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Oil & Gas Stock Roundup: Schlumberger, Halliburton & Baker Hughes' Q2


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It was a week where oil prices tilted lower but natural gas futures ended modestly up.

On the news front, oilfield service majors Schlumberger SLB , Halliburton HAL and Baker Hughes , a GE company BHGE kicked off the second-quarter energy earnings season.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures lost 0.8% to close at $70.46 per barrel, natural gas prices edged up 0.2% to $2.757 per million Btu (MMBtu). (See the last 'Oil & Gas Stock Roundup' here: COP, APC, OXY Boosting Shareholders' Wealth )

The U.S. crude benchmark slipped for the third week in a row on growing concerns about oversupply and tepid demand amid escalating trade conflict between the world's biggest oil consumers - the United States and China. The U.S. Energy Department's inventory release showing a shock weekly build in crude stockpiles triggered by record domestic output also played spoilsport.

Meanwhile, natural gas prices moved a tad higher last week following a smaller-than-expected increase in supplies.

Recap of the Week's Most Important Stories

1.    The world's largest oilfield services provider, Schlumberger, reported second-quarter 2018 earnings of 43 cents per share (eliminating charges and credits) - just beating the Zacks Consensus Estimate of 42 cents. The bottom line also rose from the year-earlier figure of 35 cents.

The results were driven by a rebound in drilling activities in Russia and the North Sea. Higher demand for directional drilling techniques, especially in the domestic onshore market, supported the numbers. However, it was partially offset by increased costs related to the mobilization of resources for new projects internationally.

As of Jun 30, 2018, Schlumberger had approximately $3,049 million in cash and short-term investments and $13,865 million in long-term debt. This represents a debt-to-capitalization ratio of 27.3%. In the April-to-June quarter, the company bought back 1.5 million shares. For 2018, the company still projects investments of $2 billion, almost in line with the 2017 and 2016 figures.

On a positive note, Schlumberger said that it expects an uptick in offshore activity triggered by higher anticipated spending by explorers. (Read more Schlumberger Q2 Earnings Beat, Revenues Miss Estimates )

2.    Smaller rival Halliburton reported slightly lower-than-expected second quarter profit after robust North American land drilling activity on the back of oil pricing strength were more than offset by reduced pressure pumping services in the Middle East, decreases in completion tool sales in Europe/Africa/CIS and decline in Gulf of Mexico drilling activity.

Halliburton's capital expenditure in the second quarter was $565 million. As of Jun 30, 2018, the company had approximately $2,058 million in cash/cash equivalents and $10,427 million in long-term debt, representing a debt-to-capitalization ratio of 54.1%.

However, Halliburton shares slumped more than 8% after the company warned that a slowdown in the oil and gas rich-Permian Basin activity due to pipeline constraints will be a drag on third quarter earnings. (Read more Halliburton Posts Q2 Earnings Miss, Sales Surpass )

3.    Baker Hughes reported second-quarter 2018 adjusted earnings of 10 cents per share, missing the Zacks Consensus Estimate of 13 cents owing to drop in volumes of contractual activities and Subsea Services. This was partially negated by increased pressure pumping activities and contributions from Inspection Technologies.

Total orders from the all business segments through second-quarter 2018 came in at roughly $6 billion, up 9% year over year. Oilfield Services and Oilfield Equipment business units contributed to roughly $2.9 billion and $1 billion orders, respectively.

The company foresees higher activities in the several international markets. Baker Hughes also expects higher growth in the coming quarters which will likely be backed by rising rig count and operating wells in North America. (Read more Baker Hughes Q2 Earnings Miss, Orders Increase Y/Y )

4.    Transocean Ltd. RIG recently announced that it has won contracts for two of its semi-submersibles - Transocean 712 and GSF Development Driller I. The company expects to add a total of $233 million to its backlog from these two contracts.

This midwater rig received a 13-well contract from ConocoPhillips COP , which is expected to last for 580 days. The deal is expected to add around $75 million to Transocean's backlog. The contract, to be carried out in the U.K. North Sea, is expected to start off in March 2019. Moreover, the deal incorporates a one-well option.

This ultra-deepwater semisubmersible won an 11-well contract from the Australian unit of Chevron CVX , which is expected to last for 955 days. The deal is expected to add around $158 million to Transocean's backlog. The location for the contract, which is expected to begin in the first half of 2019, will be off the coast of Australia. The deal also incorporates four one-well options. (Read Transocean Wins New Contracts for 2 Semi-Submersibles )

5.    Northern Oil and Gas, Inc. NOG recently agreed to buy some significant properties located in Williston Basin, ND from Pivotal Petroleum Partners, which focuses on non-operating stakes in various prolific basins.

The deal incorporates several active wells, which produces more than 4,100 barrels of oil equivalent per day (Boe/d). Northern Oil and Gas - a Zacks Rank #1 (Strong Buy) stock - is expected to pay $68.4 million in cash and 25.75 million shares for the assets. The deal, which has an effective date of Jun 1, is estimated to close within two months. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Northern Oil and Gas expects the acquisition to improve the cash flow situation in the coming quarters. In the twelve months ending Mar 31, the company faced a cash flow shortfall (negative free cash flow) of 68 million. Per the company, the acquisition is anticipated to generate around $56 million of operating cash flow in the next 12 months. Moreover, with the closing of the deal, cash flow is promptly expected to become positive. (Read more Buyout of Williston Basin Assets to Aid Northern Oil and Gas )

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

-2.3%

-7.9%

CVX

-1.4%

-7.7%

COP

-2.4%

+17.7%

OXY

-0.7%

+6.3%

SLB

-2.9%

-15%

RIG

-5.6%

+9.9%

VLO

-1.1%

+8.8%

MPC

+1.1%

+2%

Reflecting the week's negative oil market sentiment, the Energy Select Sector SPDR - a popular way to track energy companies - generated a -1.8% return last week. The worst performer was offshore drilling powerhouse Transocean whose stock fell 5.6%.

Longer-term, over six months, the sector tracker is down 4%. Oilfield services powerhouse Schlumberger is far and away the major loser during this period, experiencing a 15% price fall.

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 2018 Q2 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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Schlumberger Limited (SLB): Free Stock Analysis Report

Halliburton Company (HAL): Free Stock Analysis Report

Chevron Corporation (CVX): Free Stock Analysis Report

Transocean Ltd. (RIG): Free Stock Analysis Report

Northern Oil and Gas, Inc. (NOG): Free Stock Analysis Report

ConocoPhillips (COP): Free Stock Analysis Report

Baker Hughes, a GE company (BHGE): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Stocks
Referenced Symbols: SLB , HAL , CVX , RIG , NOG



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