It was a week wherein oil prices hit another multiyear high but natural gas futures lost some steam.

On the news front, energy companies Schlumberger SLB, Halliburton HAL, Baker Hughes BKR, Kinder Morgan KMI and Valero Energy VLO reported September-quarter earnings.

Overall, it was a mixed week for the sector. West Texas Intermediate (WTI) crude futures gained 2.6% to close at $83.76 per barrel, while natural gas prices fell 2.4% to end at $5.28 per million British thermal units (MMBtu). In particular, the oil market managed to maintain its forward momentum from the eight previous weeks.

Coming back to the week ended Oct 22, oil prices rose after a report from the Energy Information Administration ("EIA") showed draws in crude and fuel stockpiles. Of late, energy investors have been buoyed by the market’s robust fundamentals and a supportive macro backdrop.

Crude supplies recently fell to their lowest levels since October 2018, with U.S. commercial stockpiles down more than 15% since mid-March. Taking Cushing as an indicator, the oil market has already tightened considerably. Stocks fell under 32 million barrels at the key storage hub last week, the lowest since October 2018. There is also a marked improvement in fuel demand on the back of rebounding road and airline travel. In fact, strong demand for gasoline has pushed inventories to the lowest level in nearly two years.

Meanwhile, natural gas finished down following a higher-than-expected increase in supplies. A bearish turn in weather forecasts also sparked off a pullback in the fuel’s price.

Recap of the Week’s Most-Important Stories

1.  Schlumberger’s third-quarter 2021 earnings of 36 cents per share (excluding charges and credits) came in line with the Zacks Consensus Estimate. The quarterly earnings were aided by a surge in stimulation activity in Argentina, stronger North American rig activity along with ramped up drilling operations at offshore and onshore international resources. This was offset by lower contributions related to Digital & Integration from Europe/CIS/Africa.

Despite the company’s $42 million of severance payments through the September quarter, the oilfield service behemoth generated free cash flow of $671 million. Capital expenditures in the quarter were recorded at $273 million. As of Sep 30, 2021, the Zacks Rank #2 (Buy) Schlumberger had approximately $2.9 billion in cash and short-term investments. It had long-term debt of $14.4 billion at third quarter-end, representing a debt to capitalization of almost 53%.

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

Fuel demand has improved significantly, so has oil price, thanks to the rolling out of coronavirus vaccines at a massive scale. Schlumberger expects this trend to continue for the next few years, which will drive upstream investment, especially in international resources. Being a leading player in the oilfield service space, the company expects to capitalize on this positive trend. (Schlumberger Q3 Earnings Match Estimates, Revenues Miss)

2.   Smaller rival Halliburton also reported in-line third-quarter earnings on the back of an improved year-over-year revenue contribution from North America activities, partially offset by a lower-than-expected operating income from the Completion and Production, and the Drilling and Evaluation segments. The company reported earnings of 28 cents per share, matching the Zacks Consensus Estimate.

The world’s biggest provider of hydraulic fracking noted that its completion and production division achieved decent mid-teens profits while its drilling and evaluation division sustained their steady progress. According to Halliburton, a multi-year upcycle is in the works. Increased demand for its services, both globally and in North America, is driven by a scarcity of structural global commodities. Halliburton is seen to be well-positioned in both areas to benefit from the strengthening economy.

The company's value offering, unique exposure to both worldwide and the North American markets, and innovative technology across an integrated services portfolio reinforce its long-term competitive edge, resulting in a high free cash flow and industry-leading returns. (Halliburton Q3 Earnings Match Estimates, Sales Miss)

3   Baker Hughes — the third major provider of technical products and services to drillers of oil and gas wells — reported third-quarter 2021 adjusted earnings of 16 cents per share, missing the Zacks Consensus Estimate of 22 cents. The lower-than-expected results were caused by a decline in cost productivity in Digital Solutions. This was partly offset by higher contributions from the Turbomachinery & Process Solutions business unit.

As of Sep 30, 2021, the company had cash and cash equivalents of $3.9 billion. At the end of the third quarter, it had long-term debt of $6.7 billion, implying a debt to capitalization of 28.4%. Baker Hughes’ net capital expenditure for the third quarter totaled $111 million.

