While energy stocks outperformed other sectors last quarter, Wall Street expects lower annual profits from giants like Chevron (CVX) and ExxonMobil (XOM) when they report quarterly results this Friday – due in part to falling natural gas prices and lower refining margins first quarter is three months of the year.
Investors will also be watching for updates on the oil majors’ potential takeovers, including Exxon’s dispute over the Chevron-Hess (HES) deal.
Chevron’s first-quarter adjusted earnings are expected to be $2.90 per share, down about 18% from the year-earlier period, on revenue of $49.17 billion, according to Bloomberg estimates.
ExxonMobil’s revenue is expected to be $80.25 billion and adjusted earnings are $2.19 per share, down 22% from a year ago.
On average, crude oil prices were slightly higher in the first quarter of this year compared to last year. The biggest price move occurred in mid-March when West Texas Intermediate prices broke above $80 amid rising geopolitical tensions.
“The usual suspect for moves in operating EPS – crude oil prices – is not the key this time,” Stewart Glickman, energy equity analyst at CFRA Research, told Yahoo Finance.
“Natural gas prices are down about 20% year-over-year, and natural gas accounts for about a third of hydrocarbon production. It doesn’t help that refining margins, while decent, have fallen significantly from early 2023 highs,” he added.
Natural gas is often extracted from oil production, exacerbating the supply glut.
“For U.S. gas producers already struggling with significant oversupply in the U.S. gas market, strong WTI pricing comes at an unfortunate time,” FactSet senior energy analysts Connor McLean and Trevor Fugita noted earlier this week.
Most Wall Street analysts expect oil prices to remain above $80 for the time being.
“The energy sector as a whole has the potential to continue to develop based on oil trading above $80 a barrel,” Sean O’Hara, president of Pacer ETF Distributors, told Yahoo Finance.
For the second quarter, FactSet forecasts earnings growth of 14.6%, while the third and fourth quarters are forecast to see earnings declines of 2.7% and 0.2%, respectively, as crude oil prices fall off their peak.
Given ExxonMobil’s dispute over Chevron’s plan to buy Hess and its most valuable asset, a 30 percent stake in an oil-rich block off the coast of Guyana, the topic of recent mergers is likely to come up on Big Oil’s earnings calls.
ExxonMobil holds a 45% stake in the productive block. ExxonMobil says it has the right of first refusal for the Hess share and recently filed for arbitration after initial discussions ended.
Chevron’s $53 billion offer to buy Hess came more than a week after ExxonMobil said last year it would buy Pioneer Natural Resources (PXD) for nearly $60 billion. The acquisition will allow ExxonMobil to double its presence in the Permian Basin, the largest oil-producing region in the United States.
On Thursday, Hess reported better-than-expected first-quarter results thanks to a 70% increase in production in Guyana. The results bode well for ExxonMobil given its stake in the region.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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