Big Oil Set for Bumper Profits Despite Cheap Crude

By Christopher M. Matthews Features Dow Jones Newswires

When some of the world's largest energy companies report earnings next week, it will provide a glimpse into whether they are improving profitability as oil prices continue to hover around $50 a barrel.

Continue Reading Below

Wall Street will be reading the tea leaves in earnings reports from Exxon Mobil Corp., Chevron Corp. Halliburton Co. and others, looking not just for the companies' bottom lines but also for whether oil and gas production may be easing, particularly in the U.S.

The world's biggest oil companies are expected to see big gains in profits as they continue to reorient their businesses around lower-cost projects that yield returns faster. The five largest Western companies are expected to post total profits of almost $13 billion for the three months ended in September, an increase of more than 30% compared with the same period in 2016, according to analyst estimates on FactSet.

Exxon, Chevron and Total SA, which report Friday, are seen lifting their net incomes by more than a third. The following week, Royal Dutch Shell PLC could see the biggest gains, with profits that could more than double compared with the third quarter of last year, while BP PLC earnings are expected to be roughly in line with last year, according to analyst estimates.

Two of the world's largest oil-field services companies, Schlumberger Ltd. and Baker Hughes, a GE company, provided an early look at the industry's quarterly prospects with their earnings this past week and painted a picture of slowing activity in U.S. shale basins.

That's a potential sign that American oil and gas producers are listening to investors' calls to operate within their means, and no longer pursuing growth at the expense of profitability. If a slowdown in U.S. production sticks, it could also help relieve oversupplied global oil markets and drive the price per barrel up even further.

Continue Reading Below

The U.S. land drilling rig count continued to fall Friday as the number of active U.S. oil rigs dropped to their lowest level since early June as another seven rigs were parked, putting the total at 736. The weekly tally by Baker Hughes has only increased once in the past eight weeks.

Even the Permian Basin of Texas and New Mexico, where more than half of all the active U.S. oil rigs are located, saw a decline in the latest week, with its oil rigs dropping by six to 378.

That's noteworthy because the Permian is the lowest-cost shale region, where some have said profits can be made even when prices are just $30 or $40 per barrel.

A drilling slowdown is obviously not good for everyone. But it is a positive in some investors' eyes, signaling producers are focused on pumping oil from existing wells instead of drilling new ones in pursuit of growth.

Oil-field service companies, which help producers with drilling and hydraulic fracturing, are often a bellwether for the overall state of the oil-and-gas industry, providing insights into their customers' plans.

Schlumberger returned to a profit in the third quarter, reporting this week that it brought in $545 million in income, compared with $74 million in losses the previous quarter. The oil-field services giant said activity was led once again by U.S. land oil production.

But as producers enter capital-expenditure planning seasons, Schlumberger CEO Paal Kibsgaard said investment by U.S. energy and production companies seems to be moderating. Mr. Kibsgaard said Friday that while he expects continued growth in the U.S., he believes the pace would slow.

Baker Hughes, which General Electric Co. bought in July, said its losses narrowed 17% in the third quarter to $122 million, from $147 million in losses in the previous quarter, as it works to merge the oil-field services businesses of the two companies.

Lorenzo Simonelli, CEO of the newly combined company, agreed with his counterpart at Schlumberger, saying he saw a "deceleration" in U.S. drilling activity in the last quarter.

Bradley Olson contributed to this article.

Write to Christopher M. Matthews at christopher.matthews@wsj.com

(END) Dow Jones Newswires

October 21, 2017 07:14 ET (11:14 GMT)