The share price decline reflects only about half or less of the drop in crude prices since last summer. The United States Oil ETF (NYSEMKT: USO) is down 55% in the same period.
While we expect revenues to be lower due to the decline in crude oil prices, earnings and dividend payouts are a different story. In the fourth quarter, Exxon missed the consensus earnings per share (EPS) estimate by two cents. Chevron beat its consensus estimate in the fourth quarter, but missed in the first quarter of last year by 15 cents. Lower production plagued Exxon early last year, and lower prices coupled with lower production hurt Chevron last quarter.
Also, estimates have been trending downward for the two giants, beginning with the third quarter of last year. Exxon’s expected EPS for the third and fourth quarters of 2014 were $1.71 and $1.34. The consensus estimate for this quarter is $0.82. For the full year, EPS is estimated at $3.76, nearly 50% below the 2014 level of $7.36.
Chevron’s EPS expectations have trickled downward from $2.55 in the third quarter of 2014 to $1.63 for the fourth quarter, and now $0.70 for the first quarter of 2015. For the full year, Chevron’s EPS has a consensus estimate of $3.83, compared with $10.14 in 2014, a drop of about 60%.
With profits falling, the companies’ ability to pay their dividends may concern some investors. In 2014, Exxon paid an annual dividend of $2.76 per share and Chevron paid an annual dividend of $4.28. At this year’s projected EPS totals, Exxon’s dividend coverage ratio at its current dividend rate is 1.36; Chevron’s is about 0.9%.
Neither of these ratios is particularly lovely to behold. The good news is that both Exxon and Chevron have plenty of cash to carry them through a downturn without having to cut dividends. If they need more, banks will line up quickly with offers too good to refuse.
Neither company depends heavily on U.S. crude oil production for profits. In 2014, Exxon’s upstream earnings in the United States totaled about $5.2 billion, less than 20% of the company’s upstream profit. Chevron’s U.S. upstream profits last year totaled $3.33 billion, about 20% of the company’s total upstream profit. That is important because domestic West Texas Intermediate (WTI) crude is priced about $10 a barrel below international Brent crude, and the gap has been slowly widening.
Both Exxon and Chevron have major projects offshore of Russia (Exxon) and in the Gulf of Mexico and offshore of Australia (Chevron) coming online in 2015, and these should boost production levels of both crude oil and natural gas. The catch, of course, is whether there will be a market for all those hydrocarbons and at what price.
No matter how it is sliced, 2015 is not looking to be a growth year for oil companies. The giants like Exxon and Chevron are in a much better position to weather the downturn and may even be able to pick up some valuable assets while blood is in the streets. The last thing either will do, however, is cut its dividend. While Exxon has the edge in dividend coverage, it missed the analysts’ consensus estimate last quarter, and the estimate for this quarter is more demanding than is Chevron’s and, therefore, easier to miss.
Exxon stock traded down about 1.2% in the noon hour Friday, at $83.21 in a 52-week range of $82.68 to $104.76.
Chevron stock traded down about 1.4%, at $101.03 in a 52-week range of $98.88 to $135.10.