Exxon Mobil and Chevron (CVX) report tomorrow morning; looking for color on 2018 capital budgets (CapEx)
Two major integrated oil and gas companies (aka, Big Oil, aka, Supermajors...) will report tomorrow morning.
Exxon Mobil (XOM) and Chevron (CVX) are scheduled to report Q4 earnings tomorrow morning, February 2, with a conference call so follow at 9:30am ET and 11:00am ET, respectively, on the same day.
Earnings and sales expectations:
XOM: Capital IQ calls for a Q4 earnings of $1.03 on revenue of $74.41 bln (yes,.. billion). This compares to earnings in 4Q16 of $0.89 on revs of $61.02 bln.
CVX: Capital IQ calls for Q4 earnings of $1.24 on revenue of $38.43bln. This compares to earnings in 3Q16 of $0.21 on revs of $31.50 bln.
As usual, oil and natural gas prices are the largest catalyst driving these companies results.
But, versus the majority of oil and gas companies, XOM and CVX are integrated companies, due to the fact each has upstream, midstream and downstream operations.
This provides a natural hedge. Higher prices is positive for its upstream segment, but negative for its downstream segment.
In short, higher oil prices allows these cos to sell its oil products at higher prices. However, U.S. refiners (downstream segment) are the buyers of WTI oil in the country, so clearly when WTI oil prices rise, this is bad for the downstream customers (i.e. XOM, CVX, etc.).
Integrated oil and gas companies basically do it all. They handle the upstream, midstream and downstream segments of the oil and gas market.
An independent oil and gas producer is an energy company, usually in the exploration and production segment of the industry, with generally no marketing, transportation or refining operations.
The basic definition of Independents is a non-integrated company which receives nearly all of its revenues from production at the wellhead. They are not involved in midstream and downstream activities such as storing, transporting, refining and/or marketing of oil. They are involved in the upstream segment and that's it.
Oil and gas giant ConocoPhillips (COP) used to a major integrated player. However, after ConocoPhillips spun off its downstream operations (now known as Phillips 66 (PSX)), it became a non-integrated business. ConocoPhillips is now considered the world's largest independent exploration and production (E&P) company, based on proved reserves and production of liquids and natural.
Back to XOM, on Monday, Jan 29, Exxon Mobil CEO confirmed plan to invest more than $50 bln over the next five years to expand in the United States... it will be interesting to hear other color the co may have to provide about that.
The money would go into the Permian Basin.. not 100% if that's the only location yet, but clearly it will be a key one. The Permian Basin is a very hot space, geographically speaking.
Of the 759 oil rigs in operation right now in the U.S., 56.3% of them, or 427 rigs out of the 759 rigs are in the Permian Basin.
Yes, well over half of the U.S. oil rigs being used out there are in the Permian Basin. There is some solid growth potential here and this area should be a key focus of those who like the oil and gas space.
Other names in this space include GPOR, XOM, CVX, APC, XEC, EOG, OXY, PE, APA, DVN, CXO, RSPP, PXD, RDS.A, MTDR, ECA, FANG, EGN, AREX, SM, LPI.
Last quarter, XOM reported earnings of $0.93 per share, $0.06 better than the Capital IQ Consensus of $0.87, as commodity prices improved and performance in the Upstream and Downstream strengthened. Impacts related to Hurricane Harvey reduced earnings by an estimated $0.04 per share. Co also said, "For the fourth-consecutive quarter, we generated cash flow from operations and asset sales that more than covered our dividends and net investments in the business."
Last quarter, CVX reported earnings of $1.03 per share, $0.06 better than the Capital IQ Consensus of $0.97; revenues rose 20.1% year/year to $36.2 bln vs the $34.06 bln Capital IQ Consensus. Co said, "We continue to see improvement in the underlying pattern of earnings and cash flow. Cash flow is at a positive inflection point, with oil and gas production increasing and capital spending falling," Watson added. "We're completing projects that have been under construction and ramping up production, notably at our Gorgon LNG Project in Australia. And our shale and tight rock drilling activity in the Permian Basin is exceeding expectations."
Overall points.... Each company has massive capital spending budgets, so one thing we should all watch for is if they cut their CapEx levels.
Lower capital spending from the non-integrated and integrated oil and gas producers (aka E&P) hurts a number of companies, such as the drillers, as well as other players in the oil and gas equipment and services such as the frac sand plays. Less capital spending means fewer wells are drilled.
Less capital spending will likely mean lower day rates for the drillers. Day rates is just an industry term for the daily costs drillers charge to rent (contract) out their oil rigs.
Companies in the oil and gas equipment and service industry that are affected by large CapEx fluctuations include SLB, HAL, BHGE, NOV, FTI, EQM, RES, CLB, WFT, PTEN, OII, SLCA, DRQ, FRAC, MRC, SPN, DNOW, OIS, FET, PUMP, HLX, PDS, HCLP, TDW, NR, FMSA, SOI, TUSK, BAS, FTK, NGS, SND, TTI, CRR, EMES, TESO, GIFI, WG, HOS, DWSN, ENSV.
Companies in the oil and gas equipment and service industry that are affected by large CapEx fluctuations include PTEN, RIG, NBR, DO, ESV, RDC, UNT, NE, SDLP, PKD, PES, ICD, NADL, ORIG.
