Six oil and gas majors will report second-quarter financials this week, with earnings expected to trend higher on the back of higher crude prices and robust refining margins, said Wood Mackenzie Ltd. Based on its expectations going into the second quarter, the majors are set to achieve cash flow neutrality at an average of $55/bbl in 2018 after dividends and buybacks. Despite growing profitability, the firm expects messages of capital discipline and offered themes to look for next week.
Balance sheet strength: Bringing down gearing will remain a top priority for Royal Dutch Shell PLC (progress on the disposal program will help), BP PLC (second-quarter Macondo payments will impact) and Equinor SA (gearing could be up on the back of recent acquisitions). Less of a concern for ExxonMobil Corp., Chevron Corp., Eni SPA, and Total SA, which reported gearing below 20% at the end of the first quarter.
Investment and costs: Expect adherence to tight capital budgets set at the start of the year; revisions are more likely to be down than up. There will be more evidence of falling conventional breakevens paving the way for new project sanctions.
Key project updates: Most of the majors have trumpeted strong growth prospects, and investors will want to hear positive news on the likes of Zohr (Eni and BP), Guyana (ExxonMobil), Johan Castberg (Equinor and Eni), Tengiz (Chevron and ExxonMobil), Appomattox (Shell) and Icthys (Total). Tight oil growth will be a focus for Chevron and ExxonMobil. There will be questions on presanction LNG projects—LNG Canada (Shell), Mozambique (ExxonMobil and Eni), Arctic LNG-2 (Total), and Mauritania-Senegal (BP)—but no big announcements just yet.
Disposal programs: Shell will come within a whisker of its $30-billion disposal target, having closed $4.8 billion of deals in the second quarter. Additional announcements could be imminent, with reports last week of a possible $2-billion disposal onshore Nigeria. BP will be questioned on the pace on its disposal program. WoodMac thinks other majors could step up restructuring: Chevron and (perhaps) Total are selling in Europe; Equinor could look to offset recent acquisitions; opportunity-rich ExxonMobil could be poised for a phase of high-grading.
As for US independents, WoodMac said, second-quarter results will focus on exposure to Permian basin challenges such as export bottlenecks and Midland price differentials. Analysts will want detail on firm pipeline capacity, truck, and rail takeaway options. WoodMac expects differentials to stay wide (averaging around $7/bbl) until fourth-quarter 2019, when new pipeline capacity will provide relief. Bad news on parent-child wells, gas-oil ratios, or steep decline rates would further damage confidence following operational hiccups of second-quarter 2017.