Earnings Season Preview: What to Expect in Oil and Gas
Earnings season is upon us once again. We at The Motley Fool don't really believe in judging a company's worth simply based on a quarterly earnings release, though it does give us an idea of how things have been shaping up in the industry over the past three months.
The oil and gas industry has, in general, been on a roll, thanks to higher prices realized in the energy market earlier this year. The Libyan crisis and other geopolitical events ensured that oil and gas companies increased its profits big time in the first two quarters of the year. But then, the tables can always turn. Thanks to the fears of another recession, the third quarter doesn't seem to hold the same set of fortunes.
Source: Standard & Poor's; 2011 Q3 is an estimate.
Since the after-effects of the brutal recession, the general earnings trend has been an upswing. Oil and gas companies in particular, have enjoyed record profits. Additionally, thanks to an increasingly bullish outlook for natural gas, demand has been created that has registered profits for natural gas companies.
However, analysts on the Street are seemingly less bullish about the third quarter, predicting a 3.2% drop in earnings as compared with the previous quarter. Given the weak outlook prevailing across developed economies, this doesn't come as a surprise. Still, on a year-over-year basis, energy companies are predicted to record earnings growth by an eye-catching 50%. Schlumberger (NYS: SLB) kicked things off last week with an earnings miss but still grew sales by 49% year-over-year.
Some of the well-known names in the oil and gas industry will start reporting their results in a week's time. Here's a breakdown.
Expected Reporting Date
Reported EPS Last Quarter
|National OilwellVarco (NYS: NOV)||Oct. 25||$1.16||$0.96||$1.13|
|ConocoPhillips (NYS: COP)||Oct. 26||$2.17||$2.05||$2.41|
|ExxonMobil (NYS: XOM)||Oct. 28||$2.12||$1.44||$2.18|
|Chevron (NYS: CVX)||Oct. 28||$3.41||$1.87||$3.85|
|Williams (NYS: WMB)||Nov. 1||$0.41||($2.15)||$0.39|
|Valero Energy (NYS: VLO)||Nov. 1||$1.68||$0.51||$1.30|
|El Paso (NYS: EP)||Nov. 2||$0.26||$0.19||$0.34|
|Devon Energy (NYS: DVN)||Nov. 2||$1.52||$0.98||$0.43|
|Chesapeake Energy (NYS: CHK)||Nov. 3||$0.67||$0.75||$0.68|
|SandRidge Energy (NYS: SD)||Nov. 3||$0.01||$0.73||$0.42|
|Kodiak Oil & Gas (NYS: KOG)||Nov. 3||$0.07||$0.00||$0.08|
|EOG Resources (NYSE: EOG )||Nov. 4||$0.78||($0.28)||$1.10|
|Denbury Resources (NYS: DNR)||Nov. 4||$0.29||$0.07||$0.64|
Source: S&P Capital IQ.
Analysts expect the big names in the E&P space to struggle to post earnings growth. However, the up-and-coming and mid-cap companies seem to be worse off -- notably SandRidge Energy and Denbury Resources. But shale-gas pioneer Devon Energy seems to buck the trend.
However, oil services and pipeline companies are looking good in these analysts' books. With an anticipated surge in natural gas demand paving the way for further drilling, the services and transportation segments are bound to see a proportional increase in demand. No prizes for guessing which of the companies are leading the way -- the giants, Schlumberger and .
Foolish bottom line
Of course, these aren't the only companies operating in this industry. But the general trend seems to be pretty definitive. Given the fall in oil prices over the past two months, upstream companies won't be able to crow about a growth in earnings simply based on market conditions. The companies that simply rode on their luck may be in for a hard landing. That's what prompts me to look out for companies with sound business models. If you're looking for other great stocks to profit off the energy boom, check out The Motley Fool's special report, "3 Stocks for $100 Oil" -- for free.
At the time this article was published Fool contributor Isac Simon owns no shares of any of the companies mentioned in this article. The Motley Fool owns shares of Devon Energy, National Oilwell Varco, and Denbury Resources.Motley Fool newsletter serviceshave recommended buying shares of National Oilwell Varco, Chevron, and Chesapeake Energy. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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