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Investors Brace for Big Oil Q4 Earnings: What to Expect?
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Big Oil will be in focus later this week and the next with the so-called supermajors reporting fourth-quarter earnings. Below we highlight what to expect from four such firms.
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. While the price slump will greatly impact the results of their upstream division for obvious reasons, the downstream segment numbers will be dragged down by weakness in the usage of jet fuel and gasoline with air travel severely hampered by the virus resurgence and its related restrictions. This demand softness will impact crack spreads (or refining margins) and offset the slight improvement in utilization.
In other words, despite vaccine progress and a rebound in macro conditions, commodity prices and demand are yet to reach the year-ago levels. This is likely to have played foul on the companies’ top and bottom lines with negative year-over-year growth expected on both fronts. While the returns improved in the third quarter on gradually tightening fundamentals, the October-December period should further reinforce the sector’s stability going forward. Amid expectations of fuel demand coming back, investors will also be looking for more constructive signs of recovery to start the year 2021.
Chevron (CVX - Free Report) — the U.S. oil and gas biggie — will be the first one to get off the starting blocks tomorrow, with the Zacks Consensus Estimate pointing toward a profit of 9 cents. A year ago, EPS came in at $1.49. Notably, the Zacks Consensus Estimate for bottom line moved 10% south over the past seven days. As far as earnings surprises are concerned, this San Ramon, CA-based company boasts a good record, with three beats and a miss in the trailing four reports, the average beat being 42.47%. The Zacks Consensus Estimate for revenues, meanwhile, is $27.6 billion, suggesting a 24% decline year over year.
Confirming its integrated structure, the Zacks Rank #3 (Hold) 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 profit of $442 million, indicating a significant improvement from the prior-year quarter’s loss of $6.7 billion that included substantial asset impairment charges.
Meanwhile, the Zacks Consensus Estimate for the refining arm is pegged at a profit of $223 million. The business line had generated earnings of $672 million in the fourth quarter of 2019. The likely downward trajectory could be the result of narrower margins. Meanwhile, Chevron is likely to have experienced a marginal increase in volumes due to its Noble Energy acquisition. As a proof of this, the Zacks Consensus Estimate for fourth-quarter production is pegged at 3,097thousand barrels of oil equivalent per day (MBOE/d), edging up from3,078 MBOE/d a year ago.
ExxonMobil (XOM - Free Report) , one of the world's largest publicly traded oil producers, is set to report earnings on Tuesday. The current Zacks Consensus Estimate is a profit of a penny, which has remained the same in the last seven days. In the fourth quarter of 2019, EPS came in at 41 cents. As far as earnings surprises are concerned, the Irving, TX-based company beat the Zacks Consensus Estimate in two of the last four quarters and missed in the other two, delivering an earnings surprise of 310.70%, on average. The Zacks Consensus Estimate for ExxonMobil's revenues is $48.6 billion, indicating a decline of 27.7% year over year.
The company has already warned that it expects to take writedowns to the tune of $17 billion to $20 billion in the fourth quarter related to several dry gas resources in the United States, western Canada and Argentina. But in some positive news, ExxonMobil’s upstream segment result — the primary contributor to its earnings — is expected to improve by $200 million to $1 billion sequentially due to uptick in oil realizations. Nevertheless, with crude prices still below pre-pandemic levels, the Zacks Consensus Estimate for the unit’s U.S. arm is pegged at a loss of $229 million. In the prior-year quarter, the arm had reported a profit of $68 million. Meanwhile, the Zacks Consensus Estimate for the segment’s international business for the fourth quarter is pegged at a profit of $861 million. A year ago, the business generated profit of $6.1 billion.
Adding to its woes, ExxonMobil’s worldwide production is likely to have declined 8.6% from the year-ago period to MBOE/d. Further, the company — carrying a Zacks Rank of 3 — expects the refining business to incur loss in the fourth quarter as against a gain of $898 million a year ago. On a somewhat positive note, the company sees operating profit from the chemical business to have gone up by $200 million to $400 million compared to the previous three-month period.
Royal Dutch Shell : This European major is scheduled to report fourth-quarter earnings on Thursday, Feb 4. The Zacks Consensus Estimate is a profit of 17 cents per share — revised 29.2% downward in the last seven days. In the year-ago quarter, the company had reported profit of 74 cents. Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions and missed in the other, the surprise being 172.30%, on average.
