Oil company earnings season started with such a surprise that some analysts already say their estimates for the other companies may be too low.
BP PLC and Statoil ASA both reported first-quarter profits this week after analysts predicted losses, while Total SA beat earnings estimates by 31 percent. The results, reflecting sweeping cost cuts as well as resilient refining, trading and petrochemical operations, suggest Exxon Mobil Corp. and others may also trump expectations.
"It seems the cost reduction has been implemented better than expected by the companies," said Alexandre Andlauer, an analyst at AlphaValue SAS in Paris. "It's now more than probable the others will beat estimates too."
The big oil companies are deepening cost cuts to weather the crude-market rout by lowering capital expenditure, renegotiating drilling contracts, cutting thousands of jobs and deferring big projects. The pace of such measures is sometimes so steep it doesn't reflect in quarterly earnings estimates, according to Andlauer.
Belt-tightening at BP includes a delay to approving the Mad Dog Phase 2 project in the Gulf of Mexico as it renegotiates costs to half of the original $20 billion estimate. Capital expenditure may fall to about $17 billion this year from an earlier projection of as much as $19 billion, and could sink to as little as $15 billion next year if oil stays low, the company said Tuesday.
Total also announced a reduction in projected capital spending for this year, while Norway's Statoil cut operating costs per barrel by a fifth.
Besides cost reductions, the companies' oil refining, trading and petrochemical businesses surprised analysts. BP and Total are running crude-processing plants hard to maximize revenue while feedstock remains cheap. BP doesn't plan to cut its run-rate in the near future, according to Chief Financial Officer Brian Gilvary, who also said strong trading improved profits.
It's not always easy for analysts to estimate the major oil companies' trading profits because they don't disclose those results, said Ahmed Ben Salem, an analyst at Oddo & Cie in Paris. Petrochemical earnings are also a "challenge" to estimate, according to Jason Kenney, an Edinburgh-based analyst at Banco Santander SA.
"It is rare to have [petroleum-based products] modeled in any particular detail, product-by-product or region-by-region," Kenney said by email. "The focus ... is usually upstream," on exploration and drilling results, "which normally provides the bulk of earnings."
Yet with Total and BP posting losses from exploration and production, the downstream -- refinery and chemical production -- divisions have come to the fore.
Exxon and Royal Dutch Shell PLC could report stronger-than-expected petrochemical earnings ... if the read-through from Total and BP is anything to go by," Kenney said.
Estimates for Exxon, due to report Friday, suggest it'll post its lowest earnings in more than two decades, while Shell is expected to report the smallest profit in at least 10 years on Wednesday.
Chevron Corp. and Italy's Eni SpA will also release quarterly results Friday, while Spain's Repsol SA will report May 5. They've all cut billions of dollars of investments, contributing to the $250 billion reduction in global exploration and production spending last year, consultants Rystad Energy said in December.
"The [big oil companies] are doing the job to adjust to lower oil prices," Oddo's Ben Salem said. "The question is: if oil goes deeper, is there more room?"
Information for this article was contributed by Francois de Beaupuy and Mikael Holter of Bloomberg News.
Business on 04/28/2016