Major oil and gas companies reported weaker-than-expected first-quarter earnings on Friday, as a sharp drop in natural gas prices compared to last year took a bite out of profits.
The results for Big Oil firms are a stark contrast to the record-breaking levels seen in 2022, which were fueled by a surge in demand following the global pandemic and further amplified by the war in Ukraine.
Profits Fall Short for U.S. and European Oil Giants
U.S. oil giants Exxon Mobil and Chevron missed Wall Street’s earnings targets, while European oil major TotalEnergies only slightly beat analyst forecasts. The companies all reported significant year-on-year profit declines, with Exxon’s profit falling by 28%, Chevron’s decreasing by 16%, and TotalEnergies’ down by 22%.
The profit shortfalls were largely attributed to a 35% decline in European gas prices, a consequence of a mild winter and high storage levels. This significant drop overshadowed positive developments in the oil market, where global benchmark Brent crude prices remained relatively flat compared to last year.
Despite currently trading around $90 a barrel, oil prices are expected to yield less lucrative refining margins in the coming quarters. TotalEnergies anticipates its refining business to be less profitable due to a combination of geopolitical tensions and production limits imposed by the OPEC+ cartel.
Deals in Limbo, Investor Optimism Wanes
The strong profits of 2023 led Exxon, Chevron, and Occidental Petroleum to pursue acquisitions aimed at boosting oil and gas production. However, these deals are facing delays and uncertainties. Exxon’s bid for Pioneer Natural Resources and Chevron’s offer for Hess are both awaiting approvals and have yet to be finalized.
The lack of clear guidance on production outlooks for upcoming quarters, coupled with the delays in merger deals, has dampened investor enthusiasm for the energy sector. Share prices for Exxon and Chevron fell slightly in late trading, while TotalEnergies’ shares rose modestly after the company reaffirmed a $2 billion share buyback program.
Adding to the investor jitters, executives from Exxon and Chevron provided no new concrete information on their production outlooks during conference calls. This lack of transparency makes it difficult for investors to assess the future prospects of these companies.
Exxon is aiming to close its acquisition of Pioneer Natural Resources in the current quarter. However, the merger between Chevron and Hess faces a steeper hurdle. Chevron’s offer for Hess is expected to be put to a shareholder vote in late May, but an ongoing legal battle with Exxon is currently blocking the sale. The arbitration process is not expected to be concluded until the fourth quarter of this year, casting a shadow over the deal’s prospects.
Looking Back on a Boom Year, Facing an Uncertain Future
The oil and gas industry enjoyed a period of immense profitability in 2023. However, the first-quarter earnings reports for 2024 signal a significant shift in the market. The decline in natural gas prices and the cloud of uncertainty surrounding merger deals have created a cautious outlook for the energy sector. Investors are watching closely to see how Big Oil companies will navigate this new economic landscape.
Source: Reuters
