Oil Major Earnings Disappoint

Market Movers

The biggest thing moving the market this week continues to be the China-originating coronavirus as flight cancellations pick up momentum, cutting down massively on jet fuel demand, while some analysts have predicted oil could slip dangerously close to $50 a barrel before the crisis is over. Russia has now closed its 2,600-mile border in the Far East, and airlines are suspending China services. British Airways, United Airlines, American Airlines, Delta and others are all reducing the number of or suspending flights to China.

Brazil is opting out of potential OPEC membership after all, deciding instead to go it alone in order to avoid production restrictions as it seeks to expand output.

Oil traders in Europe are noting increasing pressure on sweet crude as 1 million bpd of Libyan production remains offline for two weeks now, particularly considering that this gap in supply represents more than 20% of the Mediterranean's refinery throughout.

Earnings

Shell's Q4 results were nothing shy of disastrous. Shell has done pretty well at beating analyst forecasts for its quarterlies, but this time it failed to live up to expectations. Its Q4 profits took a beating, falling by 48%, with earnings attributable to shareholders falling to $2.9 billion (compared to $4.8 billion a year ago). Its balance sheet carried $1.6 billion in impairment charges. Full year earnings fell by 23% to $16.5 billion. Shell also announced it would be slowing the rate of its buyback program.

Chevron reported its Q4 earnings before the bell on Friday, revealing a Q4 earnings loss of $6.6 billion, compared to Q4 2018 earnings of $3.7 billion. Full year 2019 earnings came in at $2.9 billion, compared with $14.8 billion in Q4. Prior to its Q4 report, Chevron announced it was hiking its dividend by 8%, to $1.29 per share, as it tries to return more cash to shareholders. This would be the 33rd straight year of dividend increases for the oil major.

Hess Corp (HES) reported an increase in quarterly revenue, beating analyst expectations. Revenues were $1.699 billion, compared to $1.682 billion this time last year. Full-year revenues for last year is $6.51 billion, up slightly from 2018 revenues of $6.466 billion. Its E&P arm suffered a quarterly adjusted net loss of $124 million, while crude production increased from 161,000 bpd in Q4 2018 to 183,000 bpd in Q4 2019.

Tesla once again confounded short holders, reporting $105 million in profit for Q4 2019. For the last three months of 2019, Tesla took in $6.4 billion in automotive revenues, a 1% increase over 2018. Total revenue for Q4 was $7.4 billion, with full year revenue coming in at $24.6 billion--a 14% increase year over year. But the $105 million quarterly profit was actually a 25% decrease from Q4 2018. Tesla stock jumped on the favorable report, jumping 10% on Thursday alone.

GE Renewable Energy saw orders rise in 2019 but ended up posting a $666-million loss chalked up to tariffs and onshore wind market pressure. This compares to $292 million in profit in 2018. Orders for the year were $16.9 billion, up 10%, while revenues were up 7%, to $15.3 billion.

Exxon's earnings, reported before the bell on Friday, was another example of another-day-another-depressing-earnings-report as low oil prices continue to batter the largest of the oil majors. Exxon reported a 5.2% drop in Q4 profits as weaker oil prices drug down its bottom line, as its spending was robust in an effort to keep production up. Refining and chemical businesses also tugged the bottom line downward. Permian basin production was up 54% year on year. Net income fell to $5.69 billion from $6 billion for the quarter.

Discovery & Development

Guyana is the oil gift that keeps on giving, with Exxon this week upwardly revising its estimate of recoverable resources by 2 billion barrels of oil equivalent, to 8 billion boe total, while at the same time announced another discovery on the Stabroek Block--it's 16th discovery.

Senegal's state-run Petrosen has launched the country's first offshore licensing round for 12 blocks in the Mauritania-Senegal-Gambia-Bissau-Conakry (MSGBC) Basin. Known for recent natural gas discoveries offshore (shared with Mauritania), Senegal saw BP and partners make a final investment decision in late 2018 for the cross-border LNG development, Greater Tortue Ahmeyim.

Egypt has signed two deals with ExxonMobil for oil and gas exploration in the Mediterranean Sea in a deal that involves a minimum investment of $332 million.

Hess will increase capital spending to $3 billion, with more than 80% of that targeting offshore Guyana projects and the Bakken shale. Hess' net production this year is expected to average between 330,000 and 335,000 barrels of oil equivalent per day, excluding Libya.

Russia's Gazprom has upwardly revised estimates for a new natural gas Kruzenshternskoye field on the Yamal Peninsula, now estimating that it holds up to 2 trillion cubic meters of natural gas, about 360 million cubic meters more than initially estimated. Production could start sometime this year, though Gazprom has not made any recent updates to its potential production schedule.

Politics, Geopolitics & Conflict

Fighting has resumed in Libya, and the key to reversing the total shutdown of oil production and exports really lies in the hands of the government in Tripoli, which controls the banking system. The oil will likely start flowing again if Tripoli turns the interbank clearing system back on, reinstating access to the foreign exchange. Haftar's grievance at this point is really "no dollars, no oil".

Washington has slapped additional sanctions on Russia over its annexation of Crimea from Ukraine. The new sanctions target Moscow-based railway company Grand Service Express, which is now operating in the Crimea, as well as eight individuals, including the newly named "prime minister' of Crimea's pro-Russian regional government, Yuri Gotsanyuk.

Yemen's Houthi rebels claimed that they launched attacks on Saudi Aramco in the country's southern Jazan region, targeting a 400,000 bpd refinery, with Saudi officials saying they thwarted the attack.

For the second time in less than a year, the Algerian government has been forced to abandon shale gas exploration due to public protest over mismanagement of the country's hydrocarbon wealth. In March last year, Exxon's negotiations with Algeria for the development of local shale gas resources were delayed because of mass anti-government protests. Algeria is home to the world's third-largest shale gas reserves, estimated at some 2,000 trillion cu ft.

Workers from Brazil's state-run Petrobras plan to launch a strike on Saturday in protest against the company's move to shutter a fertilizer plant and layoff nearly 400 workers.