Energy stocks outperformed other sectors last quarter, but Wall Street expects annualized profits to decline for major companies like Chevron (CVX) and Exxon Mobil (XOM), which report quarterly results this Friday. ing. That's partly due to lower natural gas prices and lower refining margins in the first quarter. three months out of the year.
Investors will also be watching for updates on the oil major's acquisition plans, including Exxon's dispute over the Chevron-Hess (HES) deal.
Chevron is expected to report first-quarter adjusted earnings of $2.90 per share, down about 18% from a year ago, on revenue of $49.17 billion, according to Bloomberg estimates.
ExxonMobil's revenue is expected to be $80.25 billion and adjusted earnings to be $2.19 per share, down 22% from a year ago.
On average, oil prices in the first quarter of this year were slightly higher than last year. The biggest price move occurred in mid-March, when the price of West Texas Intermediate rose above $80 amid heightened geopolitical tensions.
“Oil prices, which are always suspect in operating EPS movements, are not the key here,” Stewart Glickman, an energy equity analyst at CFRA Research, told Yahoo Finance.
“Natural gas prices have fallen about 20% year-on-year, and natural gas accounts for about one-third of hydrocarbon production.Although refining margins are reasonable, prices have fallen significantly from the highs of early 2023. “That doesn't solve the problem,” he added.
Natural gas is typically produced when drillers extract oil, further exacerbating the oversupply.
“Higher WTI prices are a boon for U.S. gas producers, who are already dealing with a significant oversupply in the U.S. gas market,” FactSet senior energy analysts Conor MacLean and Trevor Fujita wrote earlier this week. It's happening at the wrong time,” he said.
Many Wall Street analysts expect oil prices to remain above $80 for some time.
“Based on oil trading above $80 a barrel, we could see continued performance across the energy sector,” Sean O'Hara, president of Pacer ETF Distributors, told Yahoo Finance.
FactSet expects profit growth of 14.6% in the second quarter, but 2.7% and 0.2% in the third and fourth quarters, respectively, as oil prices have peaked. % decline in profit.
Talk of a recent merger surfaced during Big Oil's earnings call, given ExxonMobil's controversy over Hess and Chevron's plan to buy the company's most valuable asset, a 30% stake in an oil-rich block off the coast of Guyana. There is a high possibility that it will.
ExxonMobil holds a 45% interest in this prolific block. ExxonMobil says it has a first right of refusal on the Hess stock and recently filed for arbitration after initial negotiations concluded.
Chevron's $53 billion offer to buy Hess comes more than a week after ExxonMobil last year announced its intention to buy Pioneer Natural Resources (PXD) for about $60 billion. This acquisition will allow ExxonMobil to double its footprint in the Permian Basin, the largest oil-producing region in the United States.
On Thursday, Hess announced better-than-expected first-quarter results thanks to a 70% increase in production in Guyana. This result bodes well for ExxonMobil, given its interests in the region.
Ines Ferre is a senior business reporter at Yahoo Finance. Follow her on Twitter @ines_ferre.
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