Oil Company Earnings Preview: Expect a Gusher of Profits
On Tuesday, BP reported replacement-cost profits of $5.6 billion, versus $2.4 billion during the same period last year. Impressively, the company was able to more than double its profits, even though its oil production remained flat. The doubling of crude prices from about $40 per barrel in the first quarter last year to more than $80 per barrel this year had a lot to do with BP's success.
But BP also did a good job of finding new sources of black gold in an environment that has seen many refineries shuttered or damaged by strikes, natural disasters, accidents and other mishaps. These new discoveries allowed the company to maintain or cut its costs of production. Other companies may not fare as well.
ConocoPhillips and ExxonMobil Up Next
Valero (VLO) surely didn't, reporting a $113 million loss on Tuesday. Morningstar equity analyst Allen Good said heavy maintenance costs at several refineries were the primary reason for the loss. The company recorded profits of $309 million during the first quarter last year.
Thursday, major industry players ConocoPhillips (COP) and ExxonMobil (XOM) are expected to report earnings, followed by Chevron (CVX) on Friday. Together, the three companies account for more than half of the earnings in the entire energy sector.
Most analysts are predicting earnings for all three oil big-wigs will trend higher, largely because they dominate oil production. With the price of crude higher, their revenues should also be higher.
However, IBISWorld senior industry analyst Toon van Beeck points out that, "The higher [oil] prices will lead to higher revenue, but whether that translates into greater profitability is not assured... we need to see oil back at $100 in order to see them reaping massive profits."
Chevron Is Fighting Negative Publicity
Still, ConocoPhilips, ExxonMobil and Chevron are all expected to show profits in the first quarter, with very little problems. The companies have dealt with some adversity, but not enough to disrupt their rebounding from 2009. Chevron is fighting negative publicity from a multi-billion dollar liability case due to an environmental catastrophe in Ecuador.
Meantime, ExxonMobil has had to deal with the costs of refinery repairs in Texas and expansion efforts around the globe. ConocoPhillips abandoned a refining joint venture with Aramco in Saudi Arabia.