The Hague, Netherlands-based global energy company has already envisioned its post-tax impairment charges between $3.5 billion and $4.5 billion for the fourth quarter. This write-down, which follows the #3 Ranked company’s massive impairment charge of $16.8 billion during the second quarter, comes as a result of coronavirus and its associated demand deceleration, wiping billions off the oil and natural gas asset value.
Management projects fourth-quarter 2020 upstream production between 2,275 MBOE/d and 2,350 MBOE/d after adjusting the impact of hurricanes on the Gulf of Mexico and the effect of mild weather in Northern Europe. The year-ago production level was 2,813 thousand MBOE/d. The Integrated Gas unit’s production is forecast in the 900-940 MBOE/d band. In the year-earlier period, Shell had produced 950 MBOE/d. Further, Shell estimates fourth-quarter oil product sales in the band of 4,000-5,000 thousand barrels per day, indicating a 22.3% decrease from the year-earlier quarter thanks to the 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 profit of 12 cents per share. The company had reported earnings of 76 cents per share a year earlier. BP beat earnings estimates in two of the last four quarters and missed in the remaining two — earnings surprise being 8.99%, on average. Revenues are expected to fall sharply as well. The Zacks Consensus Estimate for revenues is pegged at $45.3 billion, suggesting a 37.2% decline year over year.
Regarding BP’s upstream segment, the Zacks Consensus Estimate for quarterly revenues is pegged at $4 billion, indicating a decline of 71.7% year over year. The Zacks Consensus Estimate for fourth-quarter production is pegged at 2,271 MBOE/d, indicating a 15.8% decrease from the year-ago reported figure.
The Zacks Consensus Estimate for downstream segment revenues is at $56.3 billion, indicating a 12.4% fall year over year. Moreover, the pandemic is likely to have hurt the Zacks Rank #3 integrated firm’s refinery throughputs in the fourth quarter. The Zacks Consensus Estimate for the same is pegged at 1,612 thousand barrels per day, suggesting a 12.7% decline from the December quarter of 2019.
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Investors Brace for Big Oil Q4 Earnings: What to Expect?
Big Oil will be in focus later this week and the next with the so-called supermajors reporting fourth-quarter earnings. Below we highlight what to expect from four such firms.
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. While the price slump will greatly impact the results of their upstream division for obvious reasons, the downstream segment numbers will be dragged down by weakness in the usage of jet fuel and gasoline with air travel severely hampered by the virus resurgence and its related restrictions. This demand softness will impact crack spreads (or refining margins) and offset the slight improvement in utilization.
In other words, despite vaccine progress and a rebound in macro conditions, commodity prices and demand are yet to reach the year-ago levels. This is likely to have played foul on the companies’ top and bottom lines with negative year-over-year growth expected on both fronts. While the returns improved in the third quarter on gradually tightening fundamentals, the October-December period should further reinforce the sector’s stability going forward. Amid expectations of fuel demand coming back, investors will also be looking for more constructive signs of recovery to start the year 2021.
Chevron (CVX - Free Report) — the U.S. oil and gas biggie — will be the first one to get off the starting blocks tomorrow, with the Zacks Consensus Estimate pointing toward a profit of 9 cents. A year ago, EPS came in at $1.49. Notably, the Zacks Consensus Estimate for bottom line moved 10% south over the past seven days. As far as earnings surprises are concerned, this San Ramon, CA-based company boasts a good record, with three beats and a miss in the trailing four reports, the average beat being 42.47%. The Zacks Consensus Estimate for revenues, meanwhile, is $27.6 billion, suggesting a 24% decline year over year.
Confirming its integrated structure, the Zacks Rank #3 (Hold) 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 profit of $442 million, indicating a significant improvement from the prior-year quarter’s loss of $6.7 billion that included substantial asset impairment charges.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Meanwhile, the Zacks Consensus Estimate for the refining arm is pegged at a profit of $223 million. The business line had generated earnings of $672 million in the fourth quarter of 2019. The likely downward trajectory could be the result of narrower margins. Meanwhile, Chevron is likely to have experienced a marginal increase in volumes due to its Noble Energy acquisition. As a proof of this, the Zacks Consensus Estimate for fourth-quarter production is pegged at 3,097thousand barrels of oil equivalent per day (MBOE/d), edging up from3,078 MBOE/d a year ago.
