Conoco, Exxon And Chevron: Q4 Earnings Preview

Includes: COP, CVX, PSX, XOM
by: Michael Fitzsimmons

The upcoming week will see Q4 earnings releases by the biggest U.S. based energy companies. With growing domestic oil and gas production, pipeline infrastructure issues, the continuing Brent/WTI spread, and international developments - it's going to be very interesting to see these reports. This article will summarize the earnings release dates, give earnings estimates, highlight notable developments, and give links to company conference call info for those of you that like to listen in.

Here are the earnings dates and conference call links:

Conoco Phillips (NYSE:COP):

  • Earnings Release: After the market close, Wed. Jan 30, 2013
  • Conference Call: Thursday, Jan. 31, 2013; 9:30am EST

Exxon Mobil (NYSE:XOM):

  • Earnings Release: Before market open, Friday, Feb 1, 2013;
  • Conference Call: Friday, Feb. 1, 2013: 9:30am EST

Chevron (NYSE:CVX)

  • Earnings Release: Before Market Open Feb. 1, 2013
  • Conference call: Friday, Feb. 1, 2013; 11am EST

First up to bat is ConocoPhillips. COP has been a hard stock to value over the last couple years due to a number of factors: asset dispositions, the spin-off of its mid and downstream segments into Phillips 66 (NYSE:PSX), and production downtime in Libya and China. However, the company's strategy is beginning to come into focus as new projects are coming online and will boost the liquids mix. As my earlier article, ConocoPhillips: Exploiting The Eagle Ford Shale, pointed out, the company should report a large increase in production from the most economic shale play in the U.S. (the Eagle Ford). Another very positive catalyst is the recent approval of the company's plans for Bohai Bay production by the Chinese government. The company continues to ramp up production from the Penlai oilfield, for which it has a 49% interest and is the operator. Production from the field at Q3 end was 45,000 bpd. Production before the spill was 62,000 bpd.

COP Chart
(Click to enlarge)

COP data by YCharts

COP has been showing some signs of strength recently. Last week it took out the $60 and $61 levels on slightly higher volume. For those of us who are long the stock, we need to see a good earnings report and a nice up-move on higher volume. The company has work to do to catch up to PSX, the stepchild that was a monster performer in 2012. No doubt there is some competition between the two company's management in terms of results. So far, the crew at PSX is winning due to the wide spread between Brent and WTI.

S&P is looking for $1.42/share from COP in Q4. This would put the company at $5.57 for all of 2012. At its current price of $61.06, that would be a P/E=11. S&P has a 4-star BUY rating on the stock. On January 16, 2013, S&P said of COP:

Asset sale proceeds of $12B since '12 will help fund a $15B per annum capex plan, above current cash flow thresholds, as well as help maintain its dividend. Meeting an annual 3%-5% production growth target should help with funding concerns. We think valuations are attractive and do not see a threat to the dividend, now yielding 4.5%.

Next up is Exxon Mobil. CEO Rex Tillerson was in the news last week after meeting with Iraqi Prime Minister Nouri al-Maliki in Baghdad. Rumor had it such a meeting would not have taken place if Iraq was not considering better terms for XOM on the West Qurna-1 project in return for XOM backing out of its oil contract with the Kurds. Tillerson followed up his meeting with al-Maliki with a meeting with the Kurds in Switzerland. It will be interesting to see if the issue is even mentioned on the conference call (I suspect not).

XOM Chart
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XOM data by YCharts

Like PSX, Exxon should see excellent results from its refining operations due to the spread between Brent and WTI. Also, natural gas futures are up over 50% from the lows of 2012. This will benefit XOM, the largest domestic natural gas producer, going forward. As my earlier article, Why Exxon Mobil Should Support Natural Gas Transportation, pointed out: every $1 rise in the price of domestic natural gas would correspond to roughly $4 million/day to Exxon Mobil. Over the course of a quarter, this would amount to in the neighborhood of $360,000,000 bucks.

US Natural Gas Wellhead Price Chart
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US Natural Gas Wellhead Price data by YCharts

S&P thinks project start-ups for XOM in 2012-2014 should add over 400,000 boe/d by 2014 and over 1 MMboe/d by 2016. They estimate XOM to earn $2.02 for Q4 (versus $1.97 for the year earlier) and $7.91 for all of 2012. S&P has a 5-star BUY rating on the stock and a $103/share 12-month price target. The stock currently yields 2.5%.

Last on the conference call list is Chevron. CVX released its Q4 interim update on January 10th, 2013 and you can access the full news release here. The company said:

... earnings for the fourth quarter 2012 are expected to be notably higher than third quarter 2012. Upstream results are projected to be higher between sequential quarters, reflecting increased gains on asset transactions and higher liftings. Downstream earnings in the fourth quarter are also expected to be higher, largely reflecting a positive swing in timing effects, despite a sharp decline in industry refining margins.

Not surprisingly, after such a bullish update, CVX has been performing well quite well:

CVX Chart
(Click to enlarge)

CVX data by YCharts

Although the interim statement was bullish versus the Q3 quarter, a closer look at the update shows year-over-year pricing comparisons are just so-so. Through November, Q4 average U.S. realized crude prices were $97.61 versus $105.37 for the prior year period. Internationally, the outlook is better with average realized prices a buck higher (through Nov). It will be interesting to see if higher production can negate pricing pressure. In the U.S., net oil production was up 39,000 bpd through the first two months of the quarter. International production was up a whopping 107,000 bpd through the first two months of the quarter. Refining margins were substantially higher than the year earlier period through December. All and all, it looks like CVX could have a very good earnings release and possibly post a big surprise to the upside.

S&P estimates Q4 earnings will come in at $2.92/share for CVX and $12.54 for full year 2012. If CVX hits that estimate, the P/E=9.3. CVX currently yields 3.1%. S&P has a 5-star BUY rating and a 12-month price target of $132/share.

I like all three of these energy companies for the long-haul. They are all very profitable companies, pay good dividends, and have excellent assets in their portfolios. I expect them to rally into earnings release and then drop back a bit after the announcements. That will be the time to establish a position. The risk with this strategy is a big upside earnings announcement, in which investors may have to chase the stock(s) up. 2013 is shaping up to be a very interesting one in the oil patch!

Disclosure: I am long COP, CVX, PSX, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I am an engineer, not a CFA. Please do your own research and contact your investment adviser. I am not responsible for investment decisions you make. Thanks for reading and good luck!