The energy sector has enjoyed bumper profits in the current year, with Big Oil companies setting records right, left and center.
ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX) and Shell (NYSE: SHEL) together brought in $46 billion in earnings in the second quarter, with all three setting new records for quarterly earnings. However, the outlook going forward is not quite as rosy.
It’s early innings into the earnings season, with just 7% of S&P 500 companies having reported third-quarter 2022 earnings.
Unlike the first two quarters of the year, the current one is shaping up as another disappointing show despite 69% of S&P 500 companies having reported a positive EPS surprise and 67% having reported a positive revenue surprise.
According to the latest FactSet earnings insight report, the blended earnings growth rate for the S&P 500 is expected to clock in at a measly 1.6%, marking the lowest earnings growth rate reported by the index since Q3 2020 (-5.7%).
At least nine sectors, including energy, have downgraded their earnings expectations for the quarter, an indication of a deteriorating macro-economic outlook.
Indeed, FactSet says that downward revisions to revenue estimates for companies in the Energy sector have been a substantial contributor to the decline in the overall revenue growth rate for the S&P 500.
Still, the Energy sector is expected to report the highest earnings growth of all eleven sectors at 119.4%. Higher year-over-year oil prices are contributing to the year-over-year improvement in earnings for this sector, as the average price of oil in Q3 2022 ($91.43) was 30% above the average price for oil in Q3 2021 ($70.52). At the sub-industry level, all five sub-industries in the sector are expected to report a year-over-year increase in earnings of more than 20%:
Oil & Gas Refining & Marketing (273%); Oil & Gas Exploration & Production (116%); Integrated Oil & Gas (106%); Oil & Gas Equipment & Services (73%); and Oil & Gas Storage & Transportation (23%).
The Energy sector is also poised to be the top contributor to S&P 500 earnings growth for the third quarter in a row. If this sector were excluded, the index would be expected to report a decline in earnings of 4.9% rather than growth in earnings of 1.6%.
Big Oil Earnings
On a company level, several Big Oil companies are expected to return their Q3 2022 scorecards in the coming weeks.
Exxon Mobil Corporation is expected to report earnings on 10/28/2022 before the market opens.
The report will be for the fiscal Quarter ending Sep 2022. According to Zacks Investment Research, based on 9 analysts’ forecasts, the consensus EPS forecast for the quarter is $3.59, a big improvement compared to $1.58 posted for last year’s corresponding period.
Chevron Corporation is expected to report earnings on 10/28/2022 before the market opens. The report will be for the fiscal Quarter ending Sep 2022.
According to Zacks Investment Research, based on 8 analysts’ forecasts, the consensus EPS forecast for the quarter is $5.06 vs. $2.96 for Q3 2021.
ConocoPhillips (NYSE: COP) is expected to report earnings on 11/03/2022 before the market opens. The report will be for the fiscal Quarter ending Sep 2022.
According to Zacks Investment Research, based on 7 analysts’ forecasts, the consensus EPS forecast for the quarter is $3.74 vs. $1.77 for Q3 2021.
BP Plc. (NYSE: BP) is expected to report earnings on 11/01/2022 before the market opens. The report will be for the fiscal Quarter ending Sep 2022.
Zacks Investment Research further states that based on 4 analysts’ forecasts, the consensus EPS forecast for the quarter is $2.13 vs. $0.99 for Q3 2021.
Royal Dutch Shell Plc. (NYSE: SHEL) is estimated to report earnings on 10/27/2022. According to Zacks Investment Research, based on 3 analysts’ forecasts, the consensus EPS forecast for the quarter is $3.18. The reported EPS for the same quarter last year was $1.06.
TotalEnergies SE (NYSE: TTE) is estimated to report earnings on 10/27/2022. According to Zacks Investment Research, based on 3 analysts’ forecasts, the consensus EPS forecast for the quarter is $4.27 compared to $1.76 for Q3 2021.
Energy Sector Earnings Set To Ease In 2023, but Watch OFS
Unfortunately, slowing growth is expected to remain the main theme in the coming year. In a recent Moody’s research report, analysts say they have changed their outlook for the Global Energy sector to stable from positive.
According to the report, industry earnings will stabilize overall in 2023, but remain below levels reached by recent peaks.
The analysts note that commodity prices have declined from very high levels earlier in 2022, but have predicted that prices are likely to remain cyclically strong through 2023.
This, combined with modest growth in volumes, will support strong cash flow generation for oil and gas producers.
Moody’s estimates that the U.S. energy sector’s EBITDA for 2022 will clock in at $$623B but fall to $585B in 2023.
The analysts say that low capex, rising uncertainty about the expansion of future supplies and high geopolitical risk premium will, however, continue to support cyclically high oil prices.
Meanwhile, strong export demand for U.S. LNG will continue supporting high natural gas prices.
One particular standout from that report is how bullish the analysts are about the Oil Field Services (OFS) sector.
“Rising demand for oilfield services (OFS) amid some growth in drilling and completion activity will continue to boost pricing power and will support material growth in earnings for OFS companies,” the analysts wrote.
While discipline will still be the name of the game with regard to capacity, Moodys says pricing power will continue to strengthen next year, “allowing OFS companies to expand profit margins, even with labor and materials cost inflation”.
Moodys also expects improved profit margins for OFS from increasing day rates for onshore and offshore rigs, as well as higher future rates as customers renew contracts.
U.S. rigs are up by some 30% since January, and recovering to around 95% of their January 2020 levels, according to the report.
OFS companies have been reporting that drilling and well completion activity as well as pricing have been edging higher, while roughnecks are also saying they are seeing an increase in job offers.
