Chevron, Exxon Report Card Likely to Show Lower Earnings Despite Stronger Crude Prices
On Friday, major energy companies Chevron and ExxonMobil are expected to post lower earnings for the first quarter of the year despite higher crude oil prices. Natural gas prices being down about 20% year over year, in addition to lower refining margins, are expected to result in a significant hit to profits.
The earnings miss is likely to be felt despite crude prices averaging above $80 a barrel during the first quarter of the year. Increased geopolitical tensions drove prices higher in mid-March after Russian President Vladimir Putin recognized the Ukrainian separatist regions of Donetsk and Luhansk. This was accompanied by a near-simultaneous large decline in natural gas supplies to Europe, which increased worries about the possibility of a reduction in energy supplies from Russia to the continent.
According to Bloomberg estimates, Chevron's first-quarter adjusted profit is anticipated to be $2.90 per share, down 18% from the same period last year, with revenue of $49.17 billion. In contrast, ExxonMobil's revenue is projected at $80.25 billion with adjusted earnings of $2.19 per share, a decline of 22% from last year.
"The usual suspect for moves in operating EPS -- crude oil prices -- is not the key this time around,"
Stewart Glickman, energy equity analyst at CFRA Research
Natural gas makes up about one-third of hydrocarbon production, and with natural gas prices down significantly, it will negatively impact profits. Additionally, refining margins have declined from their highs in early 2023.
Despite the expected decline in profits from Chevron and ExxonMobil, energies as a whole are projected to do well and outperform the S&P 500 if crude prices remain above $80 a barrel.
Other potential topics to watch for during the earnings calls include updates on prospective acquisitions and discussions regarding the dispute between ExxonMobil and Chevron over the Chevron-Hess deal.
ExxonMobil says it has the right of first refusal for Hess' stake in the Guyanese block and recently filed for arbitration after talks ended. Chevron's $53 billion proposal to buy Hess came just over a week after ExxonMobil's $60 billion purchase of Pioneer Natural Resources, allowing ExxonMobil to double its footprint in the Permian Basin, the largest oil-producing region in the US.
Meanwhile, Hess posted better-than-expected first-quarter results, thanks to a 70% bump in production in Guyana, which bodes well for ExxonMobil, which has a significant stake in the region. The results and business trends in Guyana could reflect positively on ExxonMobil.
This Friday, investors will be keen to hear what ExxonMobil and Chevron & the rest of Big Oil will say about their earnings and prospects for the rest of the year.