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While energy stocks outperformed other sectors last quarter, Wall Street anticipates lower annualized profits from giants like Chevron (CVX) and ExxonMobil (XOM) when they report quarterly results this Friday — in part due to falling natural gas prices and lower refining margins during the first three months of the year.
Investors will also be looking for updates on the oil majors’ prospective acquisitions, including Exxon’s dispute over the Chevron-Hess (HES) deal.
Chevron’s first quarter adjusted profit is expected to come in at $2.90 per share, roughly 18% lower than the same period last year, with revenue of $49.17 billion, according to Bloomberg estimates.
ExxonMobil’s top line revenue is expected at $80.25 billion, with adjusted earnings of $2.19 per share, down 22% from a year ago.
On average, crude prices were slightly higher in the first quarter of this year compared to last year. The biggest price action came in mid-March when West Texas Intermediate prices broke out above $80 amid rising geopolitical tensions.
“The usual suspect for moves in operating EPS — crude oil prices — is not the key this time around,” Stewart Glickman, energy equity analyst at CFRA Research, told Yahoo Finance.
“Natural gas prices are down about 20% year over year, and nat gas makes up about one-third of production of hydrocarbons. It does not help matters that refining margins, while decent, have come way down from the highs of early 2023,” he added.
Natural gas is commonly produced when drillers extract oil, making the supply glut even worse.
“Strong WTI pricing comes at an unwelcome time for US gas producers who are already dealing with significant oversupply in the US gas market,” FactSet senior energy analysts Connor McLean and Trevor Fugita noted earlier this week.
Most Wall Street analysts expect oil to stay above the $80 level for the time being.
“There is the potential for the Energy Sector as a whole to continue to perform, based on oil trading over $80 a barrel,” Sean O’Hara, president of Pacer ETF Distributors, told Yahoo Finance.
For the second quarter, FactSet projects earnings growth of 14.6%, while in the third and fourth quarters, it is calling for profit declines of 2.7% and 0.2%, respectively, as crude comes off its peak.
The topic of recent mergers is likely to surface during Big Oil’s earnings calls, given ExxonMobil’s dispute over Chevron’s plan to buy Hess and its most valuable asset, a 30% stake in an oil-rich block off the coast of Guyana.
ExxonMobil holds a 45% interest in the prolific block. ExxonMobil says it has the right of first refusal for Hess’s stake and recently filed for arbitration after initial talks ended.
Chevron’s $53 billion proposal to buy Hess came more than a week after ExxonMobil said it intended to buy Pioneer Natural Resources (PXD) for almost $60 billion last year. The acquisition will allow ExxonMobil to double its footprint in the Permian Basin, the largest oil-producing region in the US.
On Thursday, Hess posted better-than-expected first quarter results thanks to a 70% bump in production in Guyana. The results bode well for ExxonMobil, given its stake in the region.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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