Bloomberg News: Kevin Crowley and Kelly Gilblom: October 28, 2019(Bloomberg) — Slumping energy prices, sluggish global demand and shrinking chemical margins are weighing on the oil industry as its biggest names prepare to announce quarterly results to investors demanding ever-higher payouts.
The so-called supermajors — Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp., Total SA and BP Plc — are expected to disclose a 42% plunge in third-quarter earnings, on average, when they post results this week. That drop-off is too steep to blame on the 18% decline in crude oil prices, which means executives will have some explaining to do.
Exxon, Shell, and BP already have already taken steps to manage shareholder expectations by releasing limited data points on things like refinery repairs, asset sales and hurricane impacts on offshore oil production. Nonetheless, investors will be watching for additional color on what to expect for the remainder of 2019.
To make sense of all the moving parts in Big Oil’s earnings reports that start Oct. 29 with BP, look for these five things:
1. Surprises
Most of the bad news already should be priced in. Exxon fell 2.6% on Oct. 2 after disclosing a half-billion dollar hit from lower oil prices, a deficit that wasn’t plugged by improved refining profits.
Meanwhile, Shell warned that oil and gas output inched lower, and its refineries and chemical plants operated at about 90% of full capacity. BP warned that its tax bill rose, production declined, and it incurred an impairment on some assets it sold, factors that dampened hopes of an imminent dividend increase.
2. Petrochemicals
Long touted as Big Oil’s next high-growth opportunity, petrochemicals are languishing. The U.S.-China trade war has weakened demand for plastics amid concerns that $40 billion in planned U.S. Gulf Coast chemical plants will create a glut.
“Current trends continue to suggest a prolonged downturn” in chemicals, RBC Capital Markets analyst Biraj Borkhataria said in an Oct. 17 note. Exxon, with its giant chemical division, is the most heavily affected by this trend among peers.
What Bloomberg Intelligence Says
Chemicals may not recover materially from recent margin contraction, and overhang from oversupply amid economic slowdown is concerning.
–Fernando Valle, analyst
3. Growth
In a world awash in crude and confronted with climate change, growth is a major conundrum for Big Oil. Should these companies be expanding or winding down? Investors don’t seem to have a clear answer right now. Exxon’s stock has been punished after the company spent too much on future projects while Chevron is regularly challenged on whether it has enough in the tank for growth after 2023.
Meanwhile there’s uncertainty whether Shell can match historic returns with investments in renewables and power, though earlier this month Total CEO Patrick Pouyanne declared the company has already achieved double-digit returns by selling electricity.
Don’t expect major pronouncements on such existential issues, but executives may offer clues to their thinking during earnings conference calls when they’re quizzed about 2020 spending and progress toward asset-disposal targets. BP’s call may get more scrutiny than most after it said earlier this month that longtime CEO Bob Dudley is handing the reins to upstream director Bernard Looney in February.
4. Shale
Exxon and Chevron each plan to more than triple production in the U.S. Permian Basin to 1 million barrels a day by the early 2020s. As for the European giants’ attitude toward shale, BP’s $10.5 billion acquisition of BHP Group Ltd.’s assets last year was a statement of intent.
Analysts will be keeping a close eye on how those companies avoid the pitfalls of smaller rivals stung by overambitious drilling programs, and how their performance stacks up against lofty targets. Despite the production boom, investors have soured on shale because of poor performance by independent producers that burned through nearly $200 billion of cash in the past decade.
5. Dividends
The supermajors have long been among the stock market’s most generous dividend payers but in the new world of plentiful crude and anti-fossil fuel campaigns, increasing payouts and share buybacks are seen as key to retaining investors. Just as critical is whether the companies can afford them: the supermajors’ dividend yields this year surged to more than double the return on 10-year Treasury notes.
While none of the five companies’ dividend programs are in jeopardy, investors are keen to see how sustainable they are when balanced against costly drilling and construction projects, such as Exxon’s $30 billion-a-year spending program, and Shell’s investments in lower-profit renewable power.
Royal Dutch Shell conspired directly with Hitler, financed the Nazi Party, was anti-Semitic and sold out its own Dutch Jewish employees to the Nazis. Shell had a close relationship with the Nazis during and after the reign of Sir Henri Deterding, an ardent Nazi, and the founder and decades long leader of the Royal Dutch Shell Group. His burial ceremony, which had all the trappings of a state funeral, was held at his private estate in Mecklenburg, Germany. The spectacle (photographs below) included a funeral procession led by a horse drawn funeral hearse with senior Nazis officials and senior Royal Dutch Shell directors in attendance, Nazi salutes at the graveside, swastika banners on display and wreaths and personal tributes from Adolf Hitler and Reichsmarschall, Hermann Goring. Deterding was an honored associate and supporter of Hitler and a personal friend of Goring.
Deterding was the guest of Hitler during a four day summit meeting at Berchtesgaden. Sir Henri and Hitler both had ambitions on Russian oil fields. Only an honored personal guest would be rewarded with a private four day meeting at Hitler’s mountain top retreat.
IN JULY 2007, MR BILL CAMPBELL (ABOVE, A RETIRED GROUP AUDITOR OF SHELL INTERNATIONAL SENT AN EMAIL TO EVERY UK MP AND MEMBER OF THE HOUSE OF LORDS: 
MORE DETAILS:
A head-cut image of Alfred Donovan (now deceased) appears courtesy of The Wall Street Journal.
