Despite Weak Crude Prices, Big Oil’s Profits Set To Rise (XLE)

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July 27, 2017 6:24am NYSE:XLE

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From Tsvetana Paraskova: Despite the fact that oil prices have failed to materially rise six months after the OPEC cuts started, the world’s five biggest non-state oil companies are expected to report increased profits for the second quarter this year compared to Q2 2016, analyst estimates compiled by Bloomberg show.


U.S. supermajors Exxon and Royal Dutch Shell Plc are expected to report later this week that Q2 net earnings more than doubled from the same quarter last year–a much higher increase than the 8-percent gain in Brent price, according to analyst estimates. The other U.S. supermajor, Chevron, is projected to return to a US$1.7-billion profit in Q2 2017 from a loss of US$1.47 billion for Q2 last year. France’s Total SA is seen slightly raising profits compared to last year, but it would be its third consecutive quarter of annual rises in profits, according to the estimates that Bloomberg compiled.

Thanks to higher oil prices in the first quarter this year, the major oil and gas companies reported much higher profits–beating estimates–compared to the first quarter last year, when oil prices had slumped to below US$30.

According to analysts at Sanford C. Bernstein, cash flows are expected to rise and the largest oil companies will be able to pay out dividends with the cash flows they generate, and eliminate scrip dividends–dividends paid in shares instead of in cash–which should bolster investor returns and confidence.

Big Oil is now more disciplined in spending and is conservatively assuming that lower will be for longer.

Earlier this month, BP’s CEO Bob Dudley told CNBC that “for us, we’re going to plan around ($)50 for five years, get the discipline and the capital discipline in place, get our costs down and we will get our break-evens well into the 30s.”

At the end of last year, Wood Mackenzie predicted that the oil majors would continue to trim investment in projects, which is expected to drop 8 percent this year.

The Energy Select Sector SPDR ETF (NYSE:XLE) rose $0.12 (+0.18%) in premarket trading Thursday. Year-to-date, XLE has declined -11.40%, versus a 11.72% rise in the benchmark S&P 500 index during the same period.

XLE currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #14 of 37 ETFs in the Energy Equities ETFs category.


This article is brought to you courtesy of OilPrice.com.


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