Tuesday, October 25, 2016

US Energy Giants Beat Wall Street Projections

Schlumberger Ltd. and Halliburton Co., two of the largest oil field services companies, posted higher-than-expected profit thus beating Wall Street profit expectations this week. This kept the hopes up for higher third-quarter earnings for energy companies despite seemingly steadying oil-futures prices.

Late Thursday reports showed Schlumberger’s third quarter profit were higher, thrashing targets and sales only a little bit below estimates The results of Schlumberger’s Q3 came a day after rival Halliburton also surpassed expected profits. Halliburton CEO, David Lesar, cautioned about the fourth quarter experiencing seasonal weakness although a hint of optimism may be seen as he expects the oil prices to finally make a turn after a two-year nosedive.

Energy companies began to tighten and plan expenditures, conduct layoffs and asset selloffs to the face the crisis caused by the sharp dip made by crude prices. Before oil prices hit below $50 they used to soar above $100 per barrel—a level that was last reached in the summer of 2016.

Recently, oil began tacking at around $50 a barrel due to the preliminary announcement of the Organization of the Petroleum Exporting Countries about reaching a possible production cut deal on its next meeting in November.

Major refiners which include oil and gas giants like Exxon Corp. and Chevron Corp. are expected to report next week while smaller energy companies are to report in early November.

Edward Jones analyst Brian Youngberg said that generally, the energy companies’ stance sees a better turn. Increased spending is expected in the fourth quarter, and may well go until 2017, the analyst added. Third-quarter results are never highly detailed by the companies, but they might focus more around their spending plans for 2017.

Also according to Youngberg, crude prices are expected to fall in the event that OPEC decides in its November meeting to dump the deal. Although this is the case, prices are highly unlikely to reach the lowest levels like last year and may hold out around $45 a barrel.

Energy companies with small and medium exploration and production immediately bought assets, and some of them even upped their capital spending plans this year.

Analysts at Tudor Pickering Holt noted as they talked to clients this week that local agreements have come forward as the central topic of discussion for this sector and developments show no sign of cessation in the near term.

At the beginning of the week, SM Energy Co. released a statement about the agreement for a buyout of 35,700 net acres worth $1.6 billion in west Texas from QStar LLC and sellout of Williston Basin assets in North Dakota to Oasis Petroleum Inc.

“We are modeling positive quarters on production beats for (Pioneer Natural Resources Co., Noble Energy Inc., Cimarex Energy Co., Parsley Energy Inc., Laredo Petroleum Inc,  and SM Energy,” added the Tudor analysts. “Longer-term top picks remain (Concho Resources Inc., Cimarex, and Pioneer), given asset quality, balance sheet strength, and line of sight to inventory expansion and incremental resource delineation in the near term.”

According to Youngberg, Q3 production compared to the second quarter and from the same period of the previous year will likely be down. “Focus will be more on cash flow, capital spending into 2017, execution of any recent acquisitions, further new well results, ongoing efficiencies, potential cost inflation as things improve, and hedging,” he added.

The Permian and the Anadarko basin of West Texas in Oklahoma will continue to capture the spotlight, and Texas’ Eagle Ford not as much talk, said Youngberg.

Another thing that the analyst pointed out was the investor focus of the giant integrated companies. Cash flow, comments on future spending and continued weakness in refining will be their focal point. The dividend should also be increased modestly by Chevron.

On October 28, both Chevron and Exxon are scheduled to report before the bell. The adjustments in Chevron’s share earnings from $1.25 a share in the year-ago period to 39 cents a share is expected to be part of its report, as analysts surveyed by FactSet revealed.

On the other hand, Exxon is expected to report adjusted profit of 59 cents a share, from the previous year’s $1.01 a share.

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