Energy giants Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) are set to report first-quarter results on May 1, before the opening bell. Let’s take a look at the factors that are likely to have played major roles in shaping the first-quarter earnings outcome.
Weak Oil a Worry for Upstream Operations
Weak global energy demand owing to the coronavirus outbreak pushed crude prices to the bearish territory, especially in the last two months of first-quarter 2020. The lowest price was witnessed in the last month of the quarter since Saudi Arabia and Russia failed to reach an agreement on crude production cuts amid the pandemic, and engaged in a price war that saw the oil producing countries flood the market.
In January, February and March, WTI crude price averaged $57.52, $50.54 and $29.21 a barrel, respectively, per the U.S. Energy Information Administration. In contrast, WTI had averaged $51.38, $54.95 and $58.15 per barrel, respectively, in the comparable months of 2019. Lower year-over-year prices of the commodity in the last two months of the quarter are expected to have hurt exploration and production operations of ExxonMobil and Chevron in both international and domestic markets.
The Zacks Consensus Estimate for ExxonMobil’s first-quarter production is pegged at 3,949 thousand barrels of oil equivalent per day (MBoe/d), suggesting a marginal decline from the year-ago quarter’s 3,981 MBoe/d. Lower production, coupled with weak oil prices, is expected to have affected the company’s upstream earnings. Importantly, the SEC filing of ExxonMobil revealed that upstream profits are expected to decline by $1.3-$1.6 billion in the first quarter from fourth-quarter 2019 due to lower liquids prices. It will likely bear an additional $100-$300 million brunt due to declining gas prices.
The consensus mark for Chevron’s first-quarter production is pegged at 3,083 MBoe/d, indicating an increase of 1.5% from the year-ago reported figure, supported by shale assets in the prolific Permian Basin. This might have partially offset the negatives of low commodity prices.
Unimpressive Downstream Business
Demand for refined petroleum products in the first quarter was not impressive, owing to coronavirus-induced lockdowns and travel bans. Lower transportation and flights are expected to have affected demand for gasoline, jet fuel and other refined products. This is likely to have hurt the refining operations of ExxonMobil and Chevron.
ExxonMobil’s SEC filing indicates that profits from the refining business are expected to go down by $600-$800 million from fourth-quarter profit of $900 million. However, the chemicals business is expected to record a rise of $400-$500 million from fourth quarter’s loss of $355 million.
The Zacks Consensus Estimate for Chevron’s downstream unit income is pegged at $256 million, suggesting marginal growth from the year-ago level of $252 million. The company predicts refinery turnaround costs (after tax) within $100-$200 million.
ExxonMobil & Chevron Unlikely to Beat Estimates
While Chevron is expected to report a year-over-year earnings decline of 54% in the first quarter, ExxonMobil’s profits are anticipated to decline 92.7% from the prior-year quarter owing to lower commodity prices and energy demand destruction caused by coronavirus-induced lockdowns.
Notably, another integrated energy supermajor BP plc (BP - Free Report) reported a decline in year-over-year earnings in the first quarter due to a drop in oil equivalent production, commodity prices and refining marker margin. However, Royal Dutch Shell plc (RDS.A - Free Report) beat earnings estimates in the quarter, primarily on the back of higher LNG sales volumes and lower operating expenses.
Our proven model does not conclusively predict an earnings beat for ExxonMobil and Chevron this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here as you will see below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Based in Irving, TX, ExxonMobil has an Earnings ESP of 0.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Chevron — based in headquartered in San Ramon, CA — has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of +2.25%.
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