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Oil & Gas Stock Roundup: The Big Oil Q2 Earnings Edition

It was a week wherein oil and gas prices were largely unmoved.

On the news front, integrated supermajors ExxonMobil XOM, Chevron CVX, Royal Dutch Shell RDS.A, BP plc BP and TOTAL S.A. TOT reported June-quarter earnings.

Overall, it was an uneventful week for the sector. While West Texas Intermediate (WTI) crude futures were roughly unchanged at $40.27 per barrel, natural gas prices too remained essentially flat in the week to finish at 1.799 per million Btu (MMBtu).

The crude benchmark was little changed with large but opposing forces at work. The commodity got a leg up after a report from the EIA showed the year’s steepest stockpile draw. At the same time, investors remain worried by the second wave of coronavirus infections, which has created doubts over the trajectory of oil’s demand recovery. To add to the uncertainty, the OPEC+ group is tapering their record supply cuts since Aug 1, adding around 1.5 million barrels of oil supplies daily.

As far as natural gas is concerned, the positive impact of strong cooling demand expectations was offset by an ongoing supply glut made worse by the coronavirus-induced drop off in usage.

Recap of the Week’s Most-Important Stories

1.  America’s biggest energy company ExxonMobil reported weak second-quarter results owing to lower oil-equivalent production, coronavirus-induced weak commodity prices and reduced industry refining margins in both U.S. and non-U.S. operations. The integrated energy giant’s loss per share of 70 cents — excluding identified items — was wider than the Zacks Consensus Estimate of a loss of 63 cents.

During the quarter under review, ExxonMobil generated cash flow of $43 million from operations and asset divestments, substantially down from $5.9 billion a year ago. The company's capital and exploration spending declined 34% year over year to $5.3 billion. At the end of second-quarter 2020, total cash and cash equivalents were $12.6 billion, and debt amounted to $69.5 billion.

Total production averaged 3.638 million barrels of oil-equivalent per day (MMBoE/D), lower than 3.909 MMBoE/D a year ago, reflecting a coronavirus-induced drop in fuel demand and curtailment in volumes as mandated by the government. (ExxonMobil Q2 Earnings Miss Estimates on Weak Oil Price)

2.   Smaller rival Chevron reported adjusted second-quarter loss per share of $1.59. The Zacks Consensus Estimate was of a loss of 93 cents, while the company had earned $1.77 per share in the year-ago period. The underperformance reflects sharply lower oil and natural gas price realizations, plus a decline in refined products margins.

Chevron, which recently reached an agreement to acquire Noble Energy in an all-stock deal worth $5 billion, also wrote down the value of its assets by $1.8 billion due to weaker commodity price expectations. Further, the company incurred $780 million in severance costs.

Chevron recorded a meager $100 million in cash flow from operations, down from $8.7 billion a year ago. The plunge in cash flow could be attributed to falling lower price realizations in the upstream business. In the second quarter, Chevron paid $2.4 billion in dividends. As of Jun 30, the San Ramon, CA-based company had $6.9 billion in cash and cash equivalents and total debt of $34.1 billion, with a debt-to-total capitalization ratio of about 20.2%. (Chevron Incurs Wider-Than-Expected Q2 Loss, Sales Miss)

3.   Europe’s largest oil company Royal Dutch Shell plc reported second-quarter earnings per ADS (on a current cost of supplies basis, excluding items — the market’s preferred measure) of 16 cents. The Zacks Consensus Estimate was of a loss of 31 cents. The outperformance reflects strong trading gains.

As of Jun 30, 2020, the Zacks Rank #2 (Buy) company, which trimmed its payout for the first time since World War II earlier this year, had $27.9 billion in cash and $105 billion in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 32.7%, up from 27.6% a year ago. During the quarter under review, Shell generated cash flow from operations of $2.6 billion, returned $1.2 billion to its shareholders through dividends and spent $3.6 billion cash on capital projects.

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

The company’s cash flow from operations slumped 77% from the year-earlier level. Meanwhile, the group raked in a meager $243 million in free cash flow during the second quarter, plunging from $6.9 billion a year ago. (Shell Q2 Earnings Top Estimates on Trading Gains)

4.  London-based BP reported second-quarter 2020 adjusted loss of $1.98 per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items, wider than the Zacks Consensus Estimate of a loss of 99 cents. The weakness in first-quarter results is largely a reflection of the drop in oil equivalent production, commodity prices and refining marker margin. In particular, the coronavirus pandemic — which has dented global energy demand — has hurt the company’s upstream and Rosneft businesses.

BP did not carry out the share repurchase program in the second quarter. In the first quarter, it bought back 120 million ordinary shares for $776 million. Moreover, the company announced a quarterly dividend of 31.5 cents per ADS, which will be paid on Sep 25. This represents a 50% decline from the previous dividend payment of 63 cents per ADS. The dividend cut was a strategic move by the company to protect its cash position amid the coronavirus crisis that caused significant energy demand destruction.

BP intends to boost low carbon spending to $5 billion per annum by 2030. Within this time period, it plans to reduce emissions from operations by 30-35%. It also intends to enhance renewable power generation capacity to 50 gigawatts and reduce the weight of hydrocarbons from the portfolio by 40% from the 2019 levels. (BP Lags Q2 Earnings & Revenue Estimates, Halves Dividend)

5.  French energy giant TOTAL reported second-quarter 2020 operating earnings of 2 cents (€0.02) per share against the Zacks Consensus Estimate of a loss of 24 cents. The outperformance reflects massive trading profits, partly offset by a substantial fall in commodity prices and drop in production.

Cash and cash equivalents as of Jun 30, 2020 were $29.7 billion compared with $27.4 billion at 2019-end. Net debt to capital was 23.6% at quarter-end, up from 20.7% at 2019-end. Due to a sharp drop in second-quarter commodity prices, cash flow of the company decreased roughly 52% year over year to $3.5 billion.

TOTAL now expects 2020 production in the range of 290,000-295,000 barrels of oil equivalent per day, taking into consideration OPEC+ quotas and the present situation in Libya. Given the unprecedented drop in oil prices and global demand for commodities, the company decided to preserve liquidity by cutting down planned capital expenditure by at least 25% for 2020. TOTAL now aims to invest $14 billion in 2020. Management aims to lower operating costs by $1 billion from the 2019 levels by implementing cost-saving measures. (TOTAL Q2 Earnings Surpass Estimates, Sales Drop Y/Y)

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              -3.1%              -27.5%
CVX               -6.9%              -20.6%
COP              -7.2%              -35%
OXY               -6%                 -62.4%
SLB               -6.9%              -45.1%
RIG                -6.8%              -57.6%
VLO               -3%                 -33.6%
MPC              -1.3%              -27.8%

The Energy Select Sector SPDR — a popular way to track energy companies — lost 3.9% last week. The worst performer was E&P biggie ConocoPhillips COP whose stock slumped 7.2%.

For the longer term, over six months, the sector tracker is down 31.7%. Another oil and gas producer Occidental Petroleum OXY was the major loser during this period, experiencing a 62.4% price plunge.

What’s Next in the Energy World?

As global oil consumption gradually ticks up, market participants will be closely tracking the regular releases to watch for signs that could further validate a rebound. In this context, the U.S. government’s statistics on oil and natural gas -— one of the few solid indicators that comes out regularly — will be on energy traders' radar. Data on rig count from energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is also closely followed. Finally, there will be 2020 Q2 earnings, with a number of S&P 500 components coming up with quarterly results.

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