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Big Oil Q2 Earnings Preview: What Awaits XOM, CVX, RDS.A & BP

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Big Oil will be in focus this week and next with the so-called supermajors reporting. Below we highlight what to expect from four such firms.

For the three-month period ending Jun 30, 2020, WTI prices averaged around $28 per barrel compared to nearly $60 in the year-ago period as coronavirus induced a massive slump in oil demand amid a supply glut. While things started getting bad toward the end of the first quarter, the full impact of the coronavirus pandemic and the oil price slump may only have been felt in the April-June period when crude plunged into negative territory briefly.

From upstream (exploration and production) to downstream (refining and distribution), no subset of the Big Oil’s much-celebrated, integrated business model has been immune to the coronavirus-induced downturn. The price slump will greatly impact the results of their upstream unit for obvious reasons. At the same time, the downstream numbers will be dragged down by lower utilization due to collapse in consumption for jet fuel and gasoline.

To put it simply, all of this does not bode well for the upcoming earnings season.

ExxonMobil (XOM - Free Report) , one of the world's largest publicly traded oil producers, is set to report earnings on Friday. The current Zacks Consensus Estimate is a loss of 63 cents, which has been revised 3.1% upward in the last 7 days. In the second quarter of 2019, EPS came in at 73 cents. As far as earnings surprises are concerned, the Irving, TX-based company beat the Zacks Consensus Estimate in three of the last four quarters and missed in the other, delivering earnings surprise of 307.95%, on average. The Zacks Consensus Estimate for ExxonMobil's revenues is $36.1 billion, indicating a decline of 47.8% year over year.  

Amid the fierce commodity price downturn, ExxonMobil’s upstream segment result — the primary contributor to its earnings — is expected to take a hit of $2.1-$2.5 billion due to a fall in liquids prices. It will likely bear an additional $400-$600 million brunt of declining gas prices. For the unit’s U.S. arm, the Zacks Consensus Estimate for second-quarter 2020 is pegged at a loss of $1 billion. In the prior-year quarter, with the arm has reported a profit of $335 million. Meanwhile, the Zacks Consensus Estimate for the segment’s international business for the second quarter is pegged at a loss of $465 million. A year ago, the business generated profit of $2.9 billion. Adding to its woes, ExxonMobil’s worldwide production is likely to have declined from the year-ago period owing to the virus outbreak. Further, the company sees profits from the refining business to take a hit of $700-$900 million due to lower margins.

Chevron (CVX - Free Report) , another U.S. oil and gas biggie, will also be reporting on Friday, with the Zacks Consensus Estimate pointing toward a loss of 85 cents. A year ago, EPS came in at $2.27. Notably, the Zacks Consensus Estimate for bottom line moved 8.6% north over the past 7 days. As far as earnings surprises are concerned, this San Ramon, CA-based company boasts an excellent record, having surpassed the Zacks Consensus Estimate in all the trailing four reports, the average beat being 35.39%. The Zacks Consensus Estimate for revenues, meanwhile, is $20.5 billion, suggesting a 47.3% decline year over year.

Confirming its integrated structure, the Zacks Rank #2 (Buy) company generated 51% of its 2019 earnings from its upstream unit and 49% from its downstream unit. For the to-be-reported quarter, the Zacks Consensus Estimate for the upstream segment is pegged at a loss of $1.2 billion, indicating a significant deterioration from the prior-year quarter’s profit of $3.5 billion. Further, the Zacks Consensus Estimate for the refining arm is pegged at a loss of $157 million. The business line had generated earnings of $729 million in the second quarter of 2019. Meanwhile, Chevron is likely to have experienced a decline in volumes as it is slashing production in the Permian Basin. As a proof of this, the Zacks Consensus Estimate for second-quarter production is pegged at 2,926 MBOE/d, indicating a decrease of 5.1% from a year ago.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Royal Dutch Shell (RDS.A - Free Report) : This European major is scheduled to report second-quarter earnings on Thursday. The Zacks Consensus Estimate is a loss of 31 cents per share – revised 6.9% downward in the last 7 days. In the year-ago quarter, the company had reported profit of 86 cents. Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions and missed in the other two, the surprise being 7.13%, on average.

The Hague, Netherlands-based global energy company has already envisioned its post-tax impairment charges between $15 billion and $22 billion for the second quarter. This hefty write-down is anticipated because of the coronavirus outbreak due to which demand deceleration wiped billions off the oil and natural gas asset value. Management projects second-quarter 2020 upstream production between 2,300 and 2,400 MBOE/d. The year-ago production level was 2,656 thousand MBOE/d. The Integrated Gas unit’s production is forecast in the 880-910 MBOE/d band. However, in the year-earlier period, Shell had produced 927 MBOE/d. Further, Shell estimates second-quarter oil product sales in the band of 3,500-4,500 thousand barrels per day, indicating a 46.8% decrease from the year-earlier quarter thanks to a COVID-19-led dramatic drop in demand.

BP plc (BP - Free Report) : This London-based company is set to report earnings on Tuesday. The Zacks Consensus Estimate is of loss of 99 cents per share. The company had reported  earnings of 83 cents per share a year earlier. BP beat earnings estimates in three of the last four quarters and missed in the other — earnings surprise being 8.39%, on average. Revenues are expected to fall sharply as well. The Zacks Consensus Estimate for revenues is pegged at $42.2 billion, suggesting 42.7% decline year over year.

BP has estimated a write-off of up to $17.5 billion from its asset value, following the downward revision of its long-term oil and gas prices. Regarding its upstream segment, the Zacks Consensus Estimate for quarterly revenues is pegged at $3.2 billion, indicating a decline of 47.5% year over year. The Zacks Consensus Estimate for second-quarter production is pegged at 2,438 MBOE/d, indicating a 7.1% decrease from the year-ago reported figure. The consensus estmate for downstream segment revenues is at $38.9 billion, indicating a 41% fall year over year. Moreover, the pandemic is likely to have hurt the integrated firm’s refinery throughputs in the second quarter. The Zacks Consensus Estimate for the same is pegged at 1,486 thousand barrels per day, suggesting a 7% decline from the June quarter of 2019.

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