Oil & Gas Stock Roundup: ConocoPhillips' 10-Year Plan, HollyFrontier's Dividend Boost

It was a week where both oil and gas prices tallied small losses.

On the news front, ConocoPhillips (NYSE:COP) unveiled a 10-year plan that targets, among others, $50 billion in free cash flow. Meanwhile, HollyFrontier Corporation (NYSE:HFC) raised its dividend by 6% and set a new $1 billion stock buyback program.

Overall, it was a bearish week for the sector, albeit marginally. West Texas Intermediate (WTI) crude futures suffered a mild loss of 0.1% to close at $57.77 per barrel, while natural gas prices fell 0.9% for the week to finish at 2.665 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Linde, Helmerich & Payne (NYSE:HP) Earnings Top)

The U.S. crude benchmark finished slightly lower last week, pressured by slowing economic activity in the face of a protracted trade dispute between America and China - world’s two biggest economies. However, the losses were largely offset by a less-than-anticipated weekly increase in U.S. crude inventories and expectations that major oil producers will agree to extend their supply cut pact at a meeting early next month.

Natural gas prices also finished lower despite EIA reporting the season’s first withdrawal. The positive sentiment was overwhelmed by the lack of meaningful demand amid strong production, which led prices to trickle down.

Recap of the Week’s Most Important Stories

1. ConocoPhillips recently revealed operational and financial plans for the next decade, which will boost production while keeping spending under check. The company is also planning to enhance shareholder returns during this time frame of 2020-2029, while maintaining a strong balance sheet.

The upstream major — which had generated $16.3 billion and $7.3 billion in free cash flow (FCF) in 2017 and 2018, respectively — expects to generate around $50 billion of FCF during the 2020-2029 time period. ConocoPhillips intends to keep annual capital spending below $7 billion over the next 10 years.

Moreover, it has plans to spend almost $4 billion per annum on the shale plays and run around 20 rigs across four major fields. This is expected to ramp up production from the regions from 400,000 barrels a day currently to more than 900,000 barrels by the end of the next decade. Notably, the company has a humongous resource base of around 15 billion barrels of oil equivalent, which has a supply cost of less than $40 per barrel. (Read more ConocoPhillips Lays Out Plans for Next Decade, Aims $50B FCF)

2. HollyFrontier has been executing its strategies well to boost business growth and maximize returns to its shareholders. To this end, it announced that it will build a renewable diesel unit (RDU) at its Artesia refinery in New Mexico.

For meeting the buoyancy in demand for low carbon-fuels, the company aims to construct an RDU, which together with rail infrastructure and storage tanks, is projected to incur a $350-million capital expense. The construction of the RDU with production capacity of 125 million gallons per year will be backed by cash in hand and is estimated to be complete by early 2022. The unit, apart from aiding Zacks Rank #2 (Buy) HollyFrontier to increase the supply of low-carbon fuels, will also cover the expenses associated with the company’s annual RIN purchase obligation.

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

This Texas-based refiner also approved a 6% hike in its regular quarterly dividend to 35 cents per share, which is likely to be paid out on Dec 11, 2019 to its stockholders of record as of Nov 27. In the coming years, HollyFrontier targets to raise its dividend by 5% annually. Further, the company initiated a new $1-billion stock repurchase program, substituting all the existing share buyback authorizations of which nearly $281 million was remaining. (Read more HollyFrontier to Construct RDU, OK's 6% Dividend Hike)

3. Gulfport Energy Corporation (NASDAQ:GPOR) recently announced job cuts and suspension of the share buyback program, in line with its efforts to bring down expenses. Also, two of the company’s board members, Scott Streller and Craig Groeschel are expected to step down by the end of 2019. Following the announcement on Nov 18, 2019, the stock declined 12%.

The Oklahoma City, OK-based natural gas producer reduced workforce by 13%, in order to cope up with the current weak pricing environment. Notably, its bottom line in third-quarter 2019 declined 51% from the year-ago period's earnings due to lower natural gas price realizations.

The company has been under pressure from investors to improve stock performance. Its second-largest shareholder Firefly Value Partners, a hedge fund based out of New York, urged the company to repurchase $500 million worth of stock. As such, Gulfport Energy created a $400-million buyback program. However, due to weak near-term gas price outlook, the company recently suspended the program. The move is expected to enable the company to improve its leverage profile and liquidity. (Read more Gulfport Energy Slashes Workforce, Pauses Share Buybacks)

4. Callon Petroleum Company (NYSE:CPE) recently received green signal from key shareholder Paulson & Co. — a private investment management firm — for its Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) acquisition plan. Following the revised merger terms announced on Nov 14, Paulson — which strongly opposed the deal from the start — has decided to vote its shares in favour of the deal.

The revised deal reduced the stock exchange ratio from 2.05 to 1.75. This translates to a premium to be paid of 6.7%, which is significantly lower than 25% decided previously. Moreover, the deal revision removes the golden parachute entitlement to Callon’s management. Shareholders of the company will now own 58% of the combined entity, up from 54% agreed earlier.

The combined company is expected to have around 200,000 net acres in the Permian Basin and Eagle Ford shale. The latest deal is expected to generate more than $100 million of incremental free cash flow in 2020. This information can be intriguing for investors as Callon’s free cash flow has been negative since 2011. (Read more Paulson Agrees to Callon's Revised Carrizo Merger Terms)

5. Cheniere Energy, Inc. (NYSE:LNG) recently achieved a major milestone with the US Federal Energy Regulatory Commission’s (FERC) approval for the construction and operation of its Corpus Christi Stage 3 expansion project.

The company’s liquefaction platform comprising Corpus Christi liquefaction (CCL) project on the US Gulf Coast along with the expansion of Corpus Christi’s stage 3 project has an estimated production capacity of roughly 25 million tonnes per annum (mtpa).

The company, which is the first US LNG exporter, plans to construct seven midscale liquefaction trains neighboring Corpus Christi Bay across 1,000 acres. Each train is expected with production capacity of approximately 10 mtpa. The first train is likely to run in 2022. (Read more Cheniere's Corpus Christi Stage 3 Project Gets FERC Nod)

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.

The Energy Select Sector SPDR – a popular way to track energy companies – edged down 0.4% last week. The worst performer was downstream operator Marathon Petroleum (NYSE:MPC) whose stock lost 2.8%.

Longer-term, over six months, the sector tracker lost 1.8%. Offshore driller Transocean Ltd (NYSE:RIG). was the major loser during this period, experiencing a 24.8% 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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