What to Expect From Major Energy Companies This Earnings Season

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Anyone waiting for some good third-quarter news from U.S. oil companies is very likely to be disappointed when these firms report earnings beginning later this month. Pure-play exploration and production will be hit the hardest, but the supermajors are in for some of the lowest numbers in recent years. The one bright spot: refiners, where the low cost of crude oil boosts margins for refiners, even with low pump prices.

Analysts at Oppenheimer have weighed in with their third-quarter estimates for a number of oil companies, and the firm doesn’t like what it sees:

We expect 3Q15 earnings to decline by 61% [year over year] for the majors, led by [Chevron] with 73% and least for Shell with 51%, and 18% sequentially, highest for Shell at 26% and lowest for [Chevron] with 11%. [Exploration & production company]’ earnings are expected to decline by 130% on average, led by 198% for [Murphy] and least for [Devon] at 54%. Sequentially, [Anadarko] is expected to have the biggest decline and [Devon] the smallest.

[Among refiners] Earnings are expected to be up 42% [year-over-year], highest for [Tesoro] and lowest for [Phillips 66], but mixed sequentially, with the biggest increase for [Phillips 66] and the smallest for [Valero].

And Oppenheimer’s gloomy view of the third quarter does not improve with time:

Lower oil prices should help boost foreign volume under production-sharing agreements and ramp-up from new projects, partially offset by normal field decline and scheduled facility maintenance impact. Most large E&Ps are expected to report production increases despite reduced drilling activity and normal field decline … .

[E]ven assuming a new normal oil price in the $60-$70/b range, we believe many companies, both public and private, are not economically viable and cannot compete, and therefore must consolidate. We believe continued deficit spending is self-liquidating and destroys shareholder value.

We’ve taken a closer look at five companies that Oppenheimer covers: Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), BP PLC (NYSE: BP), Valero Energy Corp. (NYSE: VLO) and HollyFrontier Corp. (NYSE: HFC).

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