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As Exxon, Chevron and other oil companies start reporting Q2 profits, here's what to watch for

Houston Chronicle 7/27/2022 Kyra Buckley, Staff writer

The world's biggest oil companies, including Houston-based ExxonMobil, are set to release blockbuster second quarter earnings this week.

The world’s biggest oil companies begin reporting their second quarter profits this week, and it’s expected to be another multibillion dollar three-month haul for the majors.

For the first quarter, Houston’s Exxon Mobil and ConocoPhillips, along with San Ramon, Calif., based Chevron, each made more than $5 billion while reporting increasing revenues and production.

Still, analysts say the companies are operating against a backdrop of chaos. Russia’s ongoing war against Ukraine has changed the dynamics of the global energy market, sending oil prices on a roller coaster ride between $90 and $120 per barrel, and straining a supply chain already stressed from the pandemic. Additionally, worsening inflation is stoking fears of a looming recession.

Amid the unpredictability, London-based Shell is expected to report on Thursday; Exxon Mobil and Chevron are scheduled to report Friday morning; ConocoPhillips is set to release its earnings on Aug. 4. Here’s what to watch for as the profits roll in.

The outlook

“When earnings are released, it's less about what happened backward looking than it is about forward looking stocks, or stories about the future,” said Leah Hartman, chair of finance, accounting and marketing at the University of New Haven.

LAST QUARTER: Oil majors Exxon and Chevron yield hefty profits despite a world of chaos

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While no company has a crystal ball to see the future, Hartman said, they do have the responsibility to mitigate challenges they’re facing, and let investors know about them. The tangled global supply chain remains a concern, so listen for how companies have secured equipment and resources, and what guidance they’re providing to investors moving forward.

The “R” word and inflation

Part of that outlook should include how companies are responding to inflation, which is especially affecting the companies that the majors hire for help at drilling sites, known as oil field services.

“The inflation that we've seen over the past year to two years has really been unprecedented compared to previous cycles or previous geopolitical events,” said Matthew Fitzsimmons, vice president of energy service research at Norwegian firm Rystad Energy.

The three largest oil field services companies last week reported mixed financial results, citing inflation and charges related to swift exits from Russia. The increased costs they're experiencing related to inflation could be passed on to customers, especially for new contracts.

Meanwhile, fears of a recession have already been spooking some investors and leading some analysts to warn that demand for oil and gas could drop in the second half of the year. It still remains to be seen if the economy will tip into recession, but companies will likely be communicating to their investors how they’re positioned to fare during a contracting economy.

The environmental, social, and governance

The industry has been keen on the phrase “ESG,” short for corporate environmental, social and governance policies, as a catch-all to describe climate change plans alongside other issues that may be important to investors, like workplace diversity.

The pressure to meet environmental goals has eased slightly in recent months as Russia’s invasion of Ukraine, causing U.S. officials and other world leaders to call on the industry to boost production in effort to make up for Russian oil and gas lost to sanctions.

However, a recent Rystad Energy analysis shows companies with measurable progress in meeting environmental and other ESG goals are more likely to attract larger investments and boost their stock price in the long term. Look for how Big Oil companies make the case to investors of why their ESG plans will contribute to sustained financial health for the business.

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