Some of the world’s largest energy companies are expected to release their second quarter results in the coming weeks. ExxonMobil (XOM – Free report), Chevron (CVX – Free report), Royal Dutch Shell (RDS.A – Free report), BP plc (PA – Free report) and TotalEnergies (TTE – Free Report) will publish their results between July 29 and August 3.
While yields improved in the third and fourth quarters of 2020 thanks to the gradual tightening of fundamentals, the January-March period further strengthened the stability of the Oil / Energy sector. The second quarter is expected to be even better as commodity prices rebounded strongly, returning to their multi-year highs following advances in vaccines and the ongoing macroeconomic recovery.
In the first quarter, “Big Oil” companies were helped by the easing of the lockdown and an earlier than expected recovery in demand for commodities following vaccine deployments. Cash flow has been strong due to higher achievements in oil and gas prices.
The April to June period promises not only a sequential improvement, but also a significantly better improvement than the quarter of last year, when the energy sector was devastated by the destruction of demand and falling prices. induced by the pandemic.
According to the US Energy Information Administration, in April, May and June 2020, the monthly average WTI crude price was $ 16.55, $ 28.56 and $ 38.31 per barrel, respectively. In 2021, average prices were $ 61.72 in April, $ 65.17 in May and $ 71.38 in June, all of which are much higher year over year.
The news is also bullish on the natural gas front. In Q2 2020, Henry Hub US average natural gas prices were $ 1.74 per MMBtu in April and edged up to $ 1.75 in May before falling to $ 1.63 in June. In 2021, fuel was trading at $ 2.66, $ 2.91 and $ 3.26 per MMBtu in April, May and June respectively. In other words, natural gas traded significantly higher over the past three months.
All except Chevron posted a higher first quarter net profit than the corresponding period of 2020 thanks to higher prices. Industry watchers are betting on a further rise in the three months ended June 30, as oil and gas continue to soar amid lower costs and capital spending.
In addition to higher profits, the environment of high commodity prices has helped the major energy operators generate significant “excess cash”, which they intend to use to boost investor returns.
As proof, the British energy major BP, which got off to a good start to the year after largely exceeding first-quarter earnings estimates, announced its intention to buy back shares. BP succeeded in reducing its net debt below its target of $ 35 billion and as a result decided to initiate share buybacks worth $ 500 million in the June quarter. The company was forced to cut its dividend at the height of the pandemic crisis, but reported a dramatic increase in its first quarter operating cash flow to $ 6.1 billion.
Meanwhile, mainland rival Shell will distribute 20-30% of operating cash flow to shareholders from the second quarter, he said in an update last week. Zacks Rank # 3 (Hold) Company credited “strong operational and financial performance, combined with improved macro outlook” for the higher payouts. Investors should know that Shell cut its quarterly dividend by two-thirds last year to weather the historic oil price crash and preserve liquidity. The cup was the first since World War II.
You can see The full list of today’s Zacks # 1 Rank stocks here.
ExxonMobil also recently expressed optimism that higher oil prices would contribute significantly to its upstream profits in the second quarter of 2021.
Overall, the energy juggernauts will see significantly better exploration and production results. However, the other important part of the activity of the supermajor, the refining or the downstream unit, remains weak. While fuel consumption has recovered with increased mobility, reflected by increased refinery utilization and margins, demand for jet fuel has yet to reach pre-pandemic levels. . Thus, refining profitability is still well below the five-year averages.
Nonetheless, it looks like the most painful downturn for oil activity is only a distant memory, with major energy companies due to follow up on a strong first quarter with an even better second quarter.