Oil Majors Report in Light of High Prices

Crude prices trended higher throughout the quarter, but will improved profits be returned to shareholders, or will there be more consolidation in the industry?

Handling the Cash Flow

In the wake of the high crude prices last year that came from the disruptions from the reaction to Russia's invasion of Ukraine, many oil majors opted to pass on the windfall profits to their owners. But, over the last few months, it appears some are opting for a new strategy: Use the extra profits to consolidate the industry. Examples are Exxon-Mobil's $56B acquisition of Pioneer and Chevron's recent $53B takeover of Hess. The shift suggests that these companies don't see peak demand approaching and are in it for the long haul. Investors might want to see which companies are still up for large buybacks if crude prices stay high.

Exxon-Mobil is expected to report on Friday, with earnings improving slightly to $2.15 on sales of $84.7B. The focus likely will be on the impact of the Pioneer acquisition on guidance, given that it was an all-share deal.

Chevron is also expected to report on Friday with top and bottom lines earnings expected to remain largely unchanged compared to the prior quarter at $3.15 in EPS on $48.8B in sales. The impact of the Hess acquisition, a major player in the Permian basin and has assets in fast-growing Guyana fields, will likely be the focus for investors.

BP will report earnings expected to rebound to $1.28 on lower sales of $52.1B next Tuesday. The company raised its EBITDA targets earlier in the month as it works to lower expenses, with a focus on energy transition. The earnings release could be an opportunity to address rumours that it was looking to exit its Senegal assets.

Shell will report next Thursday and is expected to see some recovery in its earnings to $1.86 despite sales expected to continue to slide to $65.1B. Focus is likely to be on the company's continued divestment program after rumours of several asset sales have circulated in the last month, despite the CEO insisting that the company's strategy remains unchanged.

Chevron Near Triangle Bottom

Chevron's share price has formed a running triangle pattern pending completion anywhere above the $150 threshold. Sliding lower may trigger additional short bets, bringing the low of $130 in focus and likely invalidating the symmetrical triangle. In such a scenario, the $200 peak might be the top until a deeper correction is completed. Otherwise, reclaiming $170 could open the door to record highs.

Source: SpreadEx

Key Takeaways

Oil majors are seeing improved profits due to high crude prices, but instead of returning the windfall to shareholders, they opt for industry consolidation. Examples include Exxon-Mobil's acquisition of Pioneer and Chevron's takeover of Hess, which suggests they are in for the long-term play. Investors are interested to see if they will still offer large buybacks, with Exxon-Mobil and Chevron's focus on their recent acquisitions' impact. BP will also report, addressing rumours of exiting its Senegal assets, whereas Shell will report on its divestment program continuance.