Upstream down/downstream up is likely to be the topsy-turvy story when the integrated oil majors give third quarter updates this week.
First in to bat is BP (LON:BP.), where the decline in the oil price is sure to have had a dramatic effect on the (upstream) production business, but this should be somewhat offset by a brighter downstream picture, where margins are on the mend.
Brent crude is down by around 50% year-on-year, as is the US benchmark, West Texas intermediate, while quarter-on-quarter (qoq), the oil price is down by around 19%.
That means that although BP, in common with its peers, has reined in its capital spending plans, it may announce more cuts in Tuesday's results.
Broker Investec, however, thinks the market will be looking for evidence that the cuts already made are feeding through.
“This would underpin confidence that the majors are indeed on that fabled path towards cash neutrality,” the broker said.
The dividend looks safe (for the time being), which will come as a relief as BP has not long returned to paying dividends as the bills for the Gulf of Mexico tragedy, covered largely by BP's massive asset disposal programme, become a known quantity.
“Despite the DoJ’s [Department of Justice's] higher headline number for the recent multi-lateral settlement regarding the Macondo oil spill in 2010, we would not expect BP to take further charges in this regard,” Investec said.
The broker's forecast is for BP's net income to fall by two-thirds to US$998mln.
Canadian broker RBC Capital Markets thinks the settlement with the DoJ will enable the company to focus more on operations where, in RBC's view, it has the most fat to cut of all the integrated majors.
“BP has not given a target for the group yet, and we think the market would welcome one – we estimate BP can reduce costs by US$3bn per annum, or 10% of its cash cost base,” RBC said.
Third quarter production, as flagged in the second quarter update, is expected to be little changed quarter-on-quarter, with a bit of upside possibility given that there has been little storm activity in the Gulf of Mexico in the quarter.
Elsewhere, Utilitywise reports its full-year results tomorrow, illuminating upon the full year trading update given in August.
Robin Speakman at Shore Capital said: “Investors will also be looking to emerging new verticals such as water utilities and to signs of opportunity in Continental Europe.
Utilitywise remains well resourced, with a strong client management infrastructure and financially, Speakman expects to see a stable balance sheet with net debt of around £15mln against income of £38mln in receivables.
Significant announcements expected:
Final: Utilitywise (LON:UTW)
Interim: Bloomsbury Publishing (LON:BMY), BP (LON:BP.), JZ Capital Partners Limited (LON:JZCX), Torchmark Corporation (LON:TMK)
Trading statement: International Personal Finance (LON:IPF), Shoe Zone (LON:SHOE), St James's Place (LON:STJ)
Economic: UK – Preliminary gross domestic product. EU – M3 money supply. US – CB consumer confidence; Core durable goods orders; Durable goods orders.