The company generated positive free cash flow of $305 million in the reported quarter compared with $52 million in the year-ago period. As far as outlook is concerned, Baker Hughes expects continued recovery in the global economy in the remainder of this year and next year. Thus, demand for oil and natural will continue to ramp up, brightening the outlook for oilfield services. (Baker Hughes Q3 Earnings & Revenues Miss Estimates)

4.   Energy infrastructure provider Kinder Morgan posted third-quarter 2021 adjusted earnings per share of 22 cents, lower than the Zacks Consensus Estimate of 24 cents. The bottom line, however, increased from the year-ago profit of 21 cents. The company’s earnings miss could be attributed to Fayetteville Express Pipeline’s lower contributions. A rebound in fuel demand, however, attributed to year-over-year higher earnings and strong revenues.

As of Sep 30, 2021, Kinder Morgan reported $102 million in cash and cash equivalents. The company’s long-term debt amounted to $29 billion at quarter-end, resulting in a debt to capitalization of 50.7%.

The company continues to project DCF and adjusted EBITDA for this year at $5.4 billion and $7.9 billion, respectively. The midstream firm anticipates its 2021 net income at $1.7 billion. For this year, the midstream player expects to announce a dividend payout of $1.08 per share, reflecting a year-over-year increase of 3%. (Kinder Morgan Q3 Earnings Miss Estimates, Revenues Beat)

5.  Refining giant Valero Energy reported third-quarter 2021 adjusted earnings of $1.22 per share, turning around from a loss of $1.16 in the year-ago period. The bottom line also beat the Zacks Consensus Estimate of 94 cents per share. The strong quarterly results were supported by increased refinery throughput volumes and higher refining margin. A massive recovery in gasoline demand helped the company.

For the quarter, refining throughput volumes were 2,864 thousand barrels per day (MBbls/d), up from 2,526 MBbls/d in third-quarter 2020. Meanwhile, refining margin per barrel of throughput increased to $9.85 from the year-ago level of $4.10.

At quarter-end, Valero had cash and cash equivalents of $3.5 billion, down from the second-quarter level of $3.6 billion. As of Sep 30, 2021, it had total debt and finance lease obligations of $14.2 billion, down from $14.7 billion at the June-quarter end. Valero has a debt to capitalization of 44.9%. (Valero Q3 Earnings, Revenues Beat on Refinery Throughput)

Price Performance

The following table shows the price movement of some major oil and gas players over the past week and during the last six months.

Company    Last Week    Last 6 Months

XOM              +0.8%                    +12.8%
CVX               +2.9%                   +10%
COP              +2.1%                   +50%
OXY               +7.2%                   +33.1%
SLB               -0.3%                    +33.4%
RIG                -2.7%                    +30.6%
VLO               +3%                       +16.8%
MPC              +1.1%                    +26.5%

The Energy Select Sector SPDR — a popular way to track energy companies — was up 1.1% last week. The best performer was Houston-TX based biggie Occidental Petroleum OXY whose stock climbed 7.2%.

Over the past six months, the sector tracker has increased 20.8%. Upstream biggie ConocoPhillips COP was the major gainer during the period, experiencing a 50% price appreciation.

What’s Next in the Energy World?

As the global oil consumption outlook strengthens amid tightening fundamentals, market participants will be closely tracking the regular releases to watch for signs that could further validate the upward momentum. In this context, the U.S. government’s statistics on oil and natural gas — one of the few solid indicators that come out regularly — will be on energy traders' radar. Data on rig count from the oilfield service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed too. News related to coronavirus vaccine approval/rollout/distribution will be of utmost importance. Finally, there will be 2021 Q3 earnings, with a host of ‘Big Oil’ companies coming up with quarterly results.

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Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Halliburton Company (HAL) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
 
Valero Energy Corporation (VLO) : Free Stock Analysis Report
 
Kinder Morgan, Inc. (KMI) : Free Stock Analysis Report
 
Baker Hughes Company (BKR) : Free Stock Analysis Report
 
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