Oil & Gas Stock Roundup: Exxon & Chevron's Q4 Earnings Miss, Shell Reports Strong Numbers

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

On the news front, U.S.-based integrated majors ExxonMobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX) came up with weaker-than-expected earnings reports despite higher oil prices. However, their European counterpart Royal Dutch Shell (LON:RDSa) plc RDS.A bucked the trend and reported strong numbers, helped by rebounding commodity prices and cost cuts.

Overall, it was a dismal week for the sector. West Texas Intermediate (WTI) crude futures lost about 1% to close at $65.45 per barrel, while natural gas prices dived more than 10% to $2.846 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Valero and Marathon Hikes Dividends, Helmerich & Payne (NYSE:HP) Reports Q1)

The U.S. oil benchmark recorded its second decrease in three weeks. The major culprit was the steady trend of rising domestic oil production that continues to be the biggest headwind for the market.

As per EIA’s latest data, U.S. output rose by 384,000 barrels per day in November to 10.038 million barrels per day – the first time in nearly 50 years that oil production broke through the 10 million barrels a day threshold. This has refueled concerns that the domestic supply glut is cancelling out cuts from OPEC and its allies.

Data showing the number of U.S. oil rigs climbing for a second straight week brought further downside.

Meanwhile, natural gas had a forgettable week of its own following a smaller-than-expected decrease in supplies. The 99 billion cubic feet (Bcf) withdrawal was also lower than the five-year (2013-2017) average net shrinkage of 160 Bcf for the reported week.

Recap of the Week’s Most Important Stories

1. Energy giant ExxonMobil posted lower-than-expected results in fourth-quarter 2017, thanks to weak refinery throughput. This was partially offset by higher liquid price realizations. The company reported adjusted earnings of 88 cents per share, which missed the Zacks Consensus Estimate of $1.06. Also, the bottom line fell from the year-ago quarter level of 90 cents.

Production averaged 3.991 million barrels of oil-equivalent per day (MMBOE/d), lower than 4.121 MMBOE/d in the year-ago quarter. Liquid production fell year over year to 2.251 million barrels per day. However, natural gas production was 10.441 MMCF/d (millions of cubic feet per day), up from 10.424 MMCF/d in the year-ago period.

During the quarter under review, ExxonMobil generated cash flow of $8.8 billion from operations and asset divestments. The energy giant returned $3.3 billion to shareholders through dividends. Capital and exploration spending surged more than 100% year over year to almost $7.6 billion. (Read more ExxonMobil Misses Q4 Earnings on Lower Throughput)

2. Smaller rival Chevron reported weaker-than-expected fourth-quarter earnings after excluding the impacts of U.S. tax reform. The company reported adjusted earnings per share of 73 cents, lower than the Zacks Consensus Estimate of $1.27. However, the bottom line improved significantly from the year-ago profit of 22 cents amid the recovery in oil prices and production gains.

Chevron’s total production of crude oil and natural gas increased 2.7% compared with last year’s corresponding period to 2,740 thousand oil-equivalent barrels per day (MBOE/d). The U.S. output fell 1.6% year over year to 671 MBOE/d but the company’s international operations (accounting for 76% of the total) was up 4.1% to 2,069 MBOE/d.

Importantly, Chevron delivered a good cash flow performance this quarter – an important gauge for the oil and gas industry – with $6,230 million in cash flow from operations, up from $3,863 million a year ago. (Read more Chevron Q4 Earnings Jump, Helped by Rising Oil Price)

3. Europe’s largest oil company Royal Dutch Shell plc reported strong fourth-quarter results on all round contribution from all its segments. In particular, rebounding commodity prices and cost cuts helped the company in coming out with better-than-expected numbers.

During the quarter under review, Shell generated cash flow from operations of $7,275 million, returned $3,900 million to shareholders through dividends and spent $6,778 million on capital projects. Despite falling from the year-ago period, the company’s resilient cash generation has helped it to cover dividend payments.

Shell has already aborted its two-and-a half-year long scrip dividend program as cost-containment efforts and divestment strategies have paid off. Importantly, the group raked in $6,610 million in free cash flow during the fourth quarter, up from $5,741 million a year ago.

As of Dec 31, 2017, the company had $20,312 million in cash and $85,665 million in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 24.8%, down from 28% a year ago following the BG Group acquisition. The improvement in the group’s debt ratio was helped by cost cuts and asset sales. (Read more Shell's Q4 Earnings Jump After Oil Prices Recover)

4. Upstream energy player ConocoPhillips (NYSE:COP) reported fourth-quarter 2017 adjusted earnings of 45 cents per share, in line with the Zacks Consensus Estimate. In the prior-year quarter, the company had posted a loss of 26 cents. The fourth-quarter results were supported by higher oil and natural gas price realizations.

Production from continuing operations averaged 1,256 thousand barrels of oil equivalent per day (MBOED) in the quarter, lower than 1,596 MBOED in the year-ago quarter. The decline was led by planned divestment of assets.

As of Dec 31, 2017, the company had total cash and cash equivalents of $6.3 billion and debt of $19.7 billion, with a debt-to-capitalization ratio of 39%. In the reported quarter, ConocoPhillips generated $2.5 billion in cash from operating activities. Capital expenditures and investments totaled $1.5 billion and dividends payments grossed $319 million.

ConocoPhillips got an approval from the board of directors to hike the quarterly dividend to 28.5 cents per share from 26.5 cents, representing an increase of 7.5%. The company also enhanced its share buyback program. With this, ConocoPhillips will increase share repurchases during 2018 to $2 billion from the prior projection of $1.5 billion. (Read more: ConocoPhillips Q4 Earnings Meet, Revenues Top Estimates)

5. Marathon Petroleum Corp. (NYSE:MPC) reported strong fourth-quarter 2017 results on higher refining margin. The Zacks Rank #1 (Strong Buy) company’s earnings per share came in at $1.05, above the Zacks Consensus Estimate of $1.00. Earnings surged from the year-ago period's figure by 144.2%. Specifically, refining margin of $13.12 per barrel increased versus $11.31 a year ago. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Operating income from the Refining & Marketing segment — which is the main contributor to Marathon Petroleum earnings — was $732 million compared with $166 million in the year-ago quarter. The jump reflects wider crack spread leading to stronger refining margin and higher capacity utilization.

In the quarter, Marathon Petroleum spent $956 million on capital programs (51% on the Midstream segment). As of Dec 31, 2017, the company had cash and cash equivalents of $3,011 million and total debt of $12,946 million, with a debt-to-capitalization ratio of 38.4%. During the quarter under review, Marathon Petroleum returned $945 million of capital to shareholders, including $750 million of share repurchases. (Read more Marathon Petroleum Beats on Q4 Earnings, Revenues)

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.

In line with the week’s bearish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a -6% return last week. The worst performer was San Antonio, TX-based downstream operator Andeavor (NYSE:ANDV) , whose stock slumped 10.1%.

Longer-term, over 6 months, the sector tracker is up 5.8%. Independent refiner Valero Energy Corp. (NYSE:VLO) was the major gainer during this period, experiencing a 30.9% price appreciation.

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.

However, the 2017 Q4 earnings again remain the primary focus this week, with a number of S&P 500 members coming out with quarterly results.

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