Shares of three top oil majors -- ExxonMobil (XOM 2.35%), Chevron (CVX 3.06%), and Royal Dutch Shell (RDS.A) (RDS.B) -- fell by double-digit percentages in January. Exxon's stock was off 11% for the month, Chevron's slipped by 11.1%, and Shell's shares were down 11.6%.
The oil majors might have squeaked by with only single-digit losses if Shell hadn't reported rough earnings on Jan. 30, followed by Exxon and Chevron posting similarly poor results the next day. The market punished shares of all three.
It's tough to remember now, but oil prices had been on a three-month uptrend during Q4 2019. Brent crude went from $60 per barrel at the beginning of October to $67.77 at the end of December, a 12.8% gain. WTI crude spot prices fared even better, rising 14.1% from $53.57 per barrel to $61.14.
That uptick peaked following the U.S. drone strike that killed Iranian general Qassem Soleimani, with Brent crude at $70.25 per barrel and WTI crude at $63.27 per barrel on Jan. 6. That was also the peak for the oil majors' stocks; it's all been downhill since then. Concerns about global oversupply and fears about how COVID-19 might impact economic growth helped push prices lower. By the end of the month, Brent crude was 17.8% off its Jan. 6 peak at $57.77 per barrel, and WTI crude had fallen 18.4% from its high to $51.58 per barrel.
Those end-of-month prices are significant because they're lower than they were at any point during Q4. With the oil majors reporting disappointing numbers from their production divisions at fourth-quarter prices, the market is expecting even worse performance in Q1.
Ordinarily, the oil majors could offset underperformance in their oil production segments with income from their other operations, like natural gas production, refining, or petrochemical sales. Indeed, Shell managed to pull off just such a stunt a year ago, when surging natural gas profits in Q4 2018 offset weak oil prices to power the company to outperformance.
Unfortunately, in Q4 2019, there just wasn't anywhere to hide. After a brief surge in late October, natural gas spot prices trended lower throughout the quarter, and fell even further in January. Refining margins were also down, as were petrochemical prices. As a result, all three majors' results underperformed their year-ago quarters.
At first glance, Exxon's Q4 2019 results didn't look all that bad, with revenue down 6.5% year over year and net income declining just 5% from Q4 2018. However, those numbers included $3.7 billion in proceeds from a big Norwegian asset sale. If you don't count that windfall, net income would have dropped by 66% instead. The silver lining for ExxonMobil was flat production -- it had been declining slightly in recent quarters -- and higher realized liquids prices.
Shell found itself in pretty much the same boat as Exxon, with essentially flat year-over-year production and lower realized oil, gas, and petrochemical prices hurting earnings across the board. However, with no big asset sale to boost its numbers, Shell's revenue fell 17.8% year over year, and net income plunged an eye-popping 82.8%.
But that's nothing compared to Chevron, which posted its largest-ever quarterly net loss of $6.6 billion. That wasn't unexpected, though: The company had previously announced it would have to take more than $10 billion in after-tax impairment charges primarily related to changes in the value of its Appalachian shale assets. If we strip out these and other adjustments, net income looks to have been down "only" 29.7%, which is the smallest decline of the three companies.
None of the majors' Q4 results inspire confidence that they'll be able to turn things around in Q1. We're already nearly halfway through the quarter, and oil and gas prices are still on a downtrend that's showing no signs of slowing. While lower oil prices might help refining margins a bit, it's unlikely to make enough of a difference to offset the companies' upstream woes.
Still, given falling share prices, the companies' dividend yields have risen sharply: Chevron is currently yielding about 4.3%, ExxonMobil's yield is at an all-time high of 5.8%, and Shell's 7.2% yield is the best in its class. Dividend investors may consider this an attractive buying opportunity, but others will probably want to wait to see what happens in the energy industry in the coming weeks before jumping in.