EARNINGS PREVIEW: Refining woes likely to limit US oil majors


TAKING THE PULSE: The top three US oil companies are expected to post higher earnings for the fourth quarter of 2011 than in the same period of 2010, driven mainly by gains in oil prices.

But some of those gains are expected to be offset by weak refining results and low natural-gas prices.

Earnings for the US major oil companies "won't be immune from a shortfall in their refining operations and the weakness in the North American gas market," said Paul Cheng, an analyst with Barclays Capital, in a research note.

In the fourth quarter, natural gas traded at an average of $3.5 per million British thermal units, below the $4/MMbtu it traded at in the same period of 2010.

US oil prices rose steadily during the quarter while fuel demand has been flat, a combination that has eroded refining margins.

Deutsche Bank cut its fourth-quarter estimates for all integrated-oil companies, saying its expects weak downstream results to hit their earnings.


- reports Wednesday, Jan. 25

Wall Street expectations: Analysts expect the Houston company to report earnings of $1.94 a share on revenue of $40.56 billion for the fourth quarter. A year ago, ConocoPhillips earned $1.32 a share on revenue of $51.73 billion.

Key issues: ConocoPhillips is expected to provide analysts an update on its plans to split into two independent energy firms in the second quarter. Recently, it named management teams for Phillips 66, the refining company, and ConocoPhillips, the oil producer and explorer, but it still needs final regulatory approval.

Analysts will be interested to know the status of the marketing process for the two refineries the company has put up for sale. Specifically, they are interested in how much the company expects to fetch for its Alliance Refinery in Louisiana and a confirmation that it is likely to demolish its Trainer refinery in Pennsylvania if it doesn't find a buyer by March.

Analysts also are likely to ask about the status of the company's arbitration claim against Venezuela for the 2007 expropriation of its assets and about its plans to develop the vast amount of leases it recently acquired in the US Gulf of Mexico deepwater.

Chevron - reports Friday, Jan. 27

Wall Street expectations: Analysts expect the San Ramon, Calif., company to report earnings of $3.10 a share on revenue of $71.58 billion, compared with earnings of $2.44 and revenue of $51.85 billion a year earlier.

Key issues: The second-largest US oil company by market capitalization behind ExxonMobil signaled that its fourth-quarter earnings would be lower than its third-quarter earnings due to weak refining margins and the impact of currency fluctuations.

Analysts are likely to query company executives on why the company's refining arm--which in the third quarter made $1.5 billion in profit--is expected to be at a break-even level in the fourth quarter. The company said in its interim update Wednesday that reduced profits margins at its refineries in the US Gulf coast and maintenance of two large refineries hurt its bottom line in the fourth quarter.

Analysts are also likely to ask for the company's strategy to fight a recent legal setback in the environmental lawsuit it faces in Ecuador. An appeals court upheld this month a $18 billion ruling against Chevron for alleged contamination in Ecuador's Amazon region. The company still could file another appeal in a higher court, but plaintiffs are getting ready to try to enforce the verdict in countries where the company has assets as Chevron doesn't have operations in the South American nation.

ExxonMobil - reports Tuesday, Jan. 31

Wall Street expectations: Analysts polled by Thomson Reuters, on average, expect the Irving, Texas-based company to report earnings of $2.08 a share for the fourth quarter on revenue of $112.16 billion. A year earlier, Exxon Mobil earned $1.85 a share on revenue of $105.19 billion.

Key issues: Exxon is expected to report higher year-over-year earnings driven by higher oil prices, but the world's largest publicly owned oil company's results are expected to be limited by low natural-gas prices and sluggish refining results, according to Raymond James.

Analysts are likely to ask Exxon about the ultimate amount of money it expects to receive from Venezuela for assets the government of President Hugo Chavez nationalized in 2007. The company recently won a $908 million award from an arbitration panel, which was significantly lower than the $7 billion it reportedly was seeking in compensation.

Venezuela's national oil company has said it will pay Exxon a total of $255 million - after subtracting existing debt - over the next 60 days. Exxon awaits the results of a second arbitration claim.

Analysts also are likely to ask Exxon about its view on natural-gas prices, which reached their lowest point in almost three years this week. The company paid $25 billion in 2010 to acquire natural-gas producer XTO, arguing prices for the commodity would rise over the long term.

(The Thomson Reuters estimates and year-earlier results may not be comparable because of one-time items and other adjustments. The estimates may change before companies report their results.)

-- Dow Jones Newswires

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