The second-quarter earnings period was dismal for integrated oil and gas companies as a whole, but several Europe-based majors outperformed the rest even as oil prices and demand crashed amid the coronavirus pandemic.
While all six of the top U.S. and European supermajors were expected to post losses for the second quarter, three of them defied forecasts and posted small gains while three others posted losses that were even larger than analysts' earnings estimates.
Norway's Equinor ASA led the pack vis-à-vis expectations. While its second-quarter adjusted income was down 89% on the year, the results were also five times higher than expectations. Conversely, U.S.-based Chevron Corp., which entered the epic oil price collapse with the strongest balance sheet across the integrated sector, posted a second-quarter adjusted loss of $1.59 per share, or almost 73% below market forecasts.
None of the majors were spared the effects of the oil price routing. When prices crashed, they were all forced to make spending cuts, and many took asset writedowns, with some even reducing dividends. But the European integrated companies that are accelerating business plans to address the energy transition have seen stock valuations improve after share prices tumbled to multiyear lows this spring.
BP PLC's stock price shot higher Aug. 4 after CEO Bernard Looney announced plans to speed up its move to become a broader company by slashing oil production by 40% in the next 10 years. The market shrugged off the London-based major's additional announcement that it would trim its shareholder payout following a hefty second-quarter loss.
Shares at France's TOTAL SE, whose second-quarter earnings were 114% above market estimates, also improved after the major reported July 30 it will ramp up its plan to become a wider energy company by selling off upstream assets where the cost of production is much higher than oil prices.
Equinor's stock advanced after the company's July 24 earnings release and an Aug. 10 announcement that Anders Opedal was named president and CEO, a move meant to keep the company on point with implementing its energy transition strategy to meet self-imposed emissions reduction goals. Effective Nov. 2, Opedal will succeed Eldar Sætre, who plans to retire.
Royal Dutch Shell PLC, whose second-quarter earnings were 233% above analysts' outlooks, is also working to diversify and decarbonize its portfolio by turning to natural gas, electricity and renewables to meet its goal of being a net-zero business by 2050.
Over the past few years, institutional investors had been fleeing the underperforming energy sector, in part because of heightened investor pressure for oil and gas companies to address climate change by increasing their efforts to decarbonize their businesses. This has weighed on their stock performance.
"Big oil stocks will rise as economic conditions and oil markets recover. However, adverse capital management and poor alignment between energy boards and CEOs and shareholders portend uncompetitive performance vs. S&P 500 over the medium-term," Evercore ISI analyst Doug Terreson said in an Aug. 5 research note.