Earnings

BP, Shell, Exxon: Which share price to back as oil majors miss on earnings?

As China’s coronavirus continues to impact global economies and markets, oil prices are nearing dire figures that could trigger a major sell-off. Do BP Chevron, Exxon or Shell’s share prices make any a buy?

The crude gravy train has left the station and as global energy markets continue to remain in the red, traders and investors alike are beginning to wonder whether this meltdown is just beginning. Share prices at multinational gas and oil companies such as Chevron [CVX], ExxonMobil [XOM] and Shell [RDS] are also causing concern.

Crude oil has had a disappointing start to the year. Oil prices based on the West Texas Intermediate (WTI) have been hovering around $50 a barrel. While oil prices rose more than 20% in 2019, there were no sharp spikes and crude futures barely reached $70 a barrel, according to Reuters. Global oil benchmark Brent crude plummeted 19% from the start of 2020 to a one-year low of $53.96 a barrel by 4 February.

20%

Amount oil prices rose by in 2019

 

The story at oil giants BP, Chevron, Exxon and Shell was similar in 2019. The new year appears no different for Shell, which has seen its share price slide 12.3% from the start of the year until now, while Chevron and Exxon’s share prices have also slipped – by 8.8% and 12.8% respectively. BP’s [BP] share price meanwhile, has been showing some signs of promise, increasing 5.3% for the year to date (through 10 February).

Meanwhile, enforced travel restrictions related to the coronavirus outbreak have been damaging to the price of oil and coincided with an economic slowdown in China and India – two of the world’s largest oil consumers.

The danger zone for a major financial sell-off starts around $50 a barrel for Brent, Greg Newman, head of Onyx Capital Group, told Bloomberg. “If this is to happen then, yes, the option sellers will scramble to sell futures to cover their positions,” he added. While some investors may be hopeful for a rebound similar to the one that followed the end of the SARS outbreak, the current climate doesn’t look favourable.

Amongst all this turmoil, BP, Chevron, Exxon and Shell all recently reported their fourth-quarter earnings. Here’s what they reported, and how their respective share prices reacted: 

 

Shell disappoints investors

Despite the tough macroeconomic headwinds, Shell managed to generate $47bn in cash flows in 2019 and distribute over $25bn in dividends and share buybacks (Shell is, after all, the largest dividend payer on the planet).

However, an almost 50% drop in fourth-quarter profits to $2.9bn from the previous quarter forced the energy major to hit the brakes on its share buyback programme, which has raised the risk of it missing the 2020 completion target for investor payouts.

50%

Amount Shell's profits dropped by in Q4

 

Shell now plans to buy back $1bn of shares between now and 27 April – considerably lower than the $2.8bn in the fourth quarter of 2019. Investors weren’t impressed. The news sent shares in Europe’s largest oil company down 3.7% to trade at a near three-year low of 2,046p on 30 January.

The company missed analysts’ estimates for earnings by -8.14% in Q1, according to CNN. Out of 28 analysts polled by the publication, 15 rate the stock a buy.

“The coronavirus, I’m sure, will keep a lot of people on edge — and rightly so,” CEO Ben van Beurden told CNBC. “At this point in time, sentiment in oil markets is not so much sentiment about supply, it is all sentiment in demand.”

The coronavirus, I’m sure, will keep a lot of people on edge — and rightly so. At this point in time, sentiment in oil markets is not so much sentiment about supply, it is all sentiment in demand” - Shell CEO Ben van Beurden

 

BP defies lower oil and gas prices

The multinational posted better-than-expected full-year results on 4 February, with underlying replacement cost profit reaching $10bn in 2019. While that reflected a 21% fall from 2018’s $12.7bn, analysts had only estimated net profit to hit $9.7bn, according to Refinitiv data.

Meanwhile, BP CFO Brian Gilvary expects the coronavirus outbreak to seriously impact oil prices. He told CNBC in a recent interview that it could wipe out as much as 300,000 to 500,000 barrels per day of oil demand in 2020.

300,000-500,000

Number of oil barrels wiped out per day due to coronavirus outbreak

 

“I think, in terms of price direction, all roads will then lead to what OPEC will do in terms of trying to rebalance the system to get back to something around $60 to $65 a barrel,” he added.

In the meantime, BP is confident in its ability to generate more cash flow, given that it completed a $1.6bn share buyback programme and raised its dividend by more than 2% to $0.1050. The UK oil and gas company’s stock climbed 3.6% after its results were announced. The stock has a mean rating of overweight on MarketWatch.  

 

 BPShellExxon
Market Cap$121.287bn$190.52bn$253.871bn
PE ratio (TTM)30.6213.1817.86
EPS (TTM)1.183.903.36
Quarterly Revenue Growth (YoY)-6.40%-17.80%-1.60%

BP, Shell & Exxon share price vitals, Yahoo Finance, 11 February 2020

 

ExxonMobil and Chevron stick to spending plans

Despite industry headwinds, both ExxonMobil and Chevron decided to reaffirm their multibillion-dollar capital spending plans for 2020.

CEO of Exxon Darren Woods stuck to last year’s guidance on capital spending for 2020 of $33bn to $35bn, which is up from $31.1bn in 2019. “We know demand will continue to grow driven by rising population, economic growth, and higher standards of living. We know that excess capacity will shrink, typically faster than people think, and margins will rise,” Wood said while on the call to analysts.

He said this was when new capacity would be needed. “These are the classic price cycles of capital insensitive commodity industries,” he explained, adding that Exxon strongly believes “that investing in the trough of this cycle has some real advantages”.

We know demand will continue to grow driven by rising population, economic growth, and higher standards of living. We know that excess capacity will shrink, typically faster than people think, and margins will rise” - Exxon CEO Darren Woods

 

Exxon reported net income of $5.69bn, or $1.33 per share, for the fourth quarter, down from $6bn a year earlier. It also posted its first loss in its chemicals business since before its 1999 merger with Mobil.

Chevron also posted an earnings miss. The US oil giant was forced to write down $10.4bn in assets in the fourth quarter due to plummeting natural gas prices. The charges led to a $6.6bn loss, or -$3.51 per share, which is a significant reversal from last year’s $3.7bn in profits.

The company’s CEO Mike Wirth plans to keep capital spending at $20bn for the year, which is consistent with the last two years. “For the first time in the company’s history, annual production exceeded three million barrels per day of oil equivalent,” Wirth added.

Both Exxon and Chevron’s share prices fell following their earnings announcements. The former’s stock fell 4.12% while the latter’s stock declined 3.8% on 31 January.

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