International oil markets have been facing a severe supply-demand gap since 18 months. This has dragged oil prices down from over $100 per barrel in 2014, to as low as $26.55 per barrel last month.
Oil prices are tracking a downward trend every quarter, which has eaten away at oil profits.
The earnings season took off for the big four in oil last month. Analysts who covered the oil stocks were stunned after seeing Chevron Corporation’s (NYSE:CVX) results. Chevron reported its first quarterly loss of $588 million in fourth-quarter fiscal 2015 (4QFY15), marking its worst performance in 13 years.
BP plc (ADR) (NYSE:BP) also reported a loss of $6.5 billion in full year 2015 (FY15), its worst annual loss in 20 years. For the year, BP’s loss was almost 75% higher than its annual loss in 2010, which it suffered during the Gulf of Mexico oil spill.
Market seemed to have lost hope for Exxon Mobil Corporation (NYSE:XOM) to be able to post better-than-expected results, as they became classically conditioned with negative results reported by the two oil major companies. Exxon living up to its “safe stock” label, posted earnings of $2.78 billion in fourth-quarter (4Q). Surprisingly, the largest oil company in the world reported earnings of $1.4 billion from its non-US upstream business in 4QFY15.
Royal Dutch Shell plc (ADR) (NYSE:RDS.A) reported earnings of $1.80 billion in 4Q, beating expectations. Shell took an exceptional stance by providing the market with an update of its quarterly and full year 2015 results, ahead of its earnings in late January. This prepared the market for the company’s performance.
The table below provides the date of earnings reported by the oil majors.
The table below summarizes the 4Q adjusted earnings of the big four, and the year-over-year (YoY) changes, (%) to compare performances, and better understand the implications on stock price.
The table shows that Chevron and BP remain lagging, with earnings shrinking over 85% in 4Q, compared to the same in that quarter last year. However, all four companies felt the pain of falling oil prices, which averaged just over $40 per barrel in 4QFY15, losing a substantial portion of their earnings.
The table below depicts changes in stock prices of the oil majors during the 7-day (28th Jan to 5th Feb) and 5-day (1st Feb to 5th Feb) periods. The timeframes are used to capture the pre and post-earnings announcement effect on the company’s share price. Oil prices are also included in the table.
The table above shows Exxon and Shell shares closed in the green despite falling oil prices. On the other hand, Chevron and BP stock fell, since the results missed the consensus significantly.
The table below further provides reasons for the stock price movements, as Exxon and Chevron outperformed estimates.
Stock movements in respect of the quarterly results provide evidence that Exxon and Shell outperformed their peers in the oil and gas industry.