EARNINGS PREVIEW: US Oil Majors' 2Q Net Seen Aided By Refining

19th Jul 2010 17:11

By Isabel Ordonez Of DOW JONES NEWSWIRES TAKING THE PULSE: Second-quarter earnings of major U.S. oil companies are expected to be higher than in the previous quarter, driven mainly by improved refining margins, which benefited from a stronger demand for fuel in the three months ended June 30. The refining sector has slowly recovered in recent months after being badly hit last year by a sharp drop in fuel demand caused by the recession. Oil majors' quarterly results are not expected to reflect negative effects associated with the massive oil spill in the U.S. Gulf of Mexico, which began in late April when a rig leased by BP PLC (BP, BP.LN) blew up and sank. A six-month federal drilling moratorium in the Gulf's deep water hasn't delayed any production in the area, but analysts will be curious to know companies' view on the impact of new regulations expected to follow the leak on their operations. COMPANIES TO WATCH: Exxon Mobil Corp. (XOM) reports July 29 Wall Street Expectations: Analysts polled by Thomson Financial, on average, expect the Irving, Texas, company to report earnings of $1.45 a share for the second quarter on revenue of $98.4 billion. A year earlier, Exxon Mobil earned 84 cents a share, excluding items, on revenue of $74.5 billion. Key Issues: The world's largest publicly traded oil company closed its merger with U.S. natural gas producer XTO Energy Inc. in June. But the $25 billion deal has raised concerns among investors about its likely dilutive effect on Exxon Mobil's earnings per share and return on capital employed. The company announced this month it will increase its third-quarter share-repurchase program to $3 billion from $2 billion, but investors expected a bigger boost in order to compensate for the projected short-term negative effect of the deal. Analysts are likely to ask for more details about how Exxon is going to capitalize on the acquisition. The company's management is likely to also be queried on the veracity of recent press reports that said the company is interested in acquiring BP. Chevron Corp. (CVX) reports July 30 Wall Street Expectations: Analysts expect the San Ramon, Calif., company to report earnings of $2.37 a share on revenue of $52.5 billion, compared with earnings of 87 cents a year earlier on revenue of $40.2 billion. Key Issues: Chevron said this week its second-quarter earnings would be higher than the first quarter's mainly due to improved refining margins and the stronger dollar. The forecast led several analysts to increase their quarterly earnings estimates. Analysts could query about the effects the drilling moratorium could have on Chevron's drilling and investment plans in the Gulf of Mexico. The company may also be asked to offer details about a criminal probe launched this week by Kazakhstan, where the government has been increasing the pressure on international oil companies. Kazakhstan's financial police alleged that the Tengizchevroil concession, part-owned by Chevron and Exxon Mobil, produced more oil than its license allowed. ConocoPhillips (COP) reports July 28 Wall Street Expectations: Analysts expect the Houston company to report earnings of $1.57 a share for the second quarter on revenue of $48 billion. A year earlier, ConocoPhillips earned an adjusted 97 cents a share on revenue of $35.4 billion. Key Issues: ConocoPhillips is expected to provide more details about its $10 billion asset sale aimed to shore up its finances. Conoco announced in April the sale of its stake in the Syncrude oil sands project in Canada to China Petroleum & Chemical Corp. (SNP, 0386.HK), or Sinopec, for $4.65 billion. Analysts would like to know if the sale of other assets expected in the fourth quarter, such as the company's stake in the Rockies Express natural gas pipeline and 10% of its portfolio in the lower 48 states and western Canada, is on schedule. Analysts are also likely to ask management for details on the status of the sale of half of Conoco's 20% stake in Russian oil company Lukoil Holdings (LUKOY, LKOH.RS). (The Thomson Reuters estimate and year-earlier earnings may not be comparable due to one-time items and other adjustments.) -By Isabel Ordonez, Dow Jones Newswires; 713-547-9207; [email protected] (END) Dow Jones Newswires July 19, 2010 12:11 ET (16:11 GMT)