Integrated producers will report higher earnings sequentially compared with the first three months of 2009, but lower U.S. natural gas prices will weigh down the strong profit reports of a year ago, a Barclays Capital analyst said Tuesday.
Operating earnings for the integrated oil and gas sector are forecast to rise 12% sequentially in 2Q2009 from 1Q2009, but earnings are predicted to be off 64% year/year (y/y), according to Barclays. Upstream earnings are expected to fall 65% sequentially in the quarter from early this year.
Barclays analysts track 17 major oil companies within the integrated sector, including U.S.-based Chevron Corp., ConocoPhillips, ExxonMobil Corp., Hess Corp., Marathon Oil Co. and Murphy Oil Corp.
“While we think the 1Q2009 has marked the low point of the sector’s current earnings down cycle, 2Q2009 result appears to remain disappointing compared to their consensus expectations,” Barclays analyst Paul Y. Cheng wrote in an earnings preview note to clients. “Despite the sharp run-up in oil prices since early May, we believe results will be adversely impacted by a weaker worldwide natural gas market as well as a continuing weak refining and marketing margin environment.”
Because of the recent overall gains in oil prices, which were slumping early this week, Barclays raised its 2009 and 2010 oil price assumptions (West Texas Intermediate spot basis) to $57-75/bbl from $50-70. Barclays “modestly” lowered its North American natural gas price assumptions for 2009 to $4.35/Mcf and for 2010 to $5.74.
According to Barclays, U.S. gas production by the integrated group is expected to fall 7% sequentially in 2Q2009 to 1,971 MMcf/d from 2,119 MMcf/d, and to fall 8% y/y from the 2,132 MMcf/d reported in 2Q2008.
In related news, Standard & Poor’s Ratings Services (S&P) Tuesday lowered the credit ratings of three energy companies: Key Energy Services Inc., Complete Production Services and Forbes Energy Services LLC.
“The rating actions primarily reflect our expectations that industry conditions, particularly natural gas, will remain weak for the rest of the year and possibly well into 2010, continuing to constrain an already weak financial performance,” said S&P credit analyst Thomas Watters.
Meanwhile, ConocoPhillips expects to report higher output in 2Q2009 because of the start-up of some global projects. However, lower gas prices and refining margins likely will impact quarterly results, the Houston-based producer said in an interim update. Oil and gas output is expected to reach 1.86 MMboe/d in 2Q2009, compared with 1.75 MMboe/d in 2Q2008. Production will be down sequentially from 1Q2009’s 1.93 MMboe/d average because of maintenance outages, the company said.
Exploration expenses are expected to be about $225 million before taxes, the company said. ConocoPhillips is scheduled to report earnings July 29.
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