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FBR Cuts Integrated Producers' Estimated 4Q Earnings by 6%

Slightly lower-than-expected oil and natural gas prices and "largely negative" interim updates led energy analysts with Friedman, Billings, Ramsey & Co. Inc. (FBR) to reduce their 4Q2006 earnings forecasts on the integrated producers by 6%. The quarterly forecasts are now 13% below consensus expectations, FBR noted.

In a note to clients, FBR energy analysts Jacques Rousseau and Eitan Bernstein wrote that in their interim updates, "all of the producers discussed expectations for sequentially lower crude oil realizations and refining margins due to a weaker commodity price environment. Many of the producers, however, also reported various issues, which we expect may cause them to miss earnings expectations." Earnings report season for the energy sector will get officially under way in the next two weeks.

The analysts offered evidence of the expected earnings decline in a review of some of the integrated producers they cover. For example, Murphy Oil Co. expects 4Q2006 earnings of 40-45 cents/share, "well below" the current consensus estimate of 55 cents/share, noted the analysts. FBR reduced Murphy's estimated quarterly earnings to 45 cents/share, which is almost 30 cents lower than its previous estimate of 73 cents; the consensus estimate is 63 cents.

Marathon Oil Co. estimated that production sold in 4Q2006 was around 355,000 boe/d, which is below the 360,000 boe/d in total production available for sale. FBR is estimating Marathon's quarterly earnings at $2.03/share, which is 35 cents below the consensus of $2.38. Occidental Petroleum Corp., whose chemical operations are expected to be off, was cut 15 cents to 85 cents/share from $1; the consensus is $1.05/share.

BP plc's expected quarterly earnings were slightly lowered by FBR to $1.28/share from $1.33; the consensus is $1.45. Chevron Corp. also was cut slightly to $1.65/share from $1.70, below the consensus estimate of $1.83. ConocoPhillips' expected earnings were rated by FBR at $1.86/share, 20 cents lower than its original estimate of $2.06, and almost 40 cents lower than the consensus estimate of $2.20.

The lower quarterly earnings will result in a slide in full-year 2006 earnings for some integrateds, noted FBR. Those expected to take slight hits to the bottom line include Murphy, whose full-year earnings are now estimated at $3.17/share from $3.45; Oxy at $5/share from $5.15; BP at $6.30/share from $6.35; Chevron at $7.85/share from $7.90; and ConocoPhillips at $9.60/share from $9.80.

FBR raised the 4Q2006 and full-year earnings estimates for two of the integrated producers it covers: Hess Corp. and ExxonMobil Corp. Hess is now expected to earn 97 cents/share, up from 92 cents, and it is forecast to earn $5.55/share for the year, up from $5.50. Exxon's new forecast is $1.55/share in 4Q2006 earnings, which is six cents higher than FBR's original estimate of $1.49; Exxon is expected to earn $6.41/share for the year, ahead of a previous estimate of $6.35.

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