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Oil & Gas Stock Roundup: ExxonMobil & Shell's Q3 Updates, ConocoPhillips' Dividend Hike

Nilanjan Choudhury

It was a week where both oil and natural gas futures came under selling pressure.

On the news front, supermajors ExxonMobil XOM and Royal Dutch Shell RDS.A issued updates on their upcoming third-quarter earnings. Meanwhile, world’s largest independent oil and gas producer ConocoPhillips COP announced a 38% dividend hike combined with a $3 billion share repurchase.

Overall, it was a dismal week for the sector. West Texas Intermediate (WTI) crude futures moved down 5.5% to close at $52.81 per barrel, while natural gas prices dropped 2.2% for the week to finish at 2.352 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: BP & ExxonMobil's Multibillion Dollar Deals Steal the Show)

The U.S. crude benchmark registered a sharp weekly loss on concerns about demand and a larger-than-anticipated build in domestic stockpiles.

Natural gas prices also finished down after the weekly inventory release showed a larger-than-expected increase in supplies. The bearish injection, which was also higher than the five-year average, sparked a sell-off. 

Recap of the Week’s Most Important Stories

1.  ExxonMobil recently announced that weakness in crude prices will hurt its third-quarter earnings. Following the announcement, the integrated energy player’s share price slid 2.6%.

Through the September quarter of 2019, price of West Texas Intermediate and Brent crude plunged 8.5% and 8.9%, respectively. The decline in oil prices is likely to clip ExxonMobil’s third-quarter 2019 profit from its upstream operations. The latest SEC filing revealed that the company expects total quarterly earnings from upstream businesses, including the domestic market and abroad, to decline roughly 45% from the September quarter of 2018.

ExxonMobil also anticipates its third-quarter 2019 profit from downstream businesses to slump 70% from the year-ago period. As a whole, the energy giant projects total profit decline of 50% to $3.1 billion from the prior-year quarter, owing to underperformance in both upstream and downstream businesses. (Read more: ExxonMobil Foresees Q3 Earnings Slump on Weak Crude Prices)

2.   Royal Dutch Shell recently announced the updated version of its third-quarter guidance. Let’s delve into some key segmental revisions.

The upstream production is projected to lie between 2,600 and 2,650 thousand barrels of oil equivalent per day (boe/d), slightly lower than the year-ago figure of 2,672 thousand boe/d. Compared with the prior-year quarter, the Zacks Rank #3 (Hold) company expects to incur additional $250-$350 million well write-offs during this year’s third quarter.

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

Shell projected its third-quarter oil product sales in the range of 6,700-7,350 thousand barrels per day assuming that the upper end of the estimate will be met. This indicates a 10% increase from the number reported in the third quarter of 2018. Meanwhile, the company expects to see a marginal fall in its chemical sales volumes. Further, Shell envisioned its third-quarter LNG liquefication volumes to increase 10-14% compared with its previous year’s quarterly output. Moreover, its segmental production is anticipated to lie in the 930-960 thousand boe/d band. In the year-earlier period, Shell produced 924 thousand boe/d. (Read more: Shell Renews Q3 Outlook, Rides on High LNG Volumes)

3.   ConocoPhillips recently announced a hike in its quarterly dividend and plans to repurchase of stocks worth $3 billion.

The new dividend of 42 cents per share reflects an increase of 38% from the prior payout. The dividend is likely to be paid on Dec 2, to stockholders of record as of Oct 17. On an annualized basis, the company hiked its dividend by roughly $500 million.

Moreover, ConocoPhillips has announced its intention to buy back stocks worth $3 billion in 2020. Both the dividend hike and share buyback program reflect the company’s strong focus on returning cash to shareholders consistently. (Read more: ConocoPhillips Rewards Investors With Dividend Hike & Buyback)

4.  Cenovus Energy Inc. CVE announced that it has lowered its guidance for 2019 capital budget and raised its fourth-quarter 2019 dividend payout.

The company now expects its capital spending through 2019 in the band of C$1.1-C$1.2 billion. The midpoint of the guidance suggests a reduction of C$150 million from the midpoint of the prior projected band.

Cenovus also announced fourth-quarter 2019 dividend of 6.25 cents, which calls for a sequential increase of 25%. The new dividend is likely to be paid on Dec 31, to common shareholders of record as of Dec 13. Notably, while presenting its five-year business plan, the company boasted about its strong financials and added that it will be able to raise annual dividends by 5% to 10% even if West Texas Intermediate (WTI) crude trades at a low level of $45 per barrel. (Read more: Cenovus Hikes Q4 Dividend & Lowers 2019 Capital Budget)

5.   Roan Resources, Inc. ROAN has reached an agreement with Citizen Energy Operating, LLC, a subsidiary of private equity major Warburg Pincus LLC. By dint of this deal, the former will be acquired by the latter. The transaction value reveals an all-cash deal worth $1 billion comprising $780-million net debt as of Sep 30.

This strategic move would provide Roan shareholders with $1.52 in cash for each share of Roan common stock they own, accounting for a 24% premium to the closing price prior to the acquisition announcement. This, in turn, implies a total equity consideration of $234.2 million. The buyout pact is expected to unlock a significant value for the company’s shareholders wherein they are anticipated to receive a substantial premium.

Recently, Roan was witnessing weak drilling activities in its core operating SCOOP and STACK basins in Oklahoma. This downside resulted from the irregularity in the region’s geology, making it an expensive area for producers and therefore inducing a higher cost structure.(Read more: Roan Resources to Be Acquired by Private Equity Firm for $1B)

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

-3.5%

-18.6%

CVX

-4%

-11%

COP

-7.6%

-18%

OXY

-4.6%

-39.3%

SLB

-7.1%

-32.6%

RIG

-6.4%

-54.6%

VLO

+0.1%

-2.1%

MPC

-2.7%

-3.8%

 

Echoing crude’s bearish sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – was down 3.8% last week. The worst performer was oilfield services behemoth Schlumberger SLB whose stock fell some 7.1%.

Longer-term, over six months, the sector tracker lost 16.7%. Offshore driller Transocean Ltd. RIG was the major loser during this period, experiencing a 54.6% price plunge.

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.

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Cenovus Energy Inc (CVE) : Free Stock Analysis Report
 
Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
Roan Resources, Inc. (ROAN) : Free Stock Analysis Report
 
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