Analyst Trims Crude Oil Price, E&P Firms’ EPS Estimates

Energy

Published: November 26, 2014 12:55 pm

Last Updated: April 27, 2020 3:58 pm

Lower crude oil prices typically mean lower profits for exploration & production (E&P) companies, and this time around is no different. The recent sharp drop in crude prices has generated a lot of re-evaluations of previous estimates not only for the price of crude but also on the stocks of the oil E&P companies.

We wrote yesterday about the impact on E&P companies of oil prices that have dropped below $75 a barrel and how analysts at a number of big firms have reacted to the drops.

Sterne Agee’s analysts Tim Rezvan and Truman Hobbs published on Tuesday an E&P industry report based on 2015 average per barrel price for WTI of $81 through 2016. The analysts base their estimate on U.S. production growth of 700,000 barrels a day. The impact of that on the 20 companies that Sterne Agee follows has a dampening effect on earnings per share estimates. Here are a few examples of their latest views.

For the current quarter Sterne Agee expects Pioneer Natural Resources Inc. (NYSE: PXD) to post EPS of $1.14 versus a previous estimate of $1.20. For 2014 the estimate has dropped from $5.17 to $5.11 and the estimate for 2015 has dropped from $4.85 to $4.25.

Occidental Petroleum Corp. (NYSE: OXY) was previously expected to post EPS of $1.12 in the fourth quarter but that has been lowered to $0.93. For the year a prior estimate of $6.25 has been dropped to $6.07 and the 2015 estimate has fallen from $5.06 to $4.04.

The current quarter’s EPS estimate for Noble Energy Inc. (NYSE: NBL) has slipped from $0.51 to $0.43 and the 2014 full-year estimate has dropped from $2.49 to $2.42. For 2015 Sterne Agee lowered its estimate from $2.61 to $2.23.

The pattern is the same for the other stocks in Sterne Agee’s universe: lower profits in 2014 and even lower profits in 2015. The firm reiterated its October position on crude oil prices:

We expect sluggish (oil) price action to persist into year-end. Data points on economic growth in Europe and China will continue to create volatility. The lack of communal activity to stem weakness in Brent crude from influential OPEC members Saudi Arabia, Iran, and Iraq is another point of concern. We view these major actors’ focus on preserving market share in a weak/tepid growth environment as an alarming message that suggests that Middle East producers are of the mindset that global oil demand growth will be more stagnant than many expect.

Sterne Agee also dropped its per barrel price estimates for Brent crude from $92 in the fourth quarter and $94 in 2015 and 2016 to new levels of $85 this quarter and $86 in each of the next two years.

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