(Petrolytics) - Big Oil earnings dominated the headlines last week, as a number of large firms reported Q2 results. Shell, Total, ExxonMobil, and Chevron were among the filers, and, as expected, the results were underwhelming (albeit with a few surprises). The oilfield services earnings weren't stellar either. And while a big chunk of the heavy hitters have reported, there still remain a few to watch out for, namely:
In case you missed them, we've summarized below the notable earnings from last week.
3.6 Mmboepd net production (-7% from Q2 2019) including economic and gov't mandated curtailments
Chevron Q2 production guidance (our opinion: downward revision is less about price and more about difficulty to forecast unconventional well performance)
Looking forward to this week are key renewable energy firm Q2 earnings. Again, we're looking to glean any information from the management discussion notes. While financials are obviously interesting, the tone and subtleties of the MD&A is even more insightful. Among the key firms reporting this week are:
NextEra posted Q2 earnings last week. We commented on this release on Twitter. In summary, the earnings appeared strong - with surprisingly minimal stated impact due to the pandemic. Most companies are blaming any and all bad news on COVID, however, NextEra's mention of it was noticeably absent (take that for what you will).
Before we cut you loose for the week, we wanted to share with you an observation from Total's Q2 earnings (although the observation is not unique to them). We've noticed an increasing emphasis put on oil price forecasting. More specifically, Total's 30-year average Brent crude price forecast of ~$57/bbl (2020-2050) has gained wide-spread attention.
The conclusion many analysts on Twitter seem to take-away is "oil price is expected to be lower forever".
The is a blatantly misleading conclusion.
In fact, we believe that not only is this wrong, but it is an intentional misrepresentation. Total's forecast is, at the very least, meaningless, and at the very most, deceitful. Obviously, no one knows the future, however, touting averages without any sort of deviation metric (variance, volatility, confidence), is what we, in industry, like to say is derived from the AE file. That is, the forecast was "anally-extracted" (i.e. made-up).
Take a look at the historical prices of Brent crude from 1990-2020. Would you deem the past 30-years as "lower forever"? The average price is not much different than what Total is forecasting, however, there's a story to be told in the volatility (namely, the shale boom for one).
We're not claiming to know what the future holds or what the oil price will be in 30 years (let alone 1 week), however, the variance in price is what dictates the industry. Empires were created and destroyed in the 1990-2020 period. The same is possible in the next period (whether that's in oil, natural gas, or solar).
We'll leave you with a question to ponder:
Would you walk across a river that is on average 2 feet deep? Variance matters!