It’s the turn of energy companies to dominate the US 4th quarter earnings season this week and the news ain’t going to be pretty, lots of red ink or small amounts of green among lots of talk of cutting, slashing and postponing.
After tech majors like Apple, Facebook, Amazon and Microsoft dominated last week’s reports.
So far the US reporting season is about 40% complete. While 80% of results have beat on earnings (which are on estimates lowered several times by analysts), it’s only 48% for sales and earnings are still down 5.6% year on year.
This week it will be the turn of energy groups such as Exxon Mobil Corp, Royal Dutch Shell, and BP, ConocoPhillips, BG and Marathon to report their latest figures.
They will explain to the market how they are adjusting to a 60%-70% cut in oil prices in the past 18 months, and how they are handling a continuation of these prices for the immediate future.
The news from these and several smaller companies and service groups (such as drilling companies) won’t be pleasant to shareholders or investors generally because many will be trying readying new rounds of cost and spending cuts.
Other energy groups due to report include Marathon, Suncorp, Imperial Oil, Tidewater (an offshore driller) and BG whose shareholders last week agreed to merge with Shell (as did Shell shareholders agree to the deal with BG).
Service giant, Halliburton and Schlumberger have already reported losses, spending and cost cuts, sacked thousands of employees, and warned of more to come this year.
The likes of Shell and Total have already warned of profit falls in the range of 20% to 50% for their 4th quarters (and Spanish energy giant, Repsol reported a loss and revealed new spending cuts of 20% or more, all aimed at protecting its dividend).
Shell and BP and Exxon have already revealed cuts, trims, or hacks in spending, especially investment, started selling assets and cut thousands of jobs. More will come this week.
Investors are watching for what this trio does about its dividend, especially Shell and BP which are considered to be more vulnerable than the stronger Exxon.
All up well over $US 350 billion in spending and investment cuts have been made, announcement or suggested by oil and gas groups of all sizes since the price fall started in mid 2014, according to groups like consultants, Wood Mackenzie. That figure will rise with this week’s reports.
But on Friday night we saw the quarterly report from Chevron, the second largest of US energy giants, and it made for unpleasant reading – its first quarterly loss in almost 14 years (since 2002) and the giant, which has two huge LNG projects off the WA coast in Australia, revealed plans to make further cuts this year of more than $US9 billion.
Chevron revealed a $US588 million loss for the 4th quarter (down from $US3.47 billion in the final quarter of 2014). Revenue fell 37% to $US29.25 billion and its full-year 2015 profit of $US4.6 billion was the lowest annual total in 13 years and was down from more than $US19 billion in 2014.
So to help offset the slide in energy prices and help finance dividend payments to shareholders, Chevron plans to sell up to $US10 billion in oil fields and other assets over the next year or more.
It also expects to make further cuts in spending on drilling and other capital expenditures. They will be significant and will match the further fall in oil and gas prices, according to the company and the $US26.6 billion spending plan detailed in December will be further cut, according to CEO, John Watson in a briefing to analysts on Friday night.
Chevron late last year said it would chop employee numbers by about 10%. Mr Watson said 3,200 workers went last year and a further 4,000 layoffs will happen this year.
The energy company’s US oil-and-gas producing business lost nearly $US2 billion in the last three months of 2015, mostly because of write-downs. And its refining division that turns oil into fuels such as gasoline and diesel, profits fell by nearly half, to $US496 million, a sign of the pressure the company’s finances are under at all levels.
Chevron and Exxon holds two of the few AAA bond ratings in corporate America and were not included in last week’s list of 122 international energy companies put on credit watch negative for possible downgrade by the Moody’s ratings group. Operationally, Chevron had a very successful year. It boosted output to 2.67 million barrels a day in the fourth quarter, a 3.4% improvement over the 4th quarter of 2014 and also managed to replace more than 100% of its 2015 production, booking more oil and gas reserves thanks to projects in Australia and West Texas.
The company’s $US54 billion Gorgon natural-gas export development in Australia is set to begin producing liquefied natural gas in a few weeks. That leaves the Wheatstone project to be completed next year.
The company again will pay a dividend of $US1.07 for the quarter – it hasn’t changed for more than a year. Full year dividends were $US4.28 against $US4.21 a share in 2014, which was more than earnings per share of $US2.46 a share in 2015 against $US10.21 in 2014. Total dividend payout for 2015 will be $US8 billion, against that profit of $US4.6 billion. Chevron is self-liquidating.
