The world’s largest oil and gas companies have been turning in impressive results in the third quarter despite the general economic gloom. The profit levels of the majors in particular offered a reminder of the heyday when oil was repeatedly trading at well above $100 per barrel and gas trading at sub $5 per mcf was outside the imagination of most analysts.
For Q3 2011 ExxonMobil reported a normalised income of $10.3 billion, Chevron made $7.8 billionand Royal Dutch Shell $6.7 billion. Despite the strong performances, the share prices of the major oil and gas companies has remained dampened by negative economic sentiment emanating from the financial markets, ranging from the fallout from the Eurozone debt crisis to forecasts of another global recession.
Evaluate Energy has focused on the latest quarterly results of 26 of the world’s largest oil & gas companies, which boast a combined market cap of $1.6 trillion. Results reveal that that despite the average post-tax ROACE of the group standing at 12%, the market cap is 5% lower than in Q3 2009 when the ROACE stood at just 8.2% and 1% lower than Q3 2010 when the ROACE stood at 9.9%. An indication perhaps that investors have an opportunity.
The world has undergone significant change over the past 12 months, Q3 2010 was filled with tentative optimism that the global economy had stabilised and the high debts reached in steadying the ship after the credit crisis would be paid off via natural economic growth. In Q3 2011, this optimism seems to have all but evaporated and the diverse range of economic predictions has only served to prove that we really don’t know where the fallouts of the debt crisis and economic stagnation of major developed countries will lead us. The performances for the group of oil and gas companies has offered some respite however from the turmoil. An average oil price 18% higher than Q3 2010 led to an increase in earnings of 34%, ROACE is now at 12% versus 9.9% and the average WACC for the group has fallen from 8.7% to 7.8%, as lower interest payments on debt compensated for the increased volatility in the group’s share prices. Looking at companies in individually, ExxonMobil recorded their third quarter in a row of earnings over $10 billion. Earnings of this magnitude used to…
