Large And Small Oil-And-Gas Stocks See Post-Earnings Bounce

August 11, 2022 at 03:00 AM EDT

Energy stocks Schlumberger (NYSE: SLB) and Transocean (NYSE: RIG) boast double-digit year-to-date price gains, part of the overall energy sector’s 2022 leadership trend.

These are quite different companies, in terms of size and profile. Together, they offer a glimpse of how various parts of the energy industry are faring at the moment.

After declining in June, the overall energy sector rebounded last month. So far in August, the Energy Select Sector SPDR ETF (NYSEARCA: XLE) is down 4.68%. The ETF tracks the large-cap S&P 500 energy sector. On a rolling one-month basis, the ETF is showing a gain of 5.36%. The discrepancy is due to a pullback the week ended August 5.

Schlumberger is the seventh most heavily weighted stock within the large-cap energy sector, constituting 3.95% of XLE assets. The six more heavily weighted stocks, with their rolling one-month returns, are:

Exxon Mobil (NYSE: XOM): 5.24%
Chevron (NYSE: CVX): 8.85%
ConocoPhillips (NYSE: COP): 10.47%
Occidental Petroleum (NYSE: OXY): 2.87%
EOG Resources: (NYSE: EOG): 3.29%
Marathon Petroleum (NYSE: MPC): 12.11%

It’s easy to see how the sector posted a solid gain.

So what’s driving sector performance at this juncture?

Although U.S. drivers are seeing lower prices at the gas pump, global demand for oil and gas remains high, while supplies are still somewhat constrained. That’s been the situation since the U.S. and other western nations slapped sanctions on Russia’s oil in the wake of the Ukrainian invasion in February.

Prices Moving Lower

Despite their first weekly loss in over a month last Friday, oil prices jumped again on Tuesday: The price of West Texas Intermediate crude, generally viewed as the domestic benchmark, was $88.88 as of Wednesday morning. That’s down significantly from a high of $124.76 on March 8.

On the one hand, lower prices could drive greater consumption, not just from motorists in the U.S., but from industrial and commercial users around the world. On the other hand, lower prices could, naturally, result in lower revenue for the energy companies.

Schlumberger shares gapped higher on the heels of the company’s July 22 earnings report, but it gapped back down on August 3 and is now trading at its July 22 closing price.

The Houston-based oil-and-gas services giant earned $0.50 per share in the quarter, up 67% from the year-ago quarter. Revenue was up 20% to $6.77 billion. According to MarketBeat earnings data, both the top and bottom lines beat views.

In the earnings conference call, Schlumberger CEO Olivier Le Peuch cited several drivers of growth, including strong international business, steady drilling momentum in North America, sustained offshore recovery and the broadening impact of improved pricing.

While the well-known large caps like Schlumberger understandably get the bulk of attention from investors, smaller companies may also be showing renewed signs of life.

Transocean, with a market cap of $2.4 billion, also gapped up following its recent earnings report. Like Schlumberger, it too rallied, then pulled back. However, it’s up 10.83% for the month, still riding high from that post-earnings boost.

Here’s where things are a little different from Schlumberger: While the company posted a loss of $0.10 per share, that actually beat views by a penny, MarketBeat data show. In addition, revenue of $692.00 million topped expectations.

Transocean, based in Switzerland, provides offshore contract drilling services for oil and gas companies globally. The company also takes partial ownership stakes in offshore drilling units.

Years Of Underinvestment

In its quarterly conference call, CEO Jeremy Thigpen said, “While we have experienced volatility, commodity prices have remained within a range that is still extremely healthy for offshore development. Indeed, the outlook for our industry-leading assets and services as the most promising it has been in many, many years.”

He noted the effects of several years of underinvestment in oil-and-gas reserves replacement and production growth amid various pressures to replace fossil fuels with cleaner energy sources. As we all know, fossil fuels aren’t going away any time soon, and that underinvestment has been a factor in higher energy prices.

While there are plenty of oil-and-gas-related investments out there, it’s important to evaluate whether you want to take on the risk of a smaller stock like Transocean, which can be more volatile and less liquid, or if you prefer the relative stability of a large name that’s part of the S&P 500. Ultimately, it comes down to your goals, risk tolerance, and the existing composition of your portfolio.

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Large And Small Oil-And-Gas Stocks See Post-Earnings Bounce

Prices Moving Lower

Years Of Underinvestment

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