Text size
David McNew / Getty Images
Exxon Mobil and Chevron report earnings on Friday amid a bleak period for energy reserves. Most of the oil and gas names collapsed on Thursday, because the path back to “normal” in recent months is likely to be more complicated than investors initially expected.
Both companies are expected to report losses for the second quarter. Analysts see Exxon (ticker: XOM) losing 62 cents a share and Chevron (CVX) losing 93 cents. Exxon has already released a comprehensive summary of its earnings that projected losses in both its refining and production businesses.
Exxon’s cash flow does not cover its dividend, and investors fear the company may have to cut the dividend to help its bottom line. The dividend yield of the share is 8.3%.
But some reports indicate Exxon may have to take more dramatic steps soon to protect its dividend.
The company plans to layoffs and cut more expenses, Reuters reported Thursday. In response to the report, Exxon says it continually evaluates market conditions and has flexibility in its plans. As for the layoffs, the company says it is doing annual performance reviews as part of a one-year reorganization.
SunTrust analyst Robinson Humphrey, Welles Fitzpatrick, writes that Exxon can probably avoid a dividend cut by further reducing capital spending and selling assets. You could also correct the ship by reducing your corporate overhead.
“We continue to believe that major capitalization cuts could reposition Exxon to cover its dividend with minimal additions of debt,” he writes.
Chevron is in a comparatively better position, although it faces similar challenges. The company announced last week that it will buy Noble Energy (NBL), obtaining considerable new acreage at a relative discount. But Chevron’s shares have stalled in recent weeks as investors question whether its relative superior performance is warranted. Chevron has stakes worldwide, but it relies on US production for growth and needs oil prices to continue to rise to $ 50 or more. West Texas oil futures have stagnated around $ 40 for more than a month, and futures traders don’t see them break out of that range in the coming months. Analysts will pay attention to Chevron’s comment on US activity.
“In addition to the typical interest in the sources and uses of cash (and in particular, Chevron’s ability to maintain its dividend), we would be interested to learn more about activity levels in the Permian Basin and the Williston Basin, as these they are the major operations in the US regions for Chevron’s pending acquisition target, Noble Energy, “wrote CFRA analyst Stewart Glickman.
Write to Avi Salzman at [email protected]
.
