Obviously, a lot has changed since the first quarter ended on March 31. We've seen a further collapse in oil prices, a new OPEC+ deal, and critical shortages in oil storage infrastructure. With all that in mind, here are three things to expect from ExxonMobil's and Chevron's earnings reports.
When fellow oil major BP (NYSE:BP) reported earnings on April 28 that were worse than analysts expected, you'd've thought the stock market would punish the company's shares. Instead, BP's stock finished the day up 4.4%. That was despite a record $4.4 billion net loss for the quarter, and news that BP had added $6 billion to its already-substantial debt load.
Wall Street's reaction makes sense, though. Oil prices change in real time, for everyone to see, so the current record-low crude oil prices have been factored into the companies' share prices long before they report earnings. Similarly, the "spreads" for refined products are also measured in real time, so a company's likely refinery margins are also factored into the stock in advance.
That means, in a normal quarterly report, the data most likely to affect an oil major's stock price are production numbers, refinery throughput, and operational or financial news that would impact the company moving forward: a big oil discovery, for example, or a refinery outage, or a one-time impairment to earnings.
But Q1 2020's results won't tell us much about what's in store for Exxon and Chevron. The quarter was about 75% complete before oil prices crashed in the wake of the Saudi Arabia-Russia oil price war. It was more than 85% complete before any states issued stay-at-home orders (beginning with California on March 19). And with collapsing demand, insufficient oil storage space, and the uncertain economic situation in general, who's going to care if Exxon makes another oil discovery off the shore of Guyana?
Unless either company reports something truly earth-shattering, expect the market to shrug.
Chevron and ExxonMobil have both suspended their initial 2020 guidance in the wake of the COVID-19 crisis. The ongoing and evolving nature of the pandemic means that it's really impossible to guess where the economy, oil prices, and the industry in general will be in a month, much less through the end of the year.
Both companies have already announced major cuts to their 2020 capital budgets. On March 24, Chevron said it would cut 2020 capital spending by 20% to $16 billion, and also suspend its share repurchases for the year. ExxonMobil joined the cost-cutting party on April 7, announcing a 30% 2020 capital spending cut to $23 billion, along with projected operating expense reductions of 15%.
With spending reductions planned, operations up in the air, and no clear time frame for a return to normalcy, expect Chevron and Exxon not to issue any kind of guidance. Instead, you'll probably see something similar to this statement from BP's earnings release:
Looking forward, there remains an exceptional level of uncertainty regarding the near-term outlook for prices and product demand, particularly while many economies remain under lockdown. ... It is difficult to predict when current supply and demand imbalances will be resolved and what the ultimate impact of COVID-19 will be.
No end to dividends
The cost-cutting measures taken by ExxonMobil and Chevron were intended to reassure investors that they would continue to pay their dividends, despite their yields soaring to record highs in March. Those yields have since come down somewhat: ExxonMobil's is currently at 7.3% and Chevron's at 5.1%.
It would be unlikely for either company to take such extreme measures to protect their dividends only to cut them a month later. Certainly, both companies' balance sheets are in better shape than BP's; ExxonMobil boasts a debt-to-EBITDA ratio of 1.1, while Chevron's is just 0.9 (lower is better). Meanwhile, BP's is 3.4, and it didn't cut its dividend, choosing instead to open a new $10 billion revolving credit facility and issue $7 billion in new bonds.
It's likely that ExxonMobil and Chevron will also need to take on additional debt before all's said and done, but they're both likelier to go that route -- at least at first -- than consider cutting their payouts.
Be on the lookout
Obviously, shareholders and analysts will be going over ExxonMobil's and Chevron's quarterly results with fine-toothed combs, looking for clues about where the companies may be headed. Any such indications, though, are likely to be few and far between, and covered in caveats like, "if the current situation persists...," or "depending on economic conditions... ."
Still, smart energy investors should at least glance at the companies' quarterly results. They may not tell us much this time around, but there's always the chance that they'll reveal something useful.