Transocean was the major loser during this period too, experiencing a 34.8% price plunge.
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.
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