20Q1 Earnings Roundup: U.S. Oil Majors

U.S. oil majors finished reporting 20Q1 results in the week starting May 4. The industry beat consensus expectations this quarter, led by Exxon Mobil (XOM), Chevron (CVX), ConocoPhillips (COP), Devon Energy (DVN), and Occidental Petroleum (OXY). As a result, the S&P 500 Energy sector led all sectors and posted the strongest earnings and revenue surprise this quarter with 124.1% earnings and 5.7% revenue surprise. If we exclude Exxon Mobil, the energy sector still generates an aggregate 58.7% earnings surprise. Exhibit 1 displays the 20Q1 results in more detail.

Exhibit 1: 20EQ1 Earnings Results for S&P 500 Energy Sector

(Click on image to enlarge)

(Click on image to enlarge)

Source: S&P 500 Earnings Scorecard

While energy companies beat Wall Street expectations, the outlook for growth remains very challenged. According to I/B/E/S data from Refinitiv, year-over-year earnings growth for the energy sector for 20Q1-20Q4 are expected to decline 30.5%, 154.9%, 127.3%, and 110.9% in each quarter, respectively.

Similarly, year-over-year revenue growth for the energy sector for 20Q1-20Q4 is forecasted to decline 11.0%, 46.8%, 35.9%, and 28.5% in each quarter, respectively.

It is also worth mentioning that in 20Q1, the price of WTI hovered above $40 a barrel for the first two months of the quarter, which will soften the true impact on quarterly results. However, the relatively higher oil price during this period allowed for companies to engage in hedging activity to help minimize the impact of low oil prices.

Looking at company transcripts, EOG Resources (EOG) commented, “we now have hedged more than 95% of our second quarter oil production at an average price of $48 and more than 50% of our third quarter production at $47.” Devon Energy noted, “we have also taken steps to protect about half of our expected oil volumes for the first half of 2021 at prices are nearly $40 per barrel.” Noble Energy stated, “second half is also well protected with a combination of both fixed price swaps and three-way collars between $30 and $40 per barrel WTI.” Finally, Marathon Corp. stated that near-term production will be hedged at over $30 per barrel (Source: Earnings Call).

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