ExxonMobil (XOM - Free Report) , one of the world's largest publicly traded oil producers, is set to report earnings on Tuesday. The current Zacks Consensus Estimate is a profit of a penny, which has remained the same in the last seven days. In the fourth quarter of 2019, EPS came in at 41 cents. As far as earnings surprises are concerned, the Irving, TX-based company beat the Zacks Consensus Estimate in two of the last four quarters and missed in the other two, delivering an earnings surprise of 310.70%, on average. The Zacks Consensus Estimate for ExxonMobil's revenues is $48.6 billion, indicating a decline of 27.7% year over year.
The company has already warned that it expects to take writedowns to the tune of $17 billion to $20 billion in the fourth quarter related to several dry gas resources in the United States, western Canada and Argentina. But in some positive news, ExxonMobil’s upstream segment result — the primary contributor to its earnings — is expected to improve by $200 million to $1 billion sequentially due to uptick in oil realizations. Nevertheless, with crude prices still below pre-pandemic levels, the Zacks Consensus Estimate for the unit’s U.S. arm is pegged at a loss of $229 million. In the prior-year quarter, the arm had reported a profit of $68 million. Meanwhile, the Zacks Consensus Estimate for the segment’s international business for the fourth quarter is pegged at a profit of $861 million. A year ago, the business generated profit of $6.1 billion.
Adding to its woes, ExxonMobil’s worldwide production is likely to have declined 8.6% from the year-ago period to MBOE/d. Further, the company — carrying a Zacks Rank of 3 — expects the refining business to incur loss in the fourth quarter as against a gain of $898 million a year ago. On a somewhat positive note, the company sees operating profit from the chemical business to have gone up by $200 million to $400 million compared to the previous three-month period.
Royal Dutch Shell : This European major is scheduled to report fourth-quarter earnings on Thursday, Feb 4. The Zacks Consensus Estimate is a profit of 17 cents per share — revised 29.2% downward in the last seven days. In the year-ago quarter, the company had reported profit of 74 cents. Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions and missed in the other, the surprise being 172.30%, on average.
The Hague, Netherlands-based global energy company has already envisioned its post-tax impairment charges between $3.5 billion and $4.5 billion for the fourth quarter. This write-down, which follows the #3 Ranked company’s massive impairment charge of $16.8 billion during the second quarter, comes as a result of coronavirus and its associated demand deceleration, wiping billions off the oil and natural gas asset value.
Management projects fourth-quarter 2020 upstream production between 2,275 MBOE/d and 2,350 MBOE/d after adjusting the impact of hurricanes on the Gulf of Mexico and the effect of mild weather in Northern Europe. The year-ago production level was 2,813 thousand MBOE/d. The Integrated Gas unit’s production is forecast in the 900-940 MBOE/d band. In the year-earlier period, Shell had produced 950 MBOE/d. Further, Shell estimates fourth-quarter oil product sales in the band of 4,000-5,000 thousand barrels per day, indicating a 22.3% decrease from the year-earlier quarter thanks to the 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 profit of 12 cents per share. The company had reported earnings of 76 cents per share a year earlier. BP beat earnings estimates in two of the last four quarters and missed in the remaining two — earnings surprise being 8.99%, on average. Revenues are expected to fall sharply as well. The Zacks Consensus Estimate for revenues is pegged at $45.3 billion, suggesting a 37.2% decline year over year.
Regarding BP’s upstream segment, the Zacks Consensus Estimate for quarterly revenues is pegged at $4 billion, indicating a decline of 71.7% year over year. The Zacks Consensus Estimate for fourth-quarter production is pegged at 2,271 MBOE/d, indicating a 15.8% decrease from the year-ago reported figure.
The Zacks Consensus Estimate for downstream segment revenues is at $56.3 billion, indicating a 12.4% fall year over year. Moreover, the pandemic is likely to have hurt the Zacks Rank #3 integrated firm’s refinery throughputs in the fourth quarter. The Zacks Consensus Estimate for the same is pegged at 1,612 thousand barrels per day, suggesting a 12.7% decline from the December quarter of 2019.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot stocks we're targeting >>