Oilfield workers were some of the hardest hit demographic by the Covid-19 pandemic in 2020. Nationally, the oil and gas industry is estimated to have lost 107,000 jobs as per global consulting firm Deloitte, with an estimated 200,000 roughnecks losing their jobs at the height of the global lockdowns.
By: Alex Kimani
Kimani reports for Oilprice.com
DAPPMAN Raises Concern Over FG’s New Tax Regime
The Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) has expressed concern over the new 0.5 per cent tax on gross turnover of the petroleum marketing firms proposed by the Federal Government.
Executive Secretary, DAPPMAN, Mr Olufemi Adewole, said at the maiden edition of the Platforms Africa Continental Forum in Lagos, that the tax would put many firms out of business.
Adewole said there were indications that fuel distribution crisis may soon hit the country, if the government implemented the new tax regime.
He was emphatic that more than half of the fuel marketing firms in Nigeria would close down, if the tax burden was slammed on them.
According to him, the imminent closure of businesses poses threat to the smooth distribution of petroleum products across the country.
“The petroleum marketing firms’ trading margin is too small that they cannot pay such amount sustainably.
“Petroleum marketers operate a very low margin but the turnover is very huge. Unfortunately the margin does not correspond with the turnover,” said Adewole.
He added that the margins they made when fuel sold at N40 per litre was the same when the price rose to N160 per litre and N200 per litre respectively.
According to him, “The Finance Act 2020 says the marketers have to pay 0.5 per cent from their gross turnover by the end of this year.
“It is unimaginable that probably half of the petroleum marketing firms existing now may go under, if the new tax regime is implemented.
“Except the regulator which is Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) approves a new margin for the marketers.”
He said the association had called on government to give petroleum marketers access to foreign exchange at the official Central Bank of Nigeria (CBN) rate to enhance the supply and distribution of Premium Motor Spirit (PMS) across the nation this yuletide season.
According to DAPPMAN, shortage of foreign exchange (forex) coupled with several unauthorised levies, bad roads are among the factors making fuel importation and distribution burdensome for members.
The Tide source reports that the fuel marketers recently bemoaned the acute scarcity of forex in the official market, which is currently threatening the importation, distribution and impacting deeply on prices of petroleum products across the country.
Niger Wants NNPCL To Establish Truck Transit Parks
Niger State Government has urged the Nigerian National Petroleum Company Ltd. (NNPCL) to establish truck transit parks in some strategic parts of the state to reduce traffic on highways.
The government identified towns such as Tafa, Suleja, Mokwa, Bida, Tegina, Lambata and Minna as major areas to be given attention in that regard.
The Permanent Secretary in the Ministry of Mineral Resources in Niger State, Alhaji Abubakar Idris, made the call during the meeting of National Council on Hydrocarbons organised by the Ministry of Petroleum Resources in collaboration with the State Government.
According to him, the establishment of the parks in the identified areas will reduce traffic on highways and generate revenue for the state and country at large.
In the meeting entitled: “Roadmap and Strategic Option towards achieving energy transition in Nigeria”, Idris presented a memorandum from the State Government to the council on the need for the establishment of the transit parks.
He explained that it would also create a partnership between the state and federal government to reduce the negative effects of heavy road traffic on highways.
He explained further that the trucking industry was indispensable to the Nigerian economy as “truckers are responsible for delivering fuel from depots to filling stations where they are dispensed.
“For these reasons, funds need to be released to build truck parks for ease of operations”, he said.
He also called for the establishment of a frontier basin development commission with its headquarters in Niger State.
According to him, the establishment of the commission will expedite the effective implementation of Petroleum Host Community Trust Fund and frontier basin exploration fund as captured in the Petroleum Industry Act 2021 with headquarters in Niger.
He said Nigeria’s frontier basins consist of Anambra basin, the lower, middle and upper Benue trough, the South eastern sector of the Chad basin, the Mid-Niger (Bida) basin and Sokoto basin.
According to him, the basins would be better positioned for the opportunities in the hydrocarbons natural gas, oil and other minerals.
He noted that the establishment of frontier basin development commission would offer greater opportunities to actualise the state dream of oil and gas economic value-chain and industrialisation in Nigerian frontier basins.
Motorists Groan Over Fuel Scarcity
Long queues resurfaced in Lagos as motorists spent hours at filling stations to buy Premium Motor Spirit (PMS), popularly known as petrol.
The situation was worse on Ikorodu Road, Maryland, Ikeja, Anthony, Bariga, Ilupeju and Gbagada areas as motorists were agitated for spending hours on queues.
The Tide source reports that the development left commuters stranded with gridlocks in major areas of Lagos as motorists queued to buy the product.
The source also reports that only filling stations owned by Major Oil Marketers Association of Nigeria (MOMAN) had petrol and sell at the regulated price of N170 per litre.
Some stations owned by Independent Petroleum Marketers Association of Nigeria (IPMAN) sell between N200 and N210 respectively.
A motorist, who identified himself as Mr Foluso Saliu, told the source that he had been on the queue since 6.30 a.m. hoping to get fuel and return to work.
He said government should find a lasting solution to petrol supply in Lagos to avoid panic-buying.
“Scarcity has been frequent during the ember months and l hope it will be addressed,” he said.
Another motorist, Mr Julius Albert, urged filling stations to avoid selling petrol in jerry cans to allow vehicles to buy on time.
Albert appealed to the government to fully deregulate the downstream sector of the petroleum industry if that was the solution to availability of petrol without stress.
According to him, the product seems to be available in some filling stations but they choose to hoard it and sell at higher prices.
Queues were seen at Mobil, NNPC, Conoil, Oando and Nipco filling stations on Ikorodu Road.
Also, queues were cited at TotalEnergies, TMAAC on Bank Anthony Road and Conoil, opposite LASUTH.
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