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Oil & Gas Stock Roundup: Linde, Phillips 66 & Marathon Petroleum Report Q1 Earnings

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It was a week when oil prices climbed sharply, while natural gas finished lower

On the news front, Linde plc (LIN - Free Report) , Phillips 66 (PSX - Free Report) and Marathon Petroleum (MPC - Free Report) reported March quarter earnings.  

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures surged 25.1% to close at $24.74 per barrel, natural gas prices fell 3.5% for the week to finish at 1.823 per million Btu (MMBtu). In particular, the oil markets extended their gain toward $25 a barrel.

Coming back to the week ended May 8, the crude benchmark recorded a big jump as the historic OPEC+ deal to curb production got underway and Chinese demand for the fuel started to show signs of rebound. Further, the U.S. Energy Department's latest inventory release revealing a smaller-than-expected increase in oil stockpiles, improving gasoline consumption and pullback in domestic production also had a positive effect on the commodity.

Meanwhile, natural gas ended lower following a higher-than-expected increase in supplies. As it is, the fuel faces the prospect of a coronavirus-related steep drop-off in usage. Natural gas is already coming off a mild winter amid strong production that kept inventories well above normal. In fact, the commodity recently slumped to its lowest price since 1995.

Recap of the Week’s Most Important Stories

1.  Leading industrial gas producer and distributor Linde reported adjusted earnings from continuing operations of $1.89 per share in first-quarter 2020, beating the Zacks Consensus Estimate of $1.83. Moreover, the bottom line improved from the year-ago figure of $1.69 per share. The company’s strong quarterly earnings were supported by improved prices across Americas, Asia Pacific, Europe, Middle East & Africa.

Sales at the Americas unit (Linde’s largest business segment) in the March-end quarter of 2020 were $2,677 million, down from $2,702 million in the year-ago quarter. However, the segment contributed $661 million to operating profit, mirroring an improvement from $584 million in first-quarter 2019. Higher prices and volume primarily contributed to the outperformance.

As of Mar 31, 2020, Linde had cash and cash equivalents of $4,014 million. Long-term debt totaled $10,021 million. Its debt-to-capitalization ratio was 0.24. (Linde Q1 Earnings Beat Estimates on Higher Prices)

2.   Downstream operator Phillips 66 reported first-quarter 2020 adjusted earnings per share of $1.02, beating the Zacks Consensus Estimate of 63 cents, courtesy of contributions from Midstream and Marketing, and Specialties businesses. Moreover, the bottom line rose from the year-ago figure of 40 cents due to higher realized marketing fuel margins in both the United States and international markets.

In the reported quarter, Phillips 66 generated $217 million of cash from operations. Its capital expenditures and investments totaled $923 million. As of Mar 31, 2020, cash and cash equivalents were $1.2 billion, reflecting a sequential decline from $1.6 billion. Total debt rose to $13 billion from $11.8 billion in fourth-quarter 2019. The company’s debt to capitalization was 35%. Notably, it has secured additional liquidity of $3 billion through term loan and senior notes.

The company is adding two 150,000 bpd fractionators for expanding the Sweeny Hub. The additional fractionators, backed by long-term commitments, are expected to commence operations in the fourth quarter. Following the expansion project completion, Sweeny Hub will have a massive 400,000 bpd fractionation capacity. The company is also incorporating 7.5 million barrels of storage capacity at Clemens Caverns in the Sweeny Hub. (Phillips 66 Q1 Earnings Beat on Midstream Performance)

3.   Independent oil refiner and marketer Marathon Petroleum reported adjusted loss per share of 16 cents, narrower than the Zacks Consensus Estimate of a loss of 24 cents. The company’s bottom line was favorably impacted by strong performance by the Retail segment. Operating income from the unit totaled $519 million, breezing past the Zacks Consensus Estimate of $336 million.

Forced by the historic oil market crash and the coronavirus-induced demand destruction for the fuel, Marathon Petroleum announced a cut to its 2020 capital spending plan by $1.4 billion, or 30%, to $3 billion. The Zacks Rank #3 (Hold) company is also targeting a reduction in its operating expenses to $950 million and said it would temporarily its stock repurchase program.

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

In the reported quarter, Marathon Petroleum spent $1.1 billion on capital programs (43% on Refining & Marketing and 45% on the Midstream segment). As of Mar 31, the company had cash and cash equivalents of $1.7 billion and a total debt of $31.6 billion, with a debt-to-capitalization ratio of 50.3%. (Marathon Petroleum Q1 Loss Narrower Than Expected)

4.   U.S. energy operator Hess Corporation (HES - Free Report) reported adjusted first-quarter 2020 loss per share of 60 cents, narrower than the Zacks Consensus Estimate of a loss of 65 cents. The better-than-expected earnings were due to higher oil and gas production, backed by the prolific Bakken play and improved Midstream profits due to increase in throughput volumes. This was partially offset by lower commodity price realizations and increased operating expenses.

Quarterly net cash flow from operations was $445 million in the first quarter, reflecting a significant rise from the year-ago level of $238 million. Hess’ capital expenditures for exploration and production activities totaled $631 million, up from $542 million in the prior-year quarter.

The company expects 2020 exploration and production capital and exploration expenditure to be $1.9 billion, down 37% from the original guidance of $3 billion. The company chartered three huge crude carriers to store 2 million barrels of crude oil produced in the Bakken Play in each of May, June and July. The commodity will likely be sold in the fourth quarter. This is a crucial move, given the prevailing capacity shortage problem stemming from oversupply in the market. (Hess Q1 Earnings Beat on Strong Production Volumes)

5.    Pioneer Natural Resources (PXD - Free Report) , a premier Permian producer, reported first-quarter 2020 earnings per share of $1.15, excluding one-time items, beating the Zacks Consensus Estimate of $1.03 thanks to higher oil equivalent production volumes. This offset partially offset by lower realized prices of commodities.

Total production in the reported quarter was 375.2 thousand barrels of oil equivalent per day (MBOE/D), up 12.5% year over year. The upstream energy added that the production number came in at the top end of its guidance.

The company has revised its 2020 capital budget to the band of $1.4 billion to $1.6 billion, representing a decline of roughly 55% from its initial spending budget. For 2020, Pioneer Natural’s revised oil equivalent production volumes guidance is pegged at 341 MBoE/D to 359 MBoE/D. The company’s revised oil production volumes range for 2020 is 198 to 208 MBbl/D. (Pioneer Natural Q1 Earnings Top Estimates, Fall Y/Y)

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              +7%                 -34.8%
CVX              +6.7%              -23.4%
COP             +11.2%            -28.3%
OXY              -1.4%               -65.4%
SLB             +14.6%             -54%
RIG              +20.9%            -78.9%
VLO             +12.2%            -39.3%
MPC            +13%               -53.5%

The Energy Select Sector SPDR – a popular way to track energy companies – was up 8.2% last week. The best performer was offshore driller Transocean Ltd. (RIG - Free Report) whose stock surged 20.9%.

But longer-term, over six months, the sector tracker is down 38.9%. Transocean was on the other end of the spectrum this time, experiencing a 78.9% price plunge.

What’s Next in the Energy World?

With the 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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