Why Phillips 66, Genesis Energy, and W&T Offshore Shares Are Crushed Today
Actions of Phillips 66 (NYSE: PSX), Genesis energy (NYSE: GEL), and W&T Offshore (NYSE: WTI) are down between 5% and 23% as of 2:17 p.m. EDT on August 4, amid a wave of investor concerns, including recent earnings results, economic outlook and concerns about the state of global oil markets on the news that US oil stocks are gradually increasing as expectations were that they would fall.
Let’s start with the gains
W&T Offshore said it produced nearly 41,000 barrels of oil equivalent per day in the second quarter, both within the company’s forecast range and up 3% from the first quarter of the year. In the end, W&T lost $ 51.7 million, although management claimed to have made $ 2.2 million on an adjusted basis. Free cash flow was $ 18.7 million, a nice positive result, but it was significantly lower than the $ 40 million free cash flow in the first quarter.
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The company has also recently taken financing action, with a senior loan of $ 215 million over seven years at a rate of 7%. This should improve its capital structure, but at a high interest rate which should remind it that it operates in a difficult industry, and that its balance sheet is still a significant risk. Even with the $ 215 million loan, W&T Offshore’s working capital grew by less than $ 60 million and its debt stood at nearly $ 718 million at the end of the quarter.
Finally, with annual production estimates of 39,000 to 41,000 boe / d, production is unlikely to increase much this year in a period of increasing global demand for oil.
Next, Genesis Energy. The limited partnership, which owns and operates a collection of energy infrastructure assets, reported a net loss of $ 41.7 million, an improvement from the brutal second quarter of last year. On a cash basis, cash flow from operations was $ 111 million, compared to $ 62.6 million last year. The cash flow was sufficient for management to maintain its quarterly dividend of $ 0.15 per unit.
Management said the quarter was “… in line with our expectations …” but the company’s balance sheet has not improved. Total long-term debt is down $ 41 million, but working capital – current assets minus current liabilities – has halved to $ 99 million since the start of 2021. And it looks like investors today are worried the company hasn’t made as much progress as hoped. However, management is optimistic, with CEO Grant Sims saying: â… we remain confident that we have a clear path to tangible growth in our Adjusted Consolidated EBITDA, increasing levels of free cash flow and a continued reduction in the debt. ”
Today, at least, investors don’t seem as confident as management.
Phillips 66 had a strong second quarter, with its $ 296 million first profit for the company in a year. Record earnings from its chemicals segment and strong pre-tax profits from its marketing and specialties business more than offset a pre-tax loss of $ 729 million in the refining segment. The company also continues to invest in its future, resuming construction of its Sweeny hub and increasing production of renewable diesel from its San Francisco refinery, which it is transitioning to fuel production. fully renewable.
In addition, CEO Greg Garland also hinted that a dividend hike could be imminent, as long as the trend of income growth continues. Cash flow from operations more than doubled, reaching $ 2 billion in the first half of the year, more than double the same period last year, and well above the $ 788 million paid in dividends during the period.
Delta variant, oil supply concerns weigh on oil stocks
While none of the above companies produced spectacular results, the market’s massive selling of their shares is probably less related to their earnings results – or lack thereof in two cases – and more to the reflection of the uncertainty of the oil market.
Crude oil prices are down again today, with West Texas Intermediate down 3.2% to $ 68.33 a barrel, and Brent Crude futures down 2.5% at $ 70.63. This is the third day in a row that crude oil futures have declined, on a combination of concerns over the delta variant of the coronavirus putting the brakes on global economic recovery and travel. The variant, which is much more contagious than other strains, has become the dominant source of COVID-19, and cases are on the rise all over the world, along with hospitalizations and deaths, especially among unvaccinated people.
Today’s weekly report on the state of oil from the US Energy Information Administration appears to confirm some of the concerns that oil markets are once again heading into oversupply. The report released on August 4 showed a 3.6 million increase in crude inventories, a huge reversal from expectations that inventories would be grave 4 million barrels.
First of all: the environment for the oil market today is very different from what it was a little over a year ago. Global oil markets are much more stable and crude prices are among the highest in the past five years, while demand for oil, in general, is expected to continue to grow in the second half of 2021 as travel and industry increase. economic activity is picking up.
That said, there will likely be some bumps along the way and oil prices will remain volatile as traders speculate on the price rise or fall. And for these companies, this is where a strong balance sheet comes in. Phillips 66 is in a great position in this regard, while W&T Offshore has made progress but still has a lot of work to do, and Genesis Energy sits somewhere in between. Neither is likely to find themselves in major financial difficulties until there is a major oil crisis next year.
However, if it is a safe oil investment that you are looking for, with a few advantages, Phillips 66 is easily the best stock. Its dividend yield is over 5% at recent prices, the payment is very secure and the company is positioning itself for the future of energy as well as the present.
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