By OGJ editors
HOUSTON, Jan. 22 -- US integrated oil companies' upcoming fourth quarter 2002 results are expected to improve on both a sequential and year-over-year basis, analysts from two companies have forecast.
UBS Warburg LLC issued a Jan. 15 research note outlining its fourth quarter 2002 earnings preview for US integrated oil companies. Separately, A.G. Edwards released a Jan. 14 research note giving its fourth quarter earnings preview for worldwide integrated oil and gas companies.
UBS Warburg
"In aggregate, we forecast fourth quarter 2002 adjusted earnings from the US integrated oil sector to increase 59% year over year to $6.2 billion. This should end five consecutive quarters of double-digit, year-over-year earnings declines," said Matthew Warburton, an analyst with UBS Warburg.
Going forward, UBS Warburg anticipates a continued earnings recovery for integrated companies on a YOY basis—helped in part by favorable commodity price comparisons and weak downstream margins during most of 2002.
"However, we forecast a sequential quarterly decline from second quarter 2003 onward as crude oil prices gradually return to our mid-cycle estimate of $20/bbl West Texas Intermediate. We currently expect aggregate adjusted net income for the US oil majors to increase by 126% year over year in first quarter 2003.
"Thereafter, given our oil and natural gas price forecasts, normalized (refining and marketing) margins, and a further improvement in chemical fundamentals, we forecast earnings to rise 37% year over year in 2003 and to decline 6% in 2004," Warburton said.
The downstream sector has seen "a substantial recovery" in average fourth quarter 2002 refining margins in both the US and international markets.
"We believe that such a recovery has been primarily driven by the reduced product inventory, widening light/heavy differentials, and the extensive refinery maintenance, with Asian (Singapore) cracking margins exhibiting the largest increase because of the increased demand in Japan because of the nuclear shutdowns," Warburton said.
Improved refining margins are expected to be partially offset by declining performance for marketing operations because of sluggish volume growth and weaker retail margins YOY in some regions, he said.
A.G. Edwards
Meanwhile, A.G. Edwards's research note stated, "Group earnings are estimated to increase 51% vs. the same period a year ago." Analyst L. Bruce Lanni said, "Sequentially, group earnings should improve by 18%."
Lanni expects integrated firms to report their strongest earnings of 2002 in the fourth quarter, crediting improved downstream margins and high commodity prices.
Exploration and production profits are expected to be up 81%, refining and marketing down 45%, and petrochemicals up by 204% in the fourth quarter, Lanni said.
"Given the general uncertainties in the market, the anticipation of continued commodity price volatility, along with the potential impact of geo-political events in the Middle East and Venezuela, we remain focused on the international integrated oil and gas companies, particularly those with a proven ability to generate above-average returns throughout any phase of the cycle," said Lanni.
