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Oil & Gas Stock Roundup: Schlumberger & Halliburton's Q3, Shell's Asset Sale & More


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It was a week where oil prices dropped below $70 a barrel but natural gas futures ended higher.

On the news front, oilfield service majors Schlumberger SLB and Halliburton HAL kicked off the third-quarter energy earnings season.

Overall, it was another mixed week for the sector. While West Texas Intermediate (WTI) crude futures fell about 3.1% to close at $69.12 per barrel, natural gas prices gained 2.8% to $3.25 per million Btu (MMBtu). (See the last 'Oil & Gas Stock Roundup' here: Chevron's Norway Exit, Petrobras-Murphy JV & More )

The U.S. crude benchmark dropped for a second week in a row after the Energy Department's inventory release showed that stockpiles recorded another large build. Apart from the dim oil consumption picture - reflected by the continued rise in domestic inventories - indications that production elsewhere will offset the loss in Iranian output also played spoilsport.

Meanwhile, natural gas maintained its upward trajectory as inventories remain significantly below their five-year average ahead of the upcoming winter.

Recap of the Week's Most Important Stories

1.    The world's largest oilfield services provider, Schlumberger, reported third-quarter 2018 earnings of 46 cents per share (eliminating charges and credits) - just beating the Zacks Consensus Estimate of 45 cents. The bottom line also rose from the year-earlier figure of 42 cents. 

The results were driven by massive drilling activities in the international market. Improved performances by the company's directional drilling operations in the North American land resources and strong vertically integrated sand businesses also supported the impressive third-quarter numbers. However, the performance was partially negated by reduced hydraulic fracturing activities in the international market.

On a positive note, Schlumberger is expecting demand for crude and world-wide economic growth to remain on a solid ground. This will likely lead to overall higher investments for exploration and production activities in the international market and hence could be a favorable push for its oilfield services businesses. (Read more Schlumberger Q3 Earnings Beat Estimates, Rise Y/Y )

2.    Smaller rival Halliburton also reported slightly higher-than-expected third-quarter profit after robust international activity more than offset slowdown in the North American drilling fluids demand and pricing pressure in the United States land drilling business.

Halliburton's capital expenditure in the third quarter was $409 million. As of Sep 30, 2018, the company had approximately $2,057 million in cash/cash equivalents and $10,424 million in long-term debt, representing a debt-to-capitalization ratio of 53.6%.

However, Halliburton shares slumped more than 3% after the company warned that lower producer spending and a slowdown in the oil- and gas-rich Permian Basin activity due to pipeline constraints will be a drag on fourth quarter earnings. (Read more Petrobras and Murphy Oil Form JV for GoM Operations )

3.    In a bid to simplify its portfolio, Royal Dutch Shell plc RDS.A recently inked a deal to divest its interests in Shell Olie-og Gasudvinding Danmark B.V. (SOGU) for a total consideration of $1.9 billion to Norwegian Energy Company ASA aka Noreco. Subject to satisfactory closing conditions and regulatory approvals, the deal is set for closure in 2019.

Per the deal, Noreco will assume Shell's existing commitments related to the assets, including Tyra redevelopment and decommissioning costs. TOTAL and its DUC partners have agreed to invest nearly $3.27 billion ($21 billion DKK) to develop the Tyra Gas field, which will be able to produce 60,000 barrels of oil equivalent per day (Boe/d) from 2022.

While the deal marks the sale of Shell's entire upstream holdings in Denmark, it does not represent a total retreat of the company from the country. The European oil giant will still retain downstream presence in the country post completion of the deal through Shell-branded retail stations in Denmark and stakes in A/S Dansk Shell, which include Fredericia refinery. (Read more Shell to Vend Danish Assets for $1.9B to Optimize Portfolio )

4.    Valero Energy Corp. VLO agreed to buy back its associated midstream firm - Valero Energy Partners LP VLP - for about $950 million. At $42.25 per common unit, the transaction represents a premium of about 12.4% to the 30 trading-day volume weighted average price of the partnership's common units as of Oct 17, 2018.

Since Valero holds majority of stakes in the MLP, a stockholder vote is not required. The deal is anticipated to close at the earlier than the targeted date. On completion of the transaction, the partnership will be an indirect wholly-owned subsidiary of Valero and will stop being a publicly held partnership.

Valero Energy Partners, formed as the company's master limited partnership (MLP), commenced trading on the New York Stock Exchange on Dec 11, 2013. The affiliate owns and operates pipelines and storage terminals in Texas, Oklahoma, Louisiana and Tennessee that maintain various Valero refineries. (Read more Valero and Valero Energy Partners Ink $950M Merger Deal )

5.    Range Resources Corp. RRC has inked an agreement to divest a proportionately reduced 1% overriding royalty in Washington County, Pennsylvania leases. The transaction is expected to raise gross proceeds of $300 million.

The Zacks Rank #1 (Strong Buy) company's Washington County assets include about 300,000 net surface acres that produced 1.7 billion cubic feet equivalent (Bcfe) net per day in the second quarter of 2018. The overriding royalty pertains to existing and future Marcellus, Utica and Upper Devonian development on the subject leases. This excludes shallower and deeper formations. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

On closure of the transaction, Range Resources will retain a net revenue interest of about 82% on the subject Washington County acreage.  For 2019, cash flow related to the 1% overriding royalty is anticipated to be about $25 million. The net proceeds will be used to lower total debt by an expected 7%, which reduces annualized interest expense by about $15 million. Consequently, estimated cash flow will decline about $10 million in 2019. (Read more Range Resources to Divest Reduced Overriding Royalty )

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

+0.7%

+2%

CVX

+0.3%

-5.2%

COP

-1.8%

+10.3%

OXY

-6.2%

-6.4%

SLB

-1.4%

-17.6%

RIG

-7.4%

-3.3%

VLO

-14.3%

-15%

MPC

-7.7%

-7.2%

Reflecting the week's bearish oil market sentiment, the Energy Select Sector SPDR - a popular way to track energy companies - generated a -2% return last week. The worst performer was oil refiner and marketer Valero Energy whose stock fell 14.3%. 

Longer-term, over six months, the sector tracker is down 4.1%. Oilfield service biggie Schlumbergerwas the major loser during this period, experiencing a 17.6% price decline.

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 Q3 earnings remain the primary focus this week, with a number of S&P 500 members coming out with quarterly results.

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Valero Energy Partners LP (VLP): Free Stock Analysis Report

Valero Energy Corporation (VLO): Free Stock Analysis Report

Schlumberger Limited (SLB): Free Stock Analysis Report

Halliburton Company (HAL): Free Stock Analysis Report

Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report

Range Resources Corporation (RRC): Free Stock Analysis Report

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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: VLP , VLO , SLB , HAL , RDS.A



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