Strong Financial Performance Expected for Major Oil Companies in 2Q 1995

Wall Street analysts predict a strong second-quarter financial performance for major oil companies, driven by a favorable chemicals market, higher crude prices, and improved refining profits. However, analysts warn that these positive factors may decline in the second half of the year. Oil stocks' prices reflect the industry's positive short-term outlook, prompting a buy recommendation from analysts.

Key Takeaways:

• Major oil companies are expected to report higher earnings in the second quarter compared to the same period last year, backed by strong chemicals earnings, rebounding refining margins, and higher oil prices.
• Analysts predict that oil company earnings may ease in the second half, hurt by a downturn in chemicals and lower oil prices.
• The stellar chemicals earnings that boosted oil companies' balance sheets at the end of 1994 and the beginning of this year have peaked, with prices of polyethylene falling by 2 cents/pound in June and more this month.
• Companies with significant chemicals operations, such as Occidental Petroleum Corp. and Phillips Petroleum Co., should report outstanding earnings in the second quarter, with estimates of 60 cents/share for Phillips and 50 cents/share for Occidental.
• Refining margins have recovered, with Gulf Coast margins increasing to $2.90/bbl in the second quarter, jumping from 29 cents/bbl in the first quarter and $1.33/bbl for the same quarter last year.
• Analysts agree that oil prices gave majors a helping hand last quarter, with WTI spot crude oil prices about $1.30/bbl higher than the first quarter's $18.35/bbl and $17.80/bbl in the year-ago quarter.
• The weakest performer compared with its peers is expected to be Unocal Corp., with operating income of 35 cents/share, up 25% from 27 cents/share for the same period last year.

Statistics:

• 60 cents/share: estimate of operating income for Phillips Petroleum Co. in the second quarter
• 50 cents/share: estimate of operating income for Occidental Petroleum Corp. in the second quarter
• 35 cents/share: estimate of operating income for Unocal Corp. in the second quarter
• 25%: increase in operating income for Unocal Corp. in the second quarter compared to the same period last year
• 25%: drop in chemicals profits next year predicted by Wertheim Schroeder & Co. analyst Michael Mayer
• 2 cents/pound: drop in price of polyethylene in June
• $2.90/bbl: Gulf Coast refining margins in the second quarter
• $2.35/bbl: West Coast refining margins in the second quarter
• $2.25/bbl: expected refining margins to recover to by 1996
• $18.35/bbl: WTI spot crude oil prices in the first quarter
• $17.80/bbl: WTI spot crude oil prices in the year-ago quarter
• $1.30/bbl: increase in WTI spot crude oil prices compared to the first quarter
• $1.45/Mcf: U.S. natural gas prices in the second quarter
• $1.32/Mcf: U.S. natural gas prices in the first quarter
• $1.74/Mcf: U.S. natural gas prices for the same period last year

Sources:

• Philip L. Dodge, analyst at Southeast Research Partners
• Michael Mayer, analyst at Wertheim Schroeder & Co.
• George D. Baker, analyst at Merrill Lynch & Co.