What to expect when Big Oil reports second quarter earnings

The oil pump jack will be operational on Sunday, July 11, 2021 at the Inglewood field in Culver City, California, USA.

Kyle Grilot | Bloomberg | Getty Images

London — Oil and gas majors are likely to report bumper second-quarter earnings in the coming days, energy analysts told CNBC after a brutal 12 months By virtually all means..

The expected rise will build on the surprisingly strong results of the first quarter, further supporting the oil and gas industry’s efforts to repay debt and reward investors.

“Big Oil” companies refer to the world’s largest oil and gas majors Still facing significant challenges and uncertainties, but.

These include Shareholder activist in recent months, “To a tremendous degree” Continuing investor skepticism When Pressure increase Significantly reduce fossil fuel use to meet the demands of climate emergencies.

“The European integrated oil sector was already making surprisingly strong earnings in the first quarter, but it will improve further in the second quarter as commodity prices rise further,” said an analyst at Morgan Stanley. Stated.

International benchmark Brent Crude oil futures rose to an average of $ 69 in the second quarter, up from an average of $ 61 in the first three months of the year, according to Wall Street banks. The oil contract was last seen trading for about $ 73.57.

Oil companies that ignore the climate in their revenue calls are considered late. Long-term investors will conclude that they are financially dangerous.

Kathy Hipple

Professor of Finance, Bard College

Analysts at Morgan Stanley pointed out that major energy stocks continue to be supported by dividend distribution. Banks said big oil dividend forecasts remained “quite static”, despite a significant increase in free cash flow forecasts.

“Energy transitions bring a lot of uncertainty to investors, and sector capital allocation performance has been mixed at best over the last decade, so investors only value the cash flow paid to them. And the cash flows held within the company are given very little credit, “they said.

“The dividend outlook hasn’t improved much, and the dividend yield is already low by historical standards, so the stock price is well below the earnings outlook.”

In Europe Royal Dutch shell When TotalEnergies We will report the second quarter earnings on July 29th. BP It will continue on August 3rd. Exxon mobile When Chevron The latest figures will be released on July 30th. ConocoPhillips We will report the second quarter earnings on August 3rd.

Fuel prices on the BP gas station sign in Louisville, Kentucky, Friday, January 29, 2021.

Luke Charlett | Bloomberg | Getty Images

Rene Santos, North American Supply Manager at S & P Global Platts Analytics, expects second-quarter revenues from U.S.-based energy companies to be “significantly higher” compared to the same period in 2020. I told CNBC by email.

This was “mainly due to the significant rise in oil prices,” he added. “Furthermore, major, large and midsize companies have maintained capital discipline and continued to focus on debt repayment and increased free cash flow rather than increasing activity. [drilling and completion] Despite rising oil prices. “

Santos also expects S & P Global Platts Analytics to increase reports of ESG activities, saying, “It looks like pressure from environmental groups, and many companies are cutting emissions for fear of tightening regulations from the current administration. I’m convincing you to do more to do it. “

Increasing climate risk

Last year, the coronavirus pandemic helped the oil and gas industry with a historic fuel demand shock, plunge in commodity prices, unprecedented write-downs, and tens of thousands of headcount reductions. A torrent of bad news urged the head of the International Energy Agency to suggest that it may represent the worst year in the history of the oil market.

Since then, oil prices have been Highest value for multiple years And all three major forecasting agencies in the world (OPEC, IEA, and US Energy Information Administration) expect a demand-driven recovery to accelerate in the second half of 2021.

Clark Williams Delhi, an energy finance analyst at IEEFA, a non-profit organization, said he expects oil and gas companies to insist on a clean health bill after the second-quarter bumper. “That’s the mantra we hear,” he told CNBC on the phone.

However, while energy majors are likely to have had the opportunity to repay some debt after generating significant cash from their businesses, Williams-Delhi said these companies haven’t invested much in future production. He said he was hiding the fact.

Members of the environmental group Milieu Defensie celebrate the decision of the Dutch environmental organization’s lawsuit against the Royal Dutch Shell Plc on Wednesday, May 26, 2021, outside the judiciary building in The Hague, the Netherlands. Shell was ordered to slash by a Dutch court. Its emissions are more difficult and faster than planned, hitting oil giants that could have a significant impact on other fossil fuel industries around the world.

Peter Bohr | Bloomberg | Getty Images

“The market is beginning to suggest when oil companies shrink and not all move to new production, but use the cash they generate to pay off debt and reward investors. I think it’s like “”

In the long run, Williams-Delhi is “tremendous” in investor skepticism about oil and gas companies’ business models because of the deepening climate crisis and the urgent need to break away from fossil fuels. “Degree” was warned.

“Earlier this year, there were signs of a change in the ocean that investors were frankly thinking about the legal status of some super majors,” he said. A series of groundbreaking court and conference room defeats For Royal Dutch Shell, ExxonMobil, Chevron and more.

“So, even if you hit a quarter or a half high when prices are high, the stock price as a whole is well below the market and there is no investor enthusiasm for the old business model. I think the company was probably expecting to see it. “

Energy transition

Cathy Hipple, a finance professor at Bard College in New York, told CNBC in an email that two key themes could emerge this season. An overview of new business models to address investor concerns about climate risk and survive the transition to renewable energy.

“Investors are future-oriented and overlook short-term earnings spikes compared to last year’s disastrous second-quarter results,” Hipple said. “They want to see a concrete business strategy that allows for a faster energy transition.”

She argued that it was important to note that these earnings were announced “in the context of climate disasters around the world.” Extreme heat in the Pacific Northwest NS European floods When China..

“Oil companies that ignore the climate in their earnings call will be seen as lagging behind. Long-term investors will conclude that they are financially dangerous,” Hipple said.

What to expect when Big Oil reports second quarter earnings

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