Volatile crude prices and weak refining margins led to lower earnings at all five oil supermajors in the first quarter of 2019, suggesting that Big Oil shouldn't stay complacent several quarters after the industry emerged from one of the worst downturns in a generation.
Big Oil's five majors-ExxonMobil, Chevron, BP, Total, and Shell-reported over the past two weeks a mixed bag of results for Q1. While net earnings at all companies were lower than last year's first quarter on the back of lower average Brent Crude prices compared to Q1 2018 and weak refining margins that battered downstream earnings, some supermajors met and even exceeded analyst expectations thanks to strong trading profits and to their natural gas businesses.
The European majors fared better than the U.S. firms Exxon and Chevron, and it was a European company that topped its rivals and analyst estimates, reporting the smallest yearly drop in profit in Q1, thanks to the liquefied natural gas (LNG) and trading divisions-Shell.
The Q1 earnings season began with the U.S. supermajors reporting lower profits compared to a year ago, with earnings squeezed by weak refining margins and volatile oil prices and Exxon badly missing on both earnings and revenues.
Exxon's upstream liquids production rose by 5 percent annually, driven by a nearly 140-percent jump in Permian unconventional growth. Yet, downstream operations were hit by heavier refinery maintenance and "weak industry fuels margins from high gasoline inventory levels and narrowed North American crude differentials," said Exxon, whose global downstream operations swung to a loss of US$256 million from a US$940-million profit in Q1 2018. Related: Nigeria Shuts In More Oil After Protests In Niger Delta
According to Bloomberg calculations, Exxon was losing nearly US$3 million a day in the downstream in Q1 2019, which turned out to be the company's worst downstream performance in almost two decades.
Chevron's earnings also dropped due to weaker oil prices and weak refining and chemicals margins, but Chevron's profit beat-albeit slightly-analyst estimates.
"First quarter earnings declined from a year ago, largely due to lower crude oil prices and weaker downstream and chemicals margins," Chevron's chairman and CEO Michael Wirth said.
In Europe, BP reported underlying replacement cost (RC) profit-its proxy for net profit-of US$2.4 billion, down from US$2.6 billion a year earlier, but slightly beating forecasts, thanks to strong oil and gas trading and to strong production, which grew by 2 percent excluding the contribution of Russia's Rosneft, in which hold BP holds 20 percent.
"Compared to a year ago, the result reflects lower downstream refining margins and North American heavy crude differentials, as well as lower Upstream liquids realizations and the impact of turnaround activity in the Gulf of Mexico. This was partly offset by a strong supply and trading performance in both oil and gas, an increased contribution from Rosneft and an improved fuels marketing result," CFO Brian Gilvary said on the earnings call.
France's Total reported a 4-percent decline in adjusted net income, to US$2.8 billion, just above the average analyst estimate of US$2.7 billion, despite a new record-high production in the quarter of more than 2.95 million bpd, up by 9 percent on the year and 2.4 percent on the quarter. Volatile oil prices were again the main culprit at which executives pointed for the lower earnings. Related: China Set To Defy U.S. Sanctions On Iran
Shell was the last supermajor to report Q1 earnings, and it was the one that stood out among the crowd with much better-than-expected results, as its trading and natural gas businesses offset weak oil prices and depressed refining margins that plagued the other majors. Shell's profits were hit by lower chemicals and refining margins and lower realized oil prices, but the supermajor trumped the consensus analyst forecast as it reported stronger contributions from its trading division and higher realized LNG and natural gas prices.
The downstream business-which has saved Big Oil's earnings in times of low oil prices-was the majors' weakest link in Q1 2019 along with oil prices which, despite rallying, averaged $63 a barrel Brent in the first three months of the year, 6 percent lower than in Q1 2018.
The majors with major gas and trading businesses performed better as those segments largely offset the impacts of the oil price volatility and weak refining margins.
Overall, the Q1 2019 earnings showed that Big Oil shouldn't be complacent about the capital discipline it imposed during the downturn and that investors need to wait more to see the share prices of the world's top oil companies move higher.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More