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Rising output, strong prices could lift global oil majors' Q3 earnings

Some of the top global oil and gas majors are likely to record healthy financials during the third quarter as crude oil prices climbed and output likely increased.

Paris-based TOTAL SA should report higher earnings for the three-month period ended Sept. 30. As of Oct. 22, the S&P Global Market Intelligence third-quarter normalized EPS estimate for the company was $1.43, up from $1.31 in the second quarter.

In April, Total said it would retain a disciplined spending approach, increase dividends and repurchase shares, outlining plans to buy back $1.5 billion shares this year as part of its longer-term, $5 billion repurchase program through 2020 to offset the end of its scrip program.

Total's third-quarter are likely to be lifted by another round of strong output results. At the end of July, Total hiked its oil production target for the year against a backdrop of strong crude oil and a new quarterly production record. During the second quarter, the company's production increased by 8.7% on the year to 2.72 million barrels of oil equivalent per day due to new project startups and ramp-ups. The S&P Global Market Intelligence third-quarter output estimate for Total was 2.76 MMboe/d as of Oct. 22.

With the start-up of many major global projects this year, at the company's analyst day in September, Total executives reiterated an output growth target of 7% per year through 2020, with capital investments pegged between $15 billion and $17 billion.

"We believe that Total is well-positioned strategically within its peer group, with leading production growth, above average reserve replacement and below average upstream technical costs," Jefferies analyst Jason Gammel wrote in a Sept. 19 research note. "Undoubtedly production growth is one of the key strengths of Total and one of the key supports for our buy rating on the stock."

Following sluggish output in recent years, London-based BP PLC's second-quarter production results were bumped to levels not seen since the 2010 oil spill at 3.6 MMboe/d, up almost 10% from 2017, and analysts are calling for continued output growth in the medium term. The production uptick offset the company's disappointing cash flow figures as the oil and natural gas major notched impressive second-quarter profits of $2.82 billion. As of Oct. 22, the S&P Global Market Intelligence third-quarter normalized EPS estimate for BP on the London Stock Exchange was unchanged from the second quarter at 14 cents.

Indicative of the improvement in its financial picture, for the first time in almost four years, BP increased its second-quarter dividend by 2.5% to 10.25 cents per share. Additionally, the major repurchased 11 million shares at $80 million during the second quarter and bought back 29 million shares for $200 million in the first half.

"We like BP's solid upstream pipeline and the proposed acquisition of BHP Billiton's shale assets, which we think will position BP well to benefit from the strong hydrocarbon price," an Oct. 20 report from CFRA Equity Research said. "Moreover, organic free cash flow (pre-Macondo payments) has improved substantially and is enough to cover organic capex and full cash dividend at Brent price of $54/bbl in 2017, while BP aims to bring down the breakeven point to the region of $35-40/bbl in 2021 and beyond."

Marking the oil major's first big deal in about 20 years, BP said in late July that it would purchase BHP Billiton Group's shale assets, allowing it to build-out its U.S. portfolio in the Permian Basin, the Eagle Ford in Texas and the Haynesville region in Texas and Louisiana for $10.5 billion.

BP competitor Royal Dutch Shell PLC also appears to have turned the page with its financials, kicking off its long-awaited share buyback program, as it saw second-quarter adjusted earnings rise 30% on the year to $4.69 billion. As of Oct. 22, the S&P Global Market Intelligence third-quarter normalized EPS estimate for Shell's B shares in London, the most commonly traded, was 52 cents, up from 43 cents in the second quarter.