Oil Majors are ready for a huge profit season

Earnings season is upon us again, with a quarter of S&P 500 companies that reported results for the second quarter of 2021. According to FactSet data, 88% of S&P 500 companies have reported positive earnings per share, while 86% have reported positive revenue surprise.

The good news for oil and gas investors: the long-suffering sector is on track for a repeat of a stellar first quarter by posting stellar gains, again largely due to a rise in oil and gas prices.

Three quarters of the energy companies that reported profit have exceeded expectations, while half have managed to exceed revenue expectations.

Even better, the energy sector’s projected revenue growth of 92.1% is a high for the entire US market.

The energy sector is expected to report a $13.9 billion profit for the second quarter of 2021, compared to a loss of $10.6 billion in the second quarter of 2020, thanks to massive improvements in commodity prices, particularly for crude oil. oil, which averaged $66.17/bbl in the second quarter of 2021 compared to $28/barrel in the second quarter of 2020 and $61/bbl in the first quarter of 2021.

All five energy sector subsectors, namely Integrated Oil & Gas, Oil & Gas: Exploration & Production, Oil & Gas Refining & Marketing, Oil & Gas Equipment & Services and Oil & Gas Storage & Transportation, are reporting (or expected to report) a year-on-year increase in profits.

This is where it gets interesting: US oil and gas supermajor ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) are expected to be the largest contributor to improved revenues for the industry, with the two companies expected to account for $13.3 billion of the $24.6 billion year-over-year increase in revenue for the industry.

The main themes

That said, Wall Street is warning that earnings season may not be smooth sailing as investors will not only be looking at the usual top and bottom line numbers, but will also focus on three key themes: dividend payments, energy transition and climate. risk.

Morgan Stanley analysts have noted that the stock prices of major energy companies are becoming increasingly entrenched in their dividend payments. Unfortunately, Big Oil’s dividend expectations remain “quite static” despite significant increases in free cash flow projections, the bank said.

MS says energy investors value only the cash flow paid to them and give little credit to the cash flow retained within companies for expansion purposes.

It’s a sentiment backed by Clark Williams-Derry, an energy finance analyst at IEEFA, a nonprofit organization, and Kathy Hipple, a professor of finance at Bard College in New York.

Williams-Derry has warned that there is a “huge degree” of investor skepticism about oil and gas companies’ business models, due to the mounting climate crisis and the urgent need to move away from fossil fuels. Indeed, Williams-Derry says the market likes it when oil companies shrink and don’t put everything on new production, but instead use the extra money generated by improved commodity prices to pay off debt and reward investors.

Meanwhile, Hipple has argued that oil and gas companies can no longer afford to shake off the ongoing climate crisis. floods in Europe and China until extreme heat in the Pacific Northwest.

Oil companies that ignore climate in their earnings calls will be seen as laggards. Long-term investors will conclude that they are exposed to financial risky,” she told CNBC.

The numbers

Here’s how US oil and gas supermajors are expected to perform in the current earnings season:

#1. ExxonMobil

Exxon Mobil Corporation is expected to report its second quarter results on July 30, 2021, prior to market opening. The report will cover the fiscal quarter ending June 2021.

Exxon has a consensus EPS forecast of $1.01 compared to $-0.7 in Q2 2020 and revenue of $63.96 billion. Exxon has beaten earnings expectations for three consecutive quarters.

After the company, all eyes will be on ExxonMobil’s climate goals lost three board seats to Engine No. 1, an activist hedge, in a stunning proxy campaign. Engine No. 1 told the Financial times that Exxon will have to reduce the production of fossil fuels for the company to position itself for long-term success. “What we’re saying is, make plans for a world where the world may not need your barrels,Engine No. 1 leader Charlie Penner told the FT.

#2. Chevron

Chevron Corporation is expected to report earnings on July 30, 2021, before the market opens. The report will cover the fiscal quarter ending June 2021.

Chevron has a consensus EPS forecast for the quarter of $1.59, compared to EPS of -1.59% for the comparable quarter of last year and estimated revenue of $35.98 billion. Chevron has missed the last two earnings estimates.

Chevron was one of the companies that recently downgraded by Gordon Gray of HSBC, who says Big Oil stocks will struggle to make headway amid market concerns about its ability to move quickly to renewables despite improved cash flows.

With low-carbon assets contributing just 10-15% of estimated profits by 2030, it’s far too early for many investors to consider playing into the transition theme: Our analysis shows the oil majors are lagging at least a decade behind utilities and autos on relative exposure to clean energy,” Gray writes.

#3. ConocoPhillips

ConocoPhillips (NYSE:COP) is expected to report earnings on August 3, 2021, before the market opens. The report will cover the fiscal quarter ending June 2021.

COP has a consensus EPS forecast of $1.10, a huge improvement from $-0.92 reported for the corresponding period last year, while revenue is expected to reach $10.21 billion. COP has already surpassed earnings estimates for two quarters in a row.

Last Quarter, Bank of America COP Shares Upgraded to Buy from Neutral with a price target of $67, which the company calls an “ATM” with the potential for accelerated returns.

According to BofA analyst Doug Leggate, Conoco looks “poised to accelerate cash returns at an earlier and more significant pace than any pure-play E&P or oil giant.”

Leggate COP Shares Pulled Back to More Attractive Levels »but with a different macro perspective than then [Brent] oil peaked nearly $70.”

But best of all, the BofA analyst believes that COP is highly exposed to a longer-term oil recovery.

But BofA isn’t the only Wall Street gambler gushing about COP.

In a note for customersRaymond James says the company’s stock price undervalues ​​the deluge of cash the oil and gas company is about to generate.

The earnings and revenue estimates for the other four members of the supermajors are as follows:

  • Royal Dutch Shell (NYSE:RDS.A) is expected to report earnings on July 29, 2021, before the market opens. The report will cover the fiscal quarter ending June 2021. Shell has a consensus EPS forecast for the quarter of $1.16 and a revenue consensus of $57.97 billion.

  • BP Plc. (NYSE:BP) will report its second quarter results on August 3, 2021 before the market opens. The report will cover the fiscal quarter ending June 2021. BP has a consensus EPS forecast for the quarter of $0.59 with a consensus revenue estimate of $38.26 billion.

  • TotalEnergies SE (NYSE:TTE) is expected to report earnings on June 29, 2021. The French supermajor is expected to report earnings per share of $1.26 and revenue of $42.20 billion.

  • eni (NYSE:E) is expected to report its second quarter results on August 3, 2021. EPS estimates are not available for the Italian oil and gas giant, although analysts have a consensus earnings estimate of $17.04 billion.

By Alex Kimani for Oilprice.com

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