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Oil and gas majors: What to expect from Q3 earnings for Shell, Exxon and others

By Angela Barnes

12:46, 25 October 2022

A Shell petrol station in Novato, California
Crude prices fell on Tuesday as the oil and gas majors prepare to announce their Q3 earnings – Photo: Getty

The major oil and gas companies are gearing up to announce their third quarter (Q3) results with Shell (RDSa), ExxonMobil (XOM), TotalEnergies (TTEF) and BP (BP.) among the firms set to release their latest financial statements.

Royal Dutch Shell (RDSa) price chart

Many of the energy giants enjoyed record profits in the first and second quarter of 2022, as a result of soaring oil and gas prices following Russia’s invasion of Ukraine in February.

However, since June, oil has posted four consecutive months of declines with Brent crude oil down by about 25%, despite OPEC+ announcing a recent cut to output in a bid to boost prices and keep crude above the $90 level.

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Brent crude oil price chart

The cartel’s move could still prompt an uptrend for oil. However, if it doesn’t, Shell, BP and the like may struggle to reach the soaring profits they have recently seen.

US crude oil (WTI) price chart

 

Investment banking group Jefferies shared a research report with Capital.com highlighting what could come out of the latest Q3 earnings reports – and included notes on TotalEnergies (TTEF), Eni SPA (ENI), BP (BP.), Repsol (REP) and Shell (RDSa).

TotalEnergies (TTEF) price chart

What’s the Shell Q3 consensus?

In a trading update ahead of its latest results, Shell warned investors about a slide in refining margins. However, Piero Cingari, chief market analyst at Capital.com, said Shell’s refining margins might be down from the previous quarter but noted it is still three times higher than it was a year ago.

Shell also highlighted a drop in chemical margins and said liquefied natural gas (LNG) and gas trading margins are also expected to decline. As a result, it is anticipated it will take between $1bn and $1.4bn off its adjusted EBITDA.

US natural gas price chart

The company set a target to make additional shareholder distributions of 20-30%.

However, Jefferiess said that in order for Shell to meet its 30% cash flow from operations (CFFO) payout target, the group will have to increase the buyback programme by $1-2bn (from $6bn in Q3), depending on the size of the working cash (WC) outflow in Q3. 

“We continue to expect Shell to increase DPS [dividends per share] by [more than] 20% in Q4 but we believe there is an increasing chance that this might move forward to Q3. However, if this doesn't happen, Q3 results could turn out to be a disappointment, even after the already weak trading update.

“Our Adjusted Earnings estimate ($8.2bn) is 8% below consensus and we believe the gas trading issues in Q3 could extend to Q4 if the JKM-TTF differential widens again,” Jefferies analysts said.

Could Repsol increase shareholder distributions? 

Meanwhile, the financial group said Repsol (REP) could increase shareholder distributions by paying up to €0.8bn in order to meet the 25-30% CFFO post-WC payout guidance (reiterated in Q2).

“We also expect Repsol to provide an outlook for distributions from the Upstream minority stake divestment, as €2.4bn of proceeds should be received in Q4.”

Repsol (REP) price chart

The Spanish oil and gas company also recently boosted its multi-energy transformation by partnering with EIG, a US institutional investor in the global energy and infrastructure sectors, in its exploration and production business.

“EIG will acquire 25% of the upstream business for $4.8 billion (€4.8 billion). This transaction, approved by the Board of Directors of Repsol, values the upstream business at $19 billion (€19 billion), which exceeds analysts' consensus valuations of the unit. The agreement between Repsol and EIG includes the possibility of listing a minority stake of the business in the United States from 2026 onward, subject to favorable market conditions,” the group said in a recent update.

Analysts’ take on TotalEnergies and Eni earnings

Meanwhile, for TotalEnergies (TTEF), Jefferies said we are unlikely to see shareholder remuneration surprises following the €1 per share special dividend announcement last month. 

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The French company reported in-line earnings in its last reported quarter and is expected to benefit from further renewable energy investments.

However, TTEF may report a setback after it suspended its operations in Russia and sold its 49% interest in Terneftegaz.

With regard to Eni Spa, Jefferies said there is limited upside to shareholder remuneration as the buyback size (€2.4bn) is just €0.1bn below the maximum level authorised by the AGM in May.

“We expect Eni to make several updates to its FY22 guidance: lower production (1.67mmboe/d), increase GGP EBIT (greater than €1.2bn; JEFe €1.3) and Plenitude EBITDA (greater than €0.6bn, JEFe €0.8bn).”

Eni Spa (ENI) price chart

Chervon, Exxon and BP results to follow

Chevron (CVX) and Exxon Mobil (XOM) will also release Q3 earnings on Friday and are expected to post strong upstream quarterly results with some analysts anticipating an increase in dividends and buybacks.

Exxon (XOM) price chart

The consensus EPS forecast for the quarter for Chevron is $5.06, compared to $2.96 for the same period in 2021.

Chevron (CVX) price chart

As Capital.com reported on Friday, the outlook for Exxon has been bullish with analysts at Jefferies also taking that stance on its stock, upgrading it from “hold” to “buy” with a price target of $133, up from $90. 

The financial group thinks that the company will keep making good free cash flow until 2027, thanks to growth in upstream volumes, high-quality chemicals, and refining margins.

BP (BP.) price chart 

BP will follow on 1 November with its earnings results, which Jefferies also commented on.

“Surplus cash generation in Q3 should support a $400-700m increase in the buyback to be executed before Q4 results (from $3.5bn). However, following the acquisition of Archaea (LINK), BP could decide to keep buybacks at $3.5bn and use the incremental to smooth the effect of the $3.3bn acquisition payment in 4Q. A partial reversal in the Freeport LNG outage provision is possible following the withdrawal of force majeure in August.”

ConocoPhillips will also report its earnings next Thursday.

ConocoPhillips (COP) price chart

Windfall tax on profits 

The energy giants will face further headwinds on their profits when it comes to their Q4 results with the European Commission (EC) proposing on 14 September a temporary tax on the bloc's fossil fuel producers to help offset soaring power bills.

The EC said the contribution will be taken from their excess profits generated from activities in the oil, gas, coal and refinery sectors – and will be applied for one year after entering into force with a review by 15 October 2023.

“The levy will be collected on 2022 profits which are at least 20% above the average profits of the previous three years, charged at a rate of at least 33%, the commission said, adding the tax could bring in around  €25 billion ($25.2 billion) of public revenues,” S&P Global Commodity Insights said in a report to clients.

New British Prime Minister, Rishi Sunak, has also come under pressure from lobby groups to do the same – as has the US government.

Markets in this article

BP.
BP - GBP
4.985 USD
0.055 +1.120%
XOM
Exxon Mobil Corp (Extended Hours)
115.38 USD
1.17 +1.020%
SHELa
Shell - EUR
31.055 USD
0.34 +1.110%
TTEF
TotalEnergies SE
63.575 USD
0.49 +0.780%
Oil - Crude
Crude Oil
82.282 USD
0.764 +0.940%

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