The State Of Earnings In The Oil Industry
Estimize | Jul 29, 2016 12:58AM ET
Investors hoping for a recovery in the oil market this year will have to wait. After bouncing off its lows in February, oil has started to slump back down with no signs of abating. Just yesterday oil prices struck a new three month low, having fallen almost 20% from its 2016 intradays highs.
The biggest concern is that production levels still remain high despite waning demand. This has been one of the primary contributors of cheap oil and weakness in the industry. Earnings have been just as bad for the huge refineries which were once viewed as blue chip stocks.
Weak quarterly reports from BP (LON:BP, NYSE:BP) and Shell (LON:RDSa, NYSE:RDSa) this week indicate weak oil prices will be a problem for the remainder of the year. Both companies pointed to significant challenges across the business that could become worse in light of increasing global uncertainty. Brexit, in particular, is one of the biggest risks to the price of oil.
Today we cap off earnings from large cap oil companies with results from Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX). Neither company has been able to shake off the weakness caused by low oil prices. According to the Estimize community both companies are well on their way to another bleak report.
Exxon Mobil Corporation (XOM ) Energy - Oil, Gas and Consumable Fuels
Analysts are calling for earnings per share of $0.65, down 37% from the same period last year. That estimate has dropped 2% since its last report in April. Revenue for the period is expected to drop 20% to $60.09 billion, marking another quarter of significant losses.
From a financial standpoint, ExxonMobil is still one of the premier companies to own. Its buyback programs and robust dividends have attracted investors even when the stock was down. Its strength lies in its balance operating, financial flexibility and efforts to cut costs and improve operationally.
Upstream earnings should show improvements after modest rise in oil prices and a production resurgence in key projects. Downstream operations, on the other hand, are likely to come in even lower.
Weak refined margins weighed down BP’s earnings and should also take its toll on Exxon. Earlier this year management indicated slim growth in the medium term but for what it’s worth, this quarter should be better than the last.
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Chevron Corporation (CVX ) Energy - Oil, Gas and Consumable Fuels
The Estimize consensus is calling for earnings per share of $0.28, down 50% from the same period last year. That estimate has rise nearly 50% since Chevron’s last report in April. Revenue is anticipated down 27% to $29.59 billion, marking the 7 consecutive quarters of double digit declines.
Chevron is coming off an abysmal first quarter which saw profits dip over 100% and revenue slip by 32%. Its upstream segment was primarily to blame, reporting a plunge in earnings to -$1.5 billion. Upstream services accounted for 61% of earnings in the quarter so it’s not surprising Chevron turned a huge loss. Naturally the steep fall was due to a fall in oil and natural gas prices.
The downstream segment performed just as poorly, declining nearly 50% in the quarter. Chevron should expect some of that pressure to subside given the slight oil price appreciation during the quarter. Similar to its peer, Chevron also has strong financial flexibility, a strong balance sheet and a track record for rewarding its shareholders.
How do you think these names will report?
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