Oil & Gas Stock Roundup: BP & EOG's Q1, Marathon-Andeavor Deal & More

It was a week where oil prices reached their strongest level in over three years, while natural gas futures ended lower on a bearish inventory report.

On the news front, energy biggies BP plc (LON:BP) (NYSE:BP) and EOG Resources, Inc. (NYSE:EOG) came up with stronger-than-expected earnings reports, driven by higher oil prices and production, while refiner Marathon Petroleum Corp. (NYSE:MPC) agreed to acquire rival Andeavor (NYSE:ANDV) for more than $23 billion.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures gained about 2.4% to close at $69.72 per barrel, natural gas prices fell 2.2% to $2.711 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: CVX & RDS.A Earnings Impress, XOM & TOT Disappoint)

The U.S. oil benchmark settled at three-year highs on the possibility of United States re-imposing sanctions on Iran and sharp declines in output from Venezuela.

Of late, crude prices have been supported by indications that the Trump administration might lead America's exit from the landmark Iran nuclear deal if the European allies do not agree to toughen the terms by May 12. The return of sanctions would put pressure on OPEC’s third-largest oil producer’s energy industry and reduce global supply.

Fast falling production in Venezuela have added to the jitters. With the country tethering on the verge of an economic collapse, oil output has dwindled by almost 50% since the early 2000s. Venezuela currently churns out just around 1.5 million barrels per day, much lower that its pledge per the OPEC-led supply cuts.

Meanwhile, natural gas prices moved northward last week following a larger-than-expected increase in supplies – the first storage build of the injection season when demand is at its weakest ahead of the summer cooling period. Investors were further spooked by expanding dry gas production, which is currently at an all-time high.

Recap of the Week’s Most Important Stories

1. British energy giant BP plc reported strong first-quarter 2018 results on rebounding oil prices, record production and increased refinery throughput.

The company’s adjusted earnings of 78 cents per American Depositary Share (ADS) – on a replacement cost basis, excluding non-operating items – surpassed the Zacks Consensus Estimate of 67 cents and the year-ago quarter’s 46 cents. Total revenues were $69,143 million in the quarter, up from $56,386 million in the year-ago quarter.

Production averaged 2.605 million barrels of oil equivalent per day (MMBoe/d), 9% higher from the year-ago quarter and the most since the fourth quarter of 2010. Importantly, the Zacks Rank #1 (Strong Buy) company has now grown output for six quarters in a row. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BP's net debt was $39,993 million at the end of the first quarter, higher than $38,635 million in the year-ago quarter. Net debt ratio was 28.1%, marginally higher than 28% in the prior-year quarter. Meanwhile, the oil behemoth continued to return cash to shareholders through buybacks and dividends payments. Through first-quarter 2018, BP spent $120 million for buying back 18 million shares. (Read more BP Posts Strong Q1 Earnings on Record Upstream Business)

2. Upstream energy company EOG Resources reported first-quarter 2018 adjusted earnings of $1.19, beating the Zacks Consensus Estimate of $1.01 supported by higher production and increased commodity price realizations. The bottom line also compared favorably with the year-ago quarter profit of 15 cents per share.

In the quarter, EOG Resources’ total volume improved 15.6% year over year to 659,900 BOE/d (70% liquids). Average realized crude oil and condensate price was $64.27 per barrel in the reported quarter, compared with $50.34 a year ago.

For 2018, the company expects total production between 685,800 BOE/d and 728,500 BOE/d. Of which, crude volumes are projected between 389,400 barrels per day and 405,600 barrels per day. The company expects crude volume to increase between 16% and 20%. For the second quarter, the company anticipates total production between 670,300 BOE/d and 706,200 BOE/d. (Read more EOG Resources Q1 Earnings and Revenues Beat Estimates)

3. Marathon Petroleum recently inked a deal worth $23.3 billion to acquire its rival Andeavor, marking the biggest-ever deal by an oil refiner, in a bid to become the top independent refiner in the United States.

Marathon Petroleum has agreed to buy all the outstanding shares of Andeavor’s representing a total equity value of $23.3 billion. The deal also assumes Andeavor’s debt, thus pushing the total value of the transaction to $35.6 billion. The transaction has been unanimously approved by the board of directors of both the companies. Subject to satisfactory closing conditions, along with shareholders’ consent and other regulatory approvals, the deal is set for closure in the second quarter of 2018.

Marathon Petroleum’s operations are focused on the Gulf Coast and Midwest while Andeavor’s refinery activities are mainly concentrated in California, the Mid-Continent and Pacific Northwest. The complementary asset base has been the key driver of the deal. (Read more Marathon Petroleum Inks $23.3B Deal to Buy Andeavor)

4. Concho Resources (NYSE:CXO) reported strong first-quarter results on the back of higher commodity price realizations and robust production growth. The independent energy explorer came out with net earnings per share of $1.00, comfortably beating the Zacks Consensus Estimate of 81 cents. The bottom line also improved significantly from the prior-year quarter adjusted income of 49 cents per share.

Concho Resources' average quarterly volume increased 25.7% year over year to 227,930 BOE/d, exceeding the high-end of the company’s guidance range, of which 63% was oil. Overall, the company fetched $46.17 per barrel compared with $37.47 a year ago.

Concho Capitalizing on its enviable acreage of low-risk top-tier assets and a multiyear drilling inventory, Concho raised its production outlook for 2018. The company now expects output to grow 18%-20% against the prior guidance of 16-20%. Capital expenditure guidance for 2018 remains intact at about $2 billion. Notably, the second-quarter output levels are expected to be between 226 MBoe/d and 230 MBoe/d. (Read more Concho Q1 Earnings Top on Price & Output, Guidance Up)

5. Leading upstream energy company Pioneer Natural Resources Company (NYSE:PXD) reported first-quarter 2018 earnings, excluding one-time items, of $1.66 per share. The bottom line beat the Zacks Consensus Estimate of $1.51 and the year-earlier quarter adjusted earnings of 25 cents per share. Higher oil and liquids price realizations and increased production supported the results.

Total production in the reported quarter averaged approximately 312,000 MBOE/d, up 25.3% year over year, surpassing the Zacks Consensus Estimate of 304,000 BOE/d. The upside can be attributed to the Permian Basin drilling program.

The company said that it can exceed its previous 2018 budget estimate of $2.9 billion as it prepares for rig additions during the year-end. For 2018, Pioneer Natural intends to fund its capital expenditure from the forecasted cash flow of around $3.2 billion (based on gas price of $2.80 per Mcf and oil price of $66 per barrel).

Pioneer Natural expects production between 312,000 BOE/d and 322,000 BOE/d in the second quarter of 2018. Moreover, the company expects its 2018 production from the prolific Permian Basin to surge 19-24% from the last year. For second quarter, the company expects production costs in the range of $10-$12 per BOE. General and administrative expenses are expected in the range of $90-$95 million. (Read more Pioneer Natural Q1 Earnings Beat on Oil Price Rise)

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.

Despite to the week’s positive oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – was little changed last week. The best performer was independent refiner Andeavor whose stock jumped 14.2% after the company said it has reached an agreement to be acquired by rival Marathon Petroleum Corporation for $23.3 billion, while offshore operator Transocean Ltd. (NYSE:RIG) lagged the pack, down on the week by about 2.7%.

Longer-term, over six months, the sector tracker is up 5.6%. Downstream operator,Valero Energy Corporation (NYSE:VLO), is far and away the major gainer during this period, experiencing a 39.9% price fall.

What’s Next in the Energy World?

With the 2018 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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