Oil industry analysts say they expect U.S. oil companies to report declines in third-quarter profit, reflecting oil prices that remain 50 percent cheaper than they were a year ago.
With the slump in oil continuing to cut into earnings -- in some cases bringing balance sheets into the red -- the energy industry is bracing for more layoffs, spending cuts and impairment charges this year.
"It's fully baked in that folks have terrible earnings compared to last year," said Rob Lutts, president and chief investment officer for Cabot Wealth Management.
"Most companies are taking a fairly neutral stance going forward and they're not making big commitments." he said. "A lot of people are fairly cautious on the energy sector today and I think for some good reasons."
Oil prices began to fall more than a year ago as a result of a global glut of crude and weak demand.
Instead of rebounding as the industry hoped, oil averaged $46.50 a barrel during the third quarter, even dipping below $40 during August for the first time since 2009. During the same quarter in 2014, crude averaged $97.60 a barrel.
The price for West Texas Intermediate crude for December delivery fell 78 cents Tuesday to close at $43.20 a barrel on the New York Mercantile Exchange. It's the lowest settlement since Aug. 27. Prices have declined 19 percent this year.
"Considering the effect of commodities' price solely, we should see an uninspiring earnings season as a whole," said Luana Siegfried, an analyst with Raymond James in an email.
This includes Murphy Oil Corp., which plans to release its third quarter financial results today after the stock market closes. The company will hold its conference call on Thursday.
Raymond James expects Murphy Oil to report a loss of 77 cents per share for the third quarter, compared to a profit of $1.15 per share in 2014.
BP PLC, one of the first oil companies to release its earnings, said Tuesday it had a third quarter profit of $1.8 billion, down from $3 billion in 2014. The company attributed the drop to low oil prices.
A drop in BP's capital spending for the quarter was also the result of low crude prices. The company spent $4.3 billion during the period, down from the $5.3 billion it spent in the same quarter in 2014.
Siegfried said most companies will likely wait a quarter before announcing capital spending plans for 2016, but when they do release those forecasts there will be further spending cuts.
Southwestern Energy Co., the main operator in the Fayetteville Shale, also took a hit during the third quarter.
Last week, the company posted a quarterly loss of almost $1.8 billion, compared with a profit of $211 million during the same period a year ago.
Contributing to the quarterly loss was a $2.8 billion impairment charge the company took on its natural gas and oil properties.
"These are challenging times in our industry," Southwestern Chief Executive Officer Steve Mueller said during a conference call with investors.
Mueller said his discussions with other energy executives focus on how the industry has survived similar price slumps, and how they will survive the current rout.
"What is understood but not said is that we also received many scars in the past tough times and will have many more before the cycle is finished," he said. "An even deeper but unspoken understanding is that not all of our organizations will actually survive this."
Business on 10/28/2015