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Oil & Gas Stock Roundup: ExxonMobil's Q4 Update, Core Labs' Dividend Cut & More

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It was a week where It was a week where oil futures rose to levels not seen since May but natural gas futures settled lower.                                                            

On the news front, supermajor ExxonMobil (XOM - Free Report) issued an update on its upcoming fourth-quarter earnings. Meanwhile, Core Labs (CLB - Free Report) slashed its dividend by 55% and lowered fourth-quarter guidance.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures climbed 2.2% to close at $63.05 per barrel, natural gas prices fell 4.5% for the week to finish at 2.13 per million Btu (MMBtu).

The U.S. crude benchmark rallied to multi-month highs, pushed up by concerns that escalating U.S. - Iran tensions in the Middle East could lead to supply disruptions. A large decline in domestic inventories and news of Chinese economic stimulus that could propel demand, lent additional support to the oil market.

Meanwhile, natural gas prices moved southward following a smaller-than-expected decrease in supplies and expectations of warmer weather in January that could jeopardize power sector demand for the heating fuel.

Recap of the Week’s Most Important Stories

1.  ExxonMobil expects a gain of $3.4-$3.6 billion from the divestment of Norwegian assets. This will likely give a boost to its fourth-quarter 2019 results. The company’s recent regulatory filing showed that the gains from this divestment can offset lower margins from chemicals and refining businesses.

The Norway divestment deal of September included ownership interests in more than 20 producing fields, with total production of around 150,000 barrels of oil equivalent per day in 2019.

The recent regulatory filing reflected the largest publicly-traded energy company’s decline in profits from the chemicals business. It is further expected to take a hit from a global glut in polyethylene. Similarly, the downstream business — which generated $1.2 billion in profits in third-quarter 2019 — is expected to take a $800-$600 million hit in the fourth quarter. (Read more ExxonMobil Eyes $3.4-$3.6B Gain From Norway Asset Divestment)

2.   As part of its efforts to decrease expenses, Core Labs recently cut its quarterly dividend and lowered fourth-quarter guidance.

This Netherlands-based oilfield service company slashed its quarterly dividend payout by almost 55% from 55 cents per share to 24 cents (made effective from first-quarter 2020). Management stated that this strategic action was necessary in the light of its aim to boost the existing cash position. This move aimed at strengthening the company’s balance sheet will likely lower Zacks Rank #3 (Hold) Core Labs’ annual dividend distribution by roughly $53 million.

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

Further, the company cautioned that slower-than-expected progress in the large international and offshore projects affected the fourth-quarter 2019 financial results for Core’s Reservoir Description segment. Based on these headwinds, Core Labs trimmed its fourth-quarter revenues and anticipates the same between $154 million and $156 million, lower than the previously provided guidance of $161-$163 million. (Read more Core Labs Cuts Quarterly Dividend, Revises Q4 Guidance)

3.   Williams Companies Inc. (WMB - Free Report) recently completed the construction of its Gateway expansion project ahead of schedule. The project was expected to come online by November 2020. This is certainly good news for investors! The accomplishment came 11 months prior to the expected date to fulfil the rise in demand for natural gas from customers residing in New Jersey’s tri-state area during the winter-heating period of 2019 to 2020.

Gateway project is an extension of the company’s Transco pipeline. Notably, the pipeline supplies almost half of the natural gas consumed in New York and New Jersey. With the existing Transco pipeline capacity being fully utilized, additional gas volumes will be delivered to the northeastern markets. As a matter of fact, this expansion increased the pipeline’s system-design capacity to 17.3 million dekatherms per day This system contains roughly 10,000 miles long pipeline connecting South Texas with New York City.

With this project, the natural gas service provider will support almost 280,000 households with their daily home heating, warm water and cooking needs. This, in turn, will help customers switch from heating oil to natural gas, potentially saving nearly $1,460 per annually per household in contrast to heating oil. Throughout the construction process, the project curbed the community and environmental effects by increasing the functioning of the existing pipeline infrastructure with virtually all project activities within Transco’s bounds in New Jersey. (Read more Williams Completes Gateway Project Way Before Due Date)

4.   Royal Dutch Shell (RDS.A - Free Report) along with fellow supermajor Chevron and a state-owned entity Mubadala Petroleum clinched oil and gas exploration concessions in Egypt’s Red Sea. In its first ever round of licensing in the Red Sea, Egypt awarded Block 1 and Block 2 to Chevron and Shell, respectively. The third block was jointly conferred on Shell and Abu Dhabi’s Mubadala Petroleum.

Egypt was auctioning 10 blocks in its first ever licensing round in the Red Sea, which is known for its deep water. Winners of only three of the 10 blocks were declared, of which Chevron and Shell’s blocks were located in the northern part of the Red Sea.

While total exploration area of these three blocks exceeded 10,000 square kilometers, the minimum stipulated investment was $326 million wherein the potential amount may possibly escalate to $7 billion, provided discoveries were made. (Read more Shell Secures New Concession Deal for Egypt's Red Sea)

5.   Eni S.p.A. (E - Free Report) recently signed an expansion pact with its partners at the Bonny LNG plant in Nigeria. The $10-billion deal was inked to construct the Train 7 project, which received a final investment decision.

The project, which can boost Nigeria’s annual LNG production capacity from 22.5 million metric tons (MT) to 30 million MT, is expected to commence in 2024. While the new liquefication Train 7 can ramp up LNG production by 4.2 million MT per annum, an additional 3.4 million MT capacity will come from debottlenecking the existing trains.

The strategic LNG expansion move is expected to benefit Nigeria, which has more than 200 trillion cubic feet of proven gas reserves, by reducing the country’s dependency on oil revenues.(Read more Eni & Partners Ink Deal to Expand LNG Production in Nigeria)

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%

-7.3%

CVX

+0.6%

-2.4%

COP

+1.1%

+11%

OXY

+8.6%

-8.6%

SLB

+1.4%

+2.3%

RIG

+7.2%

+16%

VLO

-1.8%

+12.5%

MPC

-3.6%

+7.1%

 

The Energy Select Sector SPDR – a popular way to track energy companies – edged up 0.9% last week. The best performer was Houston-based oil and gas producer Occidental Petroleum (OXY - Free Report) whose stock jumped 8.6%.

But longer-term, over six months, the sector tracker is down 3.7%. On the other end of the spectrum this time Occidentalwas the major loser during this period, experiencing an 8.6% price decline.

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. The Baker Hughes data on rig count will also be on the energy traders' radar.

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