Oil & Gas Stock Roundup: SLB & HAL's Q1 Earnings, CVX's Canadian Sale & More

It was a week where both oil and natural gas prices suffered big losses.

On the news front, oilfield service majors Schlumberger Ltd. (NYSE:SLB) and Halliburton Co. (NYSE:HAL) kicked off the energy earnings season. Importantly, both the companies indicated that activity in North America have improved but it would still take some time for international operation to rebound. Meanwhile, the second-largest U.S.-based oil company Chevron Corp. (NYSE:CVX) agreed to sell its Canadian oil refining and marketing business for $1.5 billion.

Overall, it was a brutal week for the sector. West Texas Intermediate (WTI) crude futures lost 6.7% to close at $49.62 per barrel, while natural gas prices fell 3.9% to $3.101 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Conoco, Williams Partners' Asset Sales; NuStar's Permian Push and More.)

Suffering its first loss in a month, oil prices were pressured by the U.S. government data that showed a surprise build in U.S. gasoline stockpiles - pointing to stuttering demand for the fuel in the summer driving season. The continued growth in U.S. production and a burgeoning rig count – both pointing to the ever-increasing shale drilling activities – further stymied the commodity.

Meanwhile, natural gas also turned lower following a larger-than-expected storage injection.

Recap of the Week’s Most Important Stories

1. The world’s largest oilfield services provider Schlumberger Ltd. reported first-quarter 2017 earnings of 25 cents per share (excluding charges and credits), in line with the Zacks Consensus Estimate. This may be attributed to improvement in production of the Kuwait and Egypt developments and increase in directional drilling works in North America.

However, the bottom line decreased substantially from 40 cents per share earned in the year-earlier quarter. Slowdown of drilling works in the international market resulted in the year-over-year deterioration.

While Schlumberger maintained that while the North American land market continued to recover both in terms of activity and pricing, another challenging year awaits the international markets. (Read more: Schlumberger Q1 Earnings Meet, Revenues Miss Estimates.)

2. Smaller rival Halliburton Co. reported better-than-expected first quarter profit thanks to improved utilization on the back of growing North American rig count. However, revenues of $4,279 million missed the Zacks Consensus Estimate of $4,281.4 million amid a difficult international market.

Along the results, Halliburton also sounded optimistic in its view that the North American land market is improving rapidly, driven by increased activity. As it is, rig counts have generally been rising during the last ten months since plunging to an all-time low of 404 in May 2016, with the addition of a flood of new units. As a proof of the recovery, Halliburton grew its domestic land revenue by nearly 30% sequentially.

However, the international market recovery is set to start slower, with lower capex spend for the third successive year affecting economics across deepwater and mature field markets. To make things worse, the sluggish recovery and persistent pricing pressure are signs of another challenging year in the offing. (Read more: North American Recovery Drives Halliburton Q1 Earnings.)

3. California-based integrated energy company Chevron Corp. is planning to divest its stake in Canadian downstream fuel business to the country’s fast growing independent fuel distributor, Parkland Fuel Corp. for $1.5 billion. This is Parkland’s third and biggest acquisition deal with Chevron.

The transaction involves the sale of 129 retail gas stations in Vancouver as well as Chevron’s Burnaby refinery in British Columbia. Additionally, the deal includes the sale of 37 commercial cardlock and three marine fueling locations. Parkland will also acquire three terminals in British Columbia and a wholesale business which includes aviation fuel sales to Vancouver International Airport. Chevron currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The agreement is well aligned with Chevron’s strategy to improve its cash flow in 2017. The company is focusing on divestment opportunities to exit noncompetitive projects and cost and capex reduction which in turn will provide a more competitive and leaner business model for the company. (Read more: Chevron to Divest Downstream Assets to Parkland for $1.5B.)

4. Energy infrastructure company Kinder Morgan Inc. (NYSE:KMI) reported first-quarter 2017 earnings of 17 cents per share from continuing operations. The bottom line missed the Zacks Consensus Estimate of 18 cents per share but increased about 42% from 12 cents reported a year ago.

The lower-than-expected earnings may be attributed to higher expenses and the negative impact on the tariff rates of Colorado Interstate Gas Company pipeline following the rate case settlement in 2016. However, the year-over-year improvement in the bottom line was driven by higher contribution from Elba Express pipeline along with improved CO2 volumes.

Kinder Morgan reaffirmed its dividend guidance. The company is likely pay dividends of 50 cents per share in 2017. It continues to expect EBITDA and distributable cash flow of about $7.2 billion and $4.46 billion, respectively. For 2017, Kinder Morgan maintains the capital expenditure projection at about $3.2 billion for growth projects (Read more: Kinder Morgan Misses on Q1 Earnings, Beats Revenues.)

5. Brazilian energy major Petrobras (NYSE:PBR) announced that the country’s 2nd Federal District Court of Sergipe state has ordered it to suspend the $2.5 billion sale of its stake in the Carcara field to Norwegian oil and gas company, Statoil (OL:STL) ASA. The National Federation of Oil Workers filed the lawsuit as the union strongly felt that a state-controlled enterprise like Petrobras must hold an open bidding process for selling its assets.

Petrobras had agreed to sell its 66% stake in the offshore prospect to Statoil in Jul 2016 as part of a two-year divestment plan to raise $21 billion to repay its debts. Petrobras and Statoil had reached an agreement to finalize the deal on Nov 22, 2016. In fact, Petrobras received an amount of $1.25 billion from the transaction, which it used for the early settlement of part of the financing contract between Transportadora Associada de Gás S.A., a wholly-owned Petrobras subsidiary, and the Brazilian Development Bank.

Petrobras is now looking at appropriate legal actions to facilitate the closure of deal, benefiting its investors. (Read more: Petrobras' Asset Sale to Statoil Halted by Brazilian Court.)

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.

Over the course of last week, the Energy Select Sector SPDR – a popular way to track energy companies – fell by 4.74%. Consequently, investors witnessed selling in most market heavyweights. The worst performer was offshore drilling giant Transocean Ltd. (NYSE:RIG) whose stock price dived 10.25%.

Longer-term, over the last 6 months, the sector tracker is down 2.11%. Houston-based energy explorer Occidental Petroleum Corp. (NYSE:OXY) was one of the major laggards during this period, experiencing a 16.61% price decline.

What’s Next in the Energy World?

In this week, market participants will be closely tracking the regular releases i.e. the U.S. government data on oil and natural gas. Energy traders will also be focusing on the Baker Hughes data on rig count. However, the 2017 Q1 earnings remain the primary focus this week, with a number of S&P 500 members coming out with quarterly results.

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