What to Expect From Major Energy Companies This Earnings Season

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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Exxon Mobil is about to have its worst quarter in years. Oppenheimer expects the oil and gas giant to post earnings per share (EPS) of just $0.81, compared with $0.91 in the second quarter and $1.82 in the third quarter of 2014. The forecast for the fourth quarter is even worse, with EPS forecast at $0.59. Consensus estimates from Thomson Reuters call for third-quarter EPS of $0.91 and fourth-quarter EPS of $0.77.

Oppenheimer expects Chevron to report EPS of $0.74 in the third quarter, down from $2.80 a year ago and down from $0.83 sequentially. As with Exxon, the fourth-quarter outlook is even worse: $0.22 per share. For the three years between 2012 and 2014, Chevron’s annual EPS has totaled $12.10, $11.09 and $9.46, respectively. For 2015 Oppenheimer forecasts EPS at $2.86, falling to $2.15 in 2016. Consensus estimates from Thomson Reuters call for third-quarter EPS of $0.82 and fourth-quarter EPS of $0.57.

Another supermajor integrated oil company, BP, is expected to post third-quarter EPS of $0.35, compared with $0.99 a year ago and $0.43 in the second quarter. For the fourth quarter, Oppenheimer forecasts EPS of $0.08. BP has struggled to sell assets as it gets hit with the fines and costs related to the 2010 explosion of its Macondo well in the Gulf of Mexico. Its earnings for 2012, 2013 and 2014 were $5.56, $4.26 and $3.96, respectively. Oppenheimer’s estimate for 2015 is $1.70 and for 2016, $1.23. Consensus estimates from Thomson Reuters call for third-quarter EPS of $0.29 and fourth quarter EPS of $0.16.

Refiners will do better than integrated oil companies, but Valero will see a sequential decrease in EPS from $2.66 in the second quarter to $2.27 in the third, according to Oppenheimer. Last year the company posted EPS of $2.00 in the third quarter. Estimated EPS for the 2015 fiscal year is $7.80, higher than last year’s earnings of $6.68 per share. For 2016, Oppenheimer sees EPS falling back to $6.31. Consensus estimates from Thomson Reuters call for third-quarter EPS of $2.61 and fourth-quarter EPS of $1.34.

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Oppenheimer also expects to see EPS slip a bit for HollyFrontier. The analysts see third-quarter EPS at $1.43, down sequentially from $1.46, but up from $0.88 year over year. The company’s earnings over the past three fiscal years are $8.49, $3.77 and $2.72, respectively. Oppenheimer expects 2015 EPS of $4.87 and EPS of $3.33 in 2016. Consensus estimates call for third-quarter EPS of $1.63 and fourth-quarter EPS of $0.82.