Do You Own This Disappointing Energy Stock?

Photo credit: Flickr/Clinton Steeds

Missed Expectations

Kodiak Oil & Gas and Chevron both missed

analysts’ earnings expectations due to

weather impacts.

Missed Expectations

Meanwhile, National Oilwell Varco lowered its

rig sales outlook.

Missed Expectations

This sparked a sell-off:

Missed Expectations

Now, let’s take a deeper look at what went

wrong…

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

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

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.

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

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.

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

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

Deeper Look

Nothing really stood out in Chevron’s quarter. Production growth remains on

track to increase 20% by 2017.

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.

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

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.

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.”

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.

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.

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