by Aaron Levitt | October 29, 2013 12:51 pm
We’re in the thick of earnings season for the energy sector and BP (BP) and Occidental Petroleum (OXY) were the latest oil stocks to report earnings.
And both oil stocks did so with gusto.
On the backs of higher production and prices per barrel, the oil stocks showed why the majors are in a league of their own. And more importantly for BP and OXY specifically, the earnings show just how far the duo are into their respective transformations
For OXY and BP stock investors, the earnings reports for both oil stocks could be a precursor to greater things down the road.
For beaten-down and beleaguered BP stock, the latest earnings report could be a sign of more positive things from one of the most well-known oil stocks. Ultimately, BP showed a 34% decrease in net profits vs. a year ago. But while at first blush that may seem bad, the truth is that number isn’t as terrible as it may seem.
The key for the oil stock is that BP managed to beat analysts’ projections by a wide margin.
British Petroleum reported third-quarter adjusted earnings of $1.17 per share on a replacement cost basis, excluding non-operating items. The oil stock’s results surpassed the analyst consensus estimates of just 97 cents. Much of that increase was due to higher average price of oil throughout the quarter.
BP sold oil for an average of $100.66 per barrel and natural gas for $5.01 per thousand cubic feet for the quarter. That’s versus $99 and $4.77, respectively for the previous quarter. Overall price realization rose 3.5% to $62.80 per barrel of oil equivalent. On the whole, the oil stock saw an 1.3% increase in profits from its upstream, as production at BP for the third quarter was 3.17 million barrels of oil equivalents a day.
These profits and gains managed to outweigh issues at its refining sector, which posted lower margins. BP was also encouraged by its progress on the production front and legal battle resulting from its Deep Horizon rig disaster/oil spill.
That prompted BP to raise its quarterly dividend by 5.6% to 57 cents a share. That gives BP stock a forward yield of just under 5%.
Like BP, oil stock rival Occidental Petroleum succeeded on the earnings front, built on the back of higher production and oil prices.
Gains for OXY came from higher oil production in the U.S. production, which was the equivalent of 476,000 barrels of oil per day. That was up about 7,000 barrels per day for the year ago quarter as well as also higher than the previous quarter’s production. That increase here at home helped offset lower production in the Middle East and North Africa — traditionally the bread-n-butter for OXY. Total production for the oil stock was 767,000 barrels per day.
The fourth largest U.S. oil stock OXY also saw higher prices for that higher production.
Beating BP on average cost per barrel, Occidental was paid $103.95 per barrel for crude. That’s a jump of nearly 8% versus last year’s numbers. OXY also saw a 32% gain in its average selling price for more for natural gas.
Adding in OXY’s 22% reduction in drilling costs and the oil stock produced a third-quarter profit of $1.58 billion — 15% more than a year ago. Adjusted profits per share came in at $1.96. That beat analyst estimates for the oil stock by roughly 6 cents. Meanwhile, OXY revenue rose 8% to $6.45 billion, also beating analysts’ projections.
While Occidental didn’t reward shareholders with a dividend increase, OXY stock has rallied this year about 27% based on the oil stock’s improving condition.
Given that both BP and OXY reported better numbers based on higher average energy prices, odds are the rest of the oil stocks will do the same. That could make the overall sector a big buy in the weeks ahead.
For investors, oil stocks are certainly shining this earnings season. OXY and BP, as well previous reports by Schlumberger (SLB) and Halliburton (HAL), are proving that fact.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
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