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Shale Reality Check Hits as Oil Results Underwhelm Investors


August 1, 2018, by Kevin Crowley, Alex Nussbaum and Ryan Collins

(Bloomberg)

U.S. shale drillers gave investors a reality check after a strong start to the year, with Anadarko Petroleum Corp., Chesapeake Energy Corp., Devon Energy Corp. and Whiting Petroleum Corp. all plunging after posting disappointing earnings.

Expectations were heightened with second-quarter oil prices 41 percent higher than a year earlier, and with all four of the producers largely insulated from the pipeline bottlenecks affecting some Permian producers. But for the most part they failed to deliver.

The result: Each lost more than 7 percent in New York trading. While at least some of that drop can be linked to oil prices that hit a two-week low on Wednesday, analysts suggested investors were looking for more than the mixed-bag results that were reported.

“There were high expectations,” said Subash Chandra, a New York-based analyst at Guggenheim Securities LLC. “They either didn’t beat or raise their guidance, or if they did, it was offset by more spending.”

One big “red flag,” according to Chandra: Capital spending increases based on cost inflation, “when most of us thought inflation was already modeled in and settled.”

Shale’s performance was a rerun of last week’s pratfall by big international oil companies.

Exxon Mobil Corp., Royal Dutch Shell Plc and Chevron Corp. all missed earnings estimates but the latter placated investors to some extent with a small share buyback. BP Plc and Total SA’s figures were better received with the British major hiking its dividend for the first time in four years and the French company raising its production target for the second time this year.

Here’s a breakdown of key earnings reports on Wednesday:

Anadarko

Raised capital spending for the full year by about 6 percent, to $4.5 billion to $4.8 billion, without upping its production target. Cited “modest” rise in oilfield costs. Second-quarter sales rose 21 percent to $3.3 billion and oil production beat analyst expectations, but earnings fell short. Stock dropped as much as 7.3 percent, the most since May 3, and traded down 4.8 percent at 3:53 p.m. in New York trading.

Devon Energy

Profit, sales estimates missed despite a 54 percent jump in Permian oil output. Restructuring costs, downtime at Canadian oil sands weighed on earnings. Disappointing results at Showboat project in Oklahoma’s Stack shale play. Stock dropped as much as 8.4 percent, the most since Feb. 21.

Whiting Petroleum

Missed oil production estimates. Prices for natural gas liquids were 35 percent lower than the previous quarter and 21 percent less than estimated by Jefferies LLC. Stock dropped as much as 11.2 percent but is still the best performer in the Russel 1000 Energy Index this year, up 69 percent. Shelved sale of some Colorado assets after bids failed to “reflect the cash flow power of the asset,” CEO Brad Holly said.

Chesapeake Energy

Missed production estimates and spent $595 million on capital projects, 5.4 percent more than analysts anticipated. Stock dropped as much as 10 percent, eroding this year’s gain.



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