Do You Own This Disappointing Energy Stock?


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For the most part energy companies performed well in the first quarter despite bad weather across much of the world. I say this for the most part because three energy stocks really disappointed their investors in the quarter. Kodiak Oil & Gas (NYSE: KOG) blamed rough weather in North Dakota for its big miss on the quarter while Chevron (NYSE: CVX) disappointed as well as it had weather problems of its own in Kazakhstan. Then there was National-Oilwell Varco (NYSE: NOV), which didn't have any weather problems, but was still affected by a storm in the offshore rig market.

These storms sent the stocks of Kodiak Oil & Gas, Chevron and National-Oilwell Varco all lower after reporting earnings. Investors sold off these stocks due to worries that the problems hinted at in the first quarter were a sign of a deeper issue below the surface. It's a legitimate concern indeed.

It's a concern, however, that I think investors in only one of three stocks needs to worry about. To help investors see why that's so, I've created the presentation below that takes a look at the quarters of Kodiak Oil & Gas, Chevron and National-Oilwell Varco to uncover what's worrisome and what's not.

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Do You Own This Disappointing Energy Stock?

  1. 1. Do You Own This Disappointing Energy Stock? Photo credit: Flickr/Clinton Steeds
  2. 2. Missed Expectations Kodiak Oil & Gas and Chevron both missed analysts’ earnings expectations due to weather impacts.
  3. 3. Missed Expectations Meanwhile, National Oilwell Varco lowered its rig sales outlook.
  4. 4. Missed Expectations This sparked a sell-off:
  5. 5. Missed Expectations Now, let’s take a deeper look at what went wrong…
  6. 6. Missed Expectations • Analysts’ earnings expectations: $0.18 per share • Kodiak’s earnings: $0.11 per share • Missed by: $0.07 per share or 39% Kodiak Oil & Gas
  7. 7. Key Quote: "Although the team worked tirelessly through the weather conditions, the impact on our operations was of a meaningful enough size that we believed it to be prudent to reset our full year production guidance." -CEO Lynn Peterson
  8. 8. Deeper Look Just one problem – While all of its Bakken Shale focused peers complained about the weather, no one else missed production guidance. In fact, some of its peers thrived in spite of the weather.
  9. 9. Beneath the Surface "During the first quarter of 2014, nearly a third of our completed operated wells were drilled in our Wildrose area of northern Williams County to hold acreage. This is an area with a thinner reservoir section and less source rock that results in lower reservoir pressures and less gas, and corresponding lower production rates and reserves.” -CEO Lynn Peterson
  10. 10. Cause for Concern? Possibly – Kodiak Oil & Gas had been rapidly growing its production. However, this year it reduced its capex plan for the first time. What to watch – Future well results need to at least meet expectations or it could signal its remaining acreage is of poor quality.
  11. 11. Missed Expectations • Analysts’ earnings expectations: $2.47 per share • Chevron’s earnings: $0.11 per share • Missed by: $0.11 per share or 4.4% Chevron
  12. 12. Key Quote: Crude prices were tempered by global economic factors, while our current year production volumes were affected by weather-related, unplanned downtime, particularly in Kazakhstan.” -CEO John Watson
  13. 13. Deeper Look Nothing really stood out in Chevron’s quarter. Production growth remains on track to increase 20% by 2017.
  14. 14. Cause for Concern? Not really- This is why the stock only fell about 1% after the results were announced. Not only that but Chevron’s stock has since recovered and is now up 2% as investors have moved past their initial disappointment.
  15. 15. Missed Expectations • Analysts’ earnings expectations: $1.39 per share • National Oilwell Varco’s earnings: $1.40 per share • Beat by: $0.01 per share or 1% National Oilwell Varco
  16. 16. Key Quote: In discussing the backlog for new rig- technology equipment CEO Clay Williams noted that he foresaw the company’s backlog dropping from the first quarter record of $16.3 billion to a range of $14 billion to $15 billion by the end of the year.
  17. 17. Deeper Look This surprised analysts. In a Bloomberg article one analyst said, “I didn’t think it’d be that much lower.” While another noted, “the newbuild market is starting to show signs of shakiness.”
  18. 18. Cause for Concern? Not really – National Oilwell Varco is in the middle of the early growth phases of the offshore market place as well as shale. It’s something that investors initially missed. This also explains why the stock has recovered the bulk of its losses.
  19. 19. Key Takeaway Not all earnings’ disappointments are true disappointments. Both Chevron and National Oilwell Varco look poised to move past their rough first quarter. On the other hand, investors do need to pay close attention to Kodiak Oil & Gas. Continued disappointments could signal a deeper issue at the company.
  20. 20. 1 Company Quickly Becoming OPEC’s Worst Nightmare