Oil & Gas Stock Roundup: Exxon & Chevron's Q1 Earnings, Shell's Historic Dividend Cut

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

On the news front, integrated supermajors ExxonMobil XOM, Chevron CVX and Royal Dutch Shell RDS.A reported March quarter earnings. Though all the three companies were able to beat bottom-line estimates, Shell became the second oil major to cut its dividend.   

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures surged 16.8% to close at $19.78 per barrel, natural gas prices edged down 0.3% for the week to finish at 1.89 per million Btu (MMBtu). In particular, the oil markets reversed their decline from the previous week when the commodity fell sharply, even hitting negative territory at one point.

Coming back to the week ended May 1, the crude benchmark notched a big gain as the historic OPEC+ deal to curb production starts to take effect and major shale explorers plan to crimp output. Further, the U.S. Energy Department's latest inventory release revealing a smaller-than-expected increase in oil stockpiles also had a positive effect on the commodity.

Meanwhile, natural gas ended slightly lower as the fuel gas 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.  America’s biggest energy company ExxonMobil reported better-than-expected results for first-quarter 2020, thanks to growth in production volumes from the prolific Permian and Guyana oil resources. This was offset partially by lower industry refining margin and decline in commodity prices. The integrated energy giant’s earnings per share of 53 cents surpassed the Zacks Consensus Estimate of 4 cents.

During the quarter under review, ExxonMobil generated cash flow of $7.3 billion from operations and asset divestments, up from $6.2 billion a year ago. The company's capital and exploration spending rose 8% year over year to $7.1 billion. At the end of first-quarter 2020, total cash and cash equivalents were $11.4 billion, and debt amounted to $59.6 billion.

The coronavirus pandemic has dented global energy demand, leading crude prices to remain in the bearish territory. In wake of this unfavorable business scenario, ExxonMobil has slashed its 2020 capital budget by 30% to roughly $23 billion. The company, which pledged to main its dividend, has also decided to lower planned cash operating expenses for this year by 15%. (ExxonMobil Tops Q1 Earnings Estimates, Keeps Dividend)

2.   Smaller rival Chevron reported adjusted first-quarter earnings per share of $1.29, above the Zacks Consensus Estimate of 64 cents. The beat was driven by strong production from the Permian Basin and higher margins on refined products. The first-quarter average production from the showpiece Permian Basin was 580 MBOE/d, up 48% year over year.

In view of the historic oil market crash and the coronavirus-induced demand destruction for oil, Chevron now expects to spend $14 billion for the year, compared to its previously lowered estimate of $16 billion and 30% less than its initial projection. The company is also targeting $1 billion in operating cost cuts. Meanwhile, Chevron said that it would keep paying shareholders a quarterly dividend of $1.29.

Chevron recorded $4.7 billion in cash flow from operations, down from $5.1 billion a year ago. The decrease in cash flow could be attributed to falling lower price realizations in the upstream business. As of Mar 31, the San Ramon, CA-based company had $8.5 billion in cash and cash equivalents and total debt of $32.4 billion, with a debt-to-total capitalization ratio of about 18.4%. (Chevron Q1 Earnings Beat, Slashes Spending Further)

3.   Europe’s largest oil company Royal Dutch Shell plc reported first-quarter earnings per ADS (on a current cost of supplies basis, excluding items - the market’s preferred measure) of 74 cents, above the Zacks Consensus Estimate of 51 cents on higher LNG sales volumes.

Meanwhile, the Zacks Rank #3 (Hold) company cut its dividend by 66%, and said it would suspend the next installment of its stock repurchase program. Forced by the historic oil market crash and the coronavirus-induced demand destruction for the fuel, Shell trimmed its payout for the first time since World War II, in the process becoming the second oil major after Equinor EQNR to do so.

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

As of Mar 31, 2020, the company had $21.8 billion in cash and $95.1 billion in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 28.9%, up from 26.5% a year ago. During the quarter under review, Shell generated cash flow from operations of $14.9 billion, returned $3.5 billion to shareholders through dividends and spent $5 billion cash on capital projects. (Shell Tops Q1 Earnings, Cuts Dividend Amid Oil Rout)

4.   France-based TOTAL S.A. TOT reported first-quarter 2020 operating earnings of 66 cents (€0.60) per share, beating the Zacks Consensus Estimate of 55 cents by 20% on strong volumes. Total hydrocarbon production during the first quarter averaged 3,086 thousand barrels of oil equivalent per day (kboe/d), up 5% year over year.

Cash and cash equivalents as of Mar 31, 2020 were $21.7 billion compared with $27.4 billion at the end of 2019. Net debt to capital was 25% at the end of the quarter, up from 20.7% at 2019-end. Due to nearly 30% drop in commodity prices in the first quarter, cash flow of the company decreased roughly 31% year over year to $4.5 billion.

Given the unprecedented drop in oil prices and demand for commodities globally, the company decided to preserve liquidity by cutting down planned capital expenditure for 2020 by at least 25%. TOTAL now aims to invest $14 billion in 2020. (TOTAL Tops Q1 Earnings Estimates, Cuts '20 Output View)

5.    Upstream biggie ConocoPhillips COP reported first-quarter 2020 adjusted earnings per share of 45 cents, beating the Zacks Consensus Estimate of 21 cents, thanks to a decline in production and operating expenses along with contributions from Lower 48 Big 3 unconventional resources. The company has also maintained its quarterly dividend payment at 42 cents per share

Total production averaged 1,289 thousand barrels of oil equivalent per day (MBoE/D), down from the year-ago quarter’s 1,361 MBoE/D. The overall production was lower than the year-ago period, primarily due to normal field decline. Contributions from Lower 48 Big 3 unconventional resources partially offset the negative.

As of Mar 31, 2020, the oil giant had $3,908 million in total cash and cash equivalents. The company had a total long-term debt of $14,847 million, representing a debt-to-capitalization ratio of 0.32. Capital expenditures and investments totaled $1,649 million, and dividend payments grossed $458 million. The company repurchased shares worth $726 million in the quarter. Owing to weak commodity prices due to coronavirus pandemic, the upstream energy player has decided to voluntarily curtail production volumes. (ConocoPhillips Tops Q1 Earnings Estimates, Keeps Dividend)

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               -1.3%              -38.7%
CVX               +2.8%              -25%
COP              +8.5%              -31%
OXY               +10.4%            -63%
SLB                -2.2%              -55.8%
RIG                +18.6%           -79.4%
VLO               +11.9%            -37%
MPC              +13.5%           -52.5%

The Energy Select Sector SPDR – a popular way to track energy companies – was up 3.6% last week. The best performer was offshore driller Transocean Ltd. RIG whose stock surged 18.6%.

But longer-term, over six months, the sector tracker is down 39.5%. Transocean was on the other end of the spectrum this time, experiencing a 79.4% price plunge.

What’s Next in the Energy World?

As global oil consumption plunges amid a supply glut, market participants will be closely tracking the regular releases to watch for signs that could indicate a rebound. In this context, the U.S. government statistics on oil and natural gas - one of the few solid indicators that comes out regularly - and the Baker Hughes data on rig count, will be on the energy traders' radar, plus the 2020 Q1 earnings, with a number of S&P 500 components coming out with quarterly results.

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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
TOTAL S.A. (TOT) : Free Stock Analysis Report
 
Chevron Corporation (CVX) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
Equinor ASA (EQNR) : Free Stock Analysis Report
 
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