Earnings season is here once again with ~20% of S&P 500 companies having returned their second quarter scorecards. Unlike recent seasons when the energy sector emerged as a standout performer, oil and gas companies have become some of the market’s biggest laggards. According to FactSet data, the energy sector is reporting the largest revenue decline of all 11 market sectors at -28.7% as well as the worst earnings decline to the tune of -51.3%, much bigger than the market average of -9.0%.
Lower year-over-year oil prices are contributing to the decrease in revenues for the energy sector, with the average price of oil in Q2 2023 ($73.56) 32% below the average price for oil in Q2 2022 ($108.52).
At the sub-industry level, four of the five sub-industries in the sector are reporting (or are expected to report) a year-over-year decrease in revenues of more than 20%: Oil & Gas Exploration & Production (-33%), Oil & Gas Refining & Marketing (-32%), Integrated Oil & Gas (-30%), and Oil & Gas Storage & Transportation (-21%).
On the other hand, the Oil & Gas Equipment & Services (20%) sub-industry is the only sub-industry that reported revenue growth in the sector.
Big Oil Production Growth
Several Big Oil companies have returned their Q2 scorecards, and nearly all have a common theme: considerable production growth but even bigger top-and bottom-line contraction.
Exxon Mobil Corp. (NYSE:XOM) has reported Q2 earnings of $7.88B, good for 55.9% Y/Y decrease while Q2 revenue of $82.91B is good for -28.3% Y/Y growth. On a brighter note, Exxon says it remains on track to deliver $9 billion of structural cost savings by the end of 2023 relative to 2019, having achieved cumulative structural cost savings of $8.3 billion to date. Exxon reported that Q2 total production fell 3.3% Y/Y to 3.61M boe/day; however, excluding divestments, entitlements, government mandates and the Sakhalin-1 expropriation by Moscow, net production actually rose by more than 160K boe/day. The Permian basin delivered a quarterly record 622K boe/day and is on track to increase 10% this year while Guyana is on track to grow production 5% to 400K boe/day by year-end.
Chevron Corp.(NYSE:CVX) reported that its Q2 earnings decreased 48.3% Y/Y t0 $6.01B while adjusted earnings contracted 49.2% to $5.78B. Meanwhile, Q2 revenue clocked in at $48.9B, good for -28.9% Y/Y growth. Chevron reported record Permian Basin production of 772,000 barrels of oil equivalent per day, up 11% Y/Y.
Smaller Companies–More Impressive
Hess Corp.(NYSE:HES), ExxonMobil’s partner in the Guyana, has reported estimated Q2 2023 results as follows: Net income was $119 million, or $0.39 per share, compared with net income of $667 million, or $2.15 per share, in the second quarter of 2022 while Q2 revenue of $2.32B represents 22.4% Y/Y decrease.
However, Hess has recorded even more impressive production growth than Exxon or Mobil thanks to its much smaller production base. The company reported that oil and gas net production was 387,000 barrels of oil equivalent per day, up 28% from 303,000 boepd in Q2 2022. Bakken net production was 181,000 boepd, up 29% from 140,000 boepd a year ago while Guyana net production clocked in at 110,000 bopd, compared with 67,000 boepd in the prior-year quarter. The company has projected full year net production to be in the range of 385,000 boepd to 390,000 boepd, compared with previous guidance of 365,000 boepd to 375,000 boepd, thanks in large part to improved operational performance as well as the expected startup of the Payara development early in the fourth quarter of the current year.
Oilfield Services Companies Shine
As noted above, the oilfield services sector stands out as the only energy industry that is recording positive revenue and earnings growth.
Halibutorn Co. (NYSE:HAL) has reported Q2 adjusted net income per diluted share of $0.77, good for a more than 50% year-over-year increase while revenue of $5.8 billion increased 14% year-over-year. Operating margin clocked in at 17.4%, a 329 basis points year-over-year increase.
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Schlumberger Ltd (NYSE:SLB) has reported Q2 adjusted EBITDA of $1.96 billion, a 10% sequential increase and 28% year-on-year while GAAP EPS of $0.72 increased 11% sequentially and 7% year-on-year while net income attributable to SLB of $1.03 billion increased 11% sequentially and 8% year on year. Revenue of $8.10 billion increased 5% sequentially and 20% year-on-year.
Baker Hughes Co. (NASDAQ:BKR) has reported net income of $410 million for the quarter, up $1,248 million year-over-year; Adjusted EBITDA (a non-GAAP measure) of $907 million for the quarter, up 39% year-over-year while revenue of $6.3 billion for the quarter was up 25% year-over-year.
By Alex Kimani for Oilprice.com
