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Lower Natural Gas Prices Squeeze Big Oil's Profits in Q1 2024

Much lower natural gas prices this year compared to 2023 dragged down profits at some of the largest oil and gas companies, which have so far reported a mixed bag of earnings for the first quarter of 2024.
U.S. supermajors ExxonMobil and Chevron, as well as France's TotalEnergies, all cited lower natural gas prices as a key downward pressure on earnings that couldn't be fully offset by stable crude oil and liquids realizations and refining margins.
Exxon reported on Friday underwhelming earnings for the first quarter that were lower than consensus estimates due to declining natural gas prices and non-cash adjustments.
The U.S. supermajor booked first-quarter earnings of $8.2 billion, down from $11.4 billion for the first quarter of 2023. Earnings per share were $2.06 for the first quarter of 2024, down from $2.79 for the same period last year.
Exxon's Q1 2024 earnings per share were below the analyst consensus forecast of $2.19 compiled by The Wall Street Journal.
"Natural gas prices moved back inside the 10-year range, reflecting continued high inventory levels and lower demand," Exxon's executives said on the conference call.
On the other hand, refining margins rose to the top of the 10-year range, driven by strong demand, industry downtime, and supply disruptions, while average crude prices were flat in the quarter as the market remained relatively balanced, the company said. But these and a stellar performance in Guyana could not fully offset the weak natural gas prices.      
During the first quarter, the benchmark U.S. natural gas prices at the Henry Hub mostly traded below $2 per million British thermal units (MMBtu) amid a market glut in a warmer winter and lower demand. The low prices even prompted major gas-focused producers to curtail some output in March and April.
The lower natural gas prices hit Chevron's earnings, too. But unlike Exxon, Chevron slightly beat the analyst earnings estimates, thanks to higher oil and gas production that offset part of the weaker refined product margins and low natural gas prices.
The annual drop in Chevron's Q1 earnings was primarily due to lower margins on refined product sales and lower natural gas realizations, partly offset by higher upstream sales volumes in the U.S. The supermajor reported a 406,000-barrels-per-day rise in net oil-equivalent production in the United States due to the acquisition of PDC and higher production in the Permian and DJ Basins.
Chevron's worldwide production was up 12% from a year ago, primarily due to the acquisition of PDC, strong operational performance in the Permian and DJ Basins in the U.S., and the Tengizchevroil affiliate in Kazakhstan.
"Adjusted first quarter earnings were down $1.3 billion versus last year. Adjusted upstream earnings were down modestly. Higher liftings were more than offset by lower natural gas realizations," Chevron's CFO Eimear Bonner said on the earnings call with analysts.
Similarly to Chevron, European major TotalEnergies also beat first-quarter estimates even as its net income dropped by 22% from a year ago. Stable oil prices and healthy refining margins failed to fully offset a decline in natural gas prices, but helped TotalEnergies beat analyst forecasts as it reported Q1 earnings on Friday. The company announced additional share buybacks and an increase in the first interim dividend for 2024.
"In a context of sustained oil prices and refining margins but softening gas prices, the Company announced first quarter 2024 adjusted net income of $5.1 billion and cash flow of $8.2 billion, in line with its ambitious 2024 objectives," TotalEnergies' chief executive officer Patrick Pouyanné said.
UK-based Shell, the world's top LNG trader ahead of TotalEnergies, said earlier this month that it expects the trading results in its Integrated Gas division to be lower in the first quarter of 2024 compared to an exceptionally strong fourth quarter of 2023.
The trading and optimization results in Integrated Gas "are expected to be strong, but significantly lower than an exceptional Q4'23," the company said ahead of the results release on May 2.
By Tsvetana Paraskova for Oilprice.com

May 1, 2024 15:07
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