The first quarter oil company results season continues today, with Eni and Schlumberger following the lead set by ConocoPhillips and Occidental on Thursday: earnings fell, but by less than analysts had feared.
There are other pointers in today’s statements to encourage hopes that, now oil appears to be stabilising at about $50 per barrel, the outlook for the industry is brightening up.
The plunge in oil prices and the slowdown in activity means that earnings are falling across the industry. Eni’s underlying net profit was down 42 per cent on the same quarter of 2008, and the company downgraded its growth projection for the year, saying it no longer expected to reach the 3 per cent rise in production that it had previously indicated.
The good news, however, was in what the company said about its financial position. Alessandro Bernini, the CFO, said Eni plans to keep paying a higher dividend yield than itspeer group, such as Total. With Eni shares yielding 13 per cent, compared to Total’s 6 per cent and BP’s 8.7 per cent, tat still gives Eni some room to cut its dividend while still sticking to its commitment. But it probably will not need to. Net debt is about 38 per cent of its equity, and the company expects only a “slight” increase by the end of the year. Compare that to the steep rises planned by BP and above all Shell.
Gordon Gray of Collins Stewart writes:
At $43/bbl Brent, ENI expects YE09 b/sheet gearing to be slightly above the YE08 level of 38%, but still at an adequate level to support its current credit rating. In early march ENI lost 23% absolute (16% relative) in a few days as uncertainty over Gazprom exercising its $4.1bn GazpromNeft option led to concerns over ENI’s credit rating, and thus over the sustainability of its dividend given management’s stress on the importance of the rating. We expect the market to read today’s comments on gearing as a sign of confidence in the sustainability of the dividend, particularly given the likely receipt of the option cash from Gazprom in the next few weeks.
At Schlumberger, meanwhile, the profit fall was smaller but the company’s tone somewhat gloomier. Net profit was down 28 per cent in the first quarter, but Andrew Gould, the CEO, warned on a conference call that that performance reflected margins that were unlikely to be sustained later in the year. Schlumberger is talking tough on prices, arguing that its customers are not pushing through the price reductions that are sometimes suggested, but it accepts that many projects will be uneconomic at present cost levels with $50 oil.
The silver lining, though, is in the longer term outlook. Mr Gould is an old hand who has seen ups and downs before, and he does not expect the present recession to be any different. The company “has no reason to believe this downturn is not going to be a normal cycle,” he said. What goes down must inevitably come up.