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Oil & Gas Stock Roundup: Eni, TC Energy, Pioneer Natural Q2 Earnings

Nilanjan Choudhury

It was a week where oil prices slumped to their lowest settlement since Jan 14 but natural gas futures ended flat.

On the news front, integrated major Eni SpA E, North American energy infrastructure giant TC Energy Corporation TRP and shale producer Pioneer Natural Resources Company PXD reported second-quarter earnings.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures fell 2.1% to close at $54.50 per barrel, natural gas prices ended Friday at 2.119 per million Btu (MMBtu) -- little changed over the course of the week. (See the last ‘Oil & Gas Stock Roundup’ here: Exxon, Chevron, Shell Report Q2 Earnings)

The U.S. crude benchmark entered bear market territory – a decline of 20% below a recent high. It tumbled to a seven-month low on Wednesday, reflecting the impact of slowing global economic growth against the backdrop of the U.S.-China trade war. EIA's inventory release showing a surprise weekly build in crude stockpiles also contributed to the losses.

Meanwhile, natural gas prices were essentially unmoved last week. The U.S. Energy Department's weekly inventory release showed a smaller-than-expected increase in natural gas supplies. Nevertheless, the commodity remained close to the lowest levels in more than three years because of growing fears that soaring production is outpacing demand growth.

Recap of the Week’s Most Important Stories

1.  Italy’s Eni SpA reported second-quarter 2019 adjusted earnings from continuing operations of 36 cents per American Depository Receipt/ADR, lagging the Zacks Consensus Estimate of 65 cents and deteriorating from the year-ago quarter’s 50 cents. Lower hydrocarbon production attributed to the underperformance.

Total oil and gas production in the second quarter was 1,825 thousand barrels of oil equivalent per day, down 2% year over year. Termination of the production contract for the Intisar gas field in Libya primarily led to the downside.

As of Jun 30, the company had long-term debt of almost €19 billion. Its debt-to-capitalization ratio was 35.9%. In the reported quarter, net cash generated by operating activities amounted to €4.5 billion. Capital expenditure totaled roughly €2 billion. (Read more Eni Q2 Earnings Miss on Lower Hydrocarbon Production)

2.   Canadian midstream behemoth TC Energy reported second-quarter 2019 earnings of 75 cents per share, in line with the Zacks Consensus Estimate. Meanwhile, the bottom line came ahead of the year-ago figure of 66 cents. This robust performance is primarily driven by strength in the company’s projects at U.S. Natural Gas Pipelines, Liquids Pipelines plus the Power and Storage segments. Contribution from growth projects that came online during the quarter also aided the uptick in earnings.

During the three months ended Jun 30, 2019, TC Energy’s capital investments totaled C$1.6 billion. On the same date, the company had cash and cash equivalents of C$666 million and long-term debt of C$35.1 billion. Its debt-to-capitalization ratio was 52.6%.

TC Energy’s current portfolio includes around C$32 billion of accretive growth projects, of which roughly C$7-billion worth of programs are expecting completion by this year-end. The company anticipates these growth projects to boost earnings and cash flow. This, in turn, will enable a generation of 8-10% annual dividend growth through 2021. TC Energy already continues to advance the Keystone XL and Bruce Power life extension projects. (Read more TC Energy Q2 Earnings Meet, EBITDA & DCF Jump Y/Y)

3.   Pioneer Natural Resources, a premier Permian producer, reported adjusted second-quarter 2019 earnings per share of $2.01, beating the Zacks Consensus Estimate of $1.88 and improving from the year-ago quarter’s $1.41. The strong quarterly earnings were attributed to ramped-up Permian operations.

In more good news for the investors, the Zacks Rank #3 (Hold) company announced that it has received approval from the board of directors to hike quarterly dividend to 44 cents per share.  The new dividend, representing a 175% sequential increase, is likely to be paid on Oct 10 to shareholders of record as of Sep 27.

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

At the end of the quarter under review, cash balance totaled $643 million. Long-term debt summed $1,837 million, reflecting a debt-to-capitalization ratio of 16.2%. Pioneer Natural continues to project production in the Permian Basin at the range of 320-335 MBOE/D for 2019. This suggests a year-over-year increase of 12% to 17%. (Read more Pioneer Natural Q2 Earnings Beat on Permian Volumes)

4.   Permian pure play Diamondback Energy FANG reported second-quarter results, delivering a comprehensive miss. Weaker-than-expected natural gas price realizations led to the underperformance. Amid natural gas flaring and pipeline constraints, gas prices entered into negative territory in the Permian during the quarter, with Diamondback losing money despite producing the commodity.

The 2018 purchases of Energen Corporation and Ajax Resources transformed Diamondback into one of the leading Permian Basin oil producers. Production of oil and natural gas averaged 280.4 thousand barrels of oil equivalent per day (MBOE/d), comprising 68% oil. The figure increased 149% from a year ago and marginally surpassed the Zacks Consensus Estimate of 277.2 MBOE/d. Its oil production surged 132.7% year over year and natural gas volumes almost tripled.

The company now expects full-year output in the range of 277-284 MBOE/d (68-70% oil) versus prior guidance of 272-287 MBOE/d. Further, full-year capex is now expected to be $2,725 million compared with the prior expectation of $2,700-$3,000 million. (Read more Diamondback's Q2 Earnings Miss on Weak Gas Prices)

5.   After reporting earnings in the trailing three quarters, natural gas exporter Cheniere Energy, Inc. LNG slipped to loss when it unveiled second-quarter 2019 results on Aug 8. The largest U.S. liquefied natural gas exporter posted loss per share of 44 cents, in stark contrast with the Zacks Consensus Estimate of earnings of 15 cents. High costs and derivates loss led to the underperformance. The loss also widened from the year-ago loss of 7 cents.

The company posted adjusted EBITDA of $615 million, with DCF of around $120 million. During the quarter, Cheniere shipped 104 cargoes, reflecting an increase of 70% from a year ago. Total volumes of LNG exported in the reported quarter were 360 trillion British thermal units (TBtu) compared with 222 TBtu in the year-ago period.

Overall costs and expenses rose 54% from the corresponding quarter last year to $1,860 million. The increase is mainly attributed to higher cost of sales that scaled up to $1,277 million from $873 million in the prior-year quarter. Operating and maintenance expenses doubled to $295 million in the quarter under review. Depreciation/amortization and SG&A expenses increased 84% and 5.4% from the prior-year quarter to $204 million and $77 million, respectively.(Read more Cheniere Slips to Q2 Loss Amid High Cost, Beats on Sales)

 

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%

-8.7%

CVX

+1.4%

+1.7%

COP

-4.4%

-21.6%

OXY

-7.9%

-31.7%

SLB

-7.7%

-22.9%

RIG

-18%

-48%

VLO

-2.9%

-7.6%

MPC

-9.8%

-27.1%

 

The Energy Select Sector SPDR – a popular way to track energy companies – was down 2.2% last week. The worst performer was offshore driller Transocean Ltd. RIG whose stock fell 18%.

Longer-term, over six months, the sector tracker is down 9.9%. Transoceanwas again the major loser during this period, experiencing a 48% price plunge.

What’s Next in the Energy World?

With the 2019 Q2 earnings season essentially over, market participants will get back to 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.

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Eni SpA (E) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
TransCanada Corporation (TRP) : Free Stock Analysis Report
 
Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report
 
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
 
Pioneer Natural Resources Company (PXD) : Free Stock Analysis Report
 
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