First-quarter earnings reports are in, and the world's biggest
oil companies are reporting mixed results.
), the largest producer of natural gas in the US,
quarterly earnings of $9.10 billion, down 4.2% from $9.50 billion
in the same quarter a year ago. Yet it
beat Wall Street expectations
, owing to a spike in
during the winter and a boost in its quarterly dividend. The brutal
winter in the eastern US drove natural gas prices up, giving the
company more revenue than expected.
Royal Dutch Shell
(NYSE:RDS.A) also beat expectations, allowing its stock price to
jump 3% after reporting. But in a sign of just how low expectations
have fallen, Iain Pyle, an analyst with Bernstein Research, said
Shell's latest quarter "was kind of a quarter where everything went
right," but still saw its profit decline by 44% in the first
quarter compared to a year earlier, according to the
Wall Street Journal
) is due to publish its earnings on May 2, and investors have
welcomed its announcement that it's boosting its quarterly dividend
by 7%. However, the company issued an interim report in April and
that things weren't going so well. Chevron also had a very bad
net income for the fourth quarter dropped
) saw its quarterly earnings drop to $3.2 billion, a 24% drop from
a year ago, but a 14% jump from last quarter. Its stock price
climbed by 2.5% as BP also announced an increase in the quarterly
The results come as business activities are being complicated by
geopolitical events. The escalating Western sanctions on Russia
over its actions in Ukraine have injected uncertainty into the huge
investments that BP, Shell, and ExxonMobil have in Russia. "I don't
think we will be jumping into new investments in the short term,"
Royal Dutch Shell's chief financial officer, Simon Henry,
said in a conference call
on April 30.
From an investor's standpoint, the earnings reports highlight a
troubling trend: Several big companies are experiencing stagnating
or declining oil production. ExxonMobil's quarterly production on
an oil-equivalent basis
year-on-year. Shell's was down 4% over the same time frame. BP
reported an 8.5% decline.
) had a modest decline.
"These companies are spending a lot of money and they aren't seeing
the returns," said Brian Youngberg, an analyst at Edward Jones,
according to the
Los Angeles Times
Ultimately, the huge problem is the difficulty in finding new
sources of oil. "Like its peers, (Exxon) is growth-challenged on
the production front," Youngberg added.
With fewer major new discoveries coming in, and legacy wells flat
or declining, oil companies are seeing the cost of a barrel of oil
rising. Their response appears to be moving to leaner operations,
avoiding huge, expensive projects, and returning profits to
shareholders. ExxonMobil slashed capital expenditures by 28% for
the quarter. Shell is undergoing a two-year, $15 billion
divestiture campaign. BP plans on
divesting $10 billion
from its Alaskan assets and returning much of the cash to
Divestment has led to a flurry of deals in the first quarter -- the
most in over a decade, in fact. "Divestitures are driving
activities as companies continue to back their core operations,"
said Doug Meier of PricewaterhouseCoopers, according to
. "They're shedding those noncore assets to reinvest in their core
business or make profits available to shareholders."
The inability to boost production has the companies spending less
on new projects to reduce costs. This may soothe the concerns of
investors in the short term, but it means that the companies won't
be able to lift production over the long term. In any event, we may
be hitting an inflection point; Big Oil's size may have peaked, and
to stay profitable, companies have no choice but to shrink.
This article was written by
Nicholas Cunningham of