It was a face-saving day for the oil industry on Wednesday, and no one was complaining.
Along with news that oil inventories measured by the US Government’s weekly inventories had dramatically contradicted analysts’ estimates and risen last week – by 1.4mln barrels when a 1.4mln barrel fall was expected, was the soothing balm that gasoline inventories nosedived by 3.3mln barrels when just a 200,000 barrel dip had been on the cards.
But it was not just statistics that made the grade. Two large exploration and production companies also printed second quarter earnings and both had relatively good news to share on a good day for the energy sector.
Occidental Petroleum (NYSE:OXY) matched estimates with a quarterly loss of 18 cents per share, while revenue for the energy giant came in below estimates. It also said it saw full-year production at the high end of its previous projected growth range of four to six percent.
Meanwhile, Devon Energy (NYSE:DVN) reported its Q2 earnings. Again, it was not stellar. But it was actually more than adequate for oil investors. The company reported a $1.5bn loss in the second quarter – which was lower than analysts had been expecting.
Given that in the past year the oil sector has endured some numbingly low oil prices, as low as $26 in February, Devon did well to reduce its losses in the period. The company lost more than $2bn in the second quarter of 2015.
In the latest quarter, shareholders lost about $0.06 per share, compared with expected losses of $0.19 per share. Operating expenses went down 26% in Q2.
“Production from our US resource plays once again exceeded guidance expectations and we were able to deliver this outperformance with dramatically lower costs. With the cost savings achieved year to date, we are now on pace to reduce operating and G&A expenses by nearly $1bn in 2016,” said Devon’s president and CEO, Dave Hager, in a statement.
The company said it exceeded expected oil production rates and increased E&P capital investment by $200mln so far in 2016.
What neither company was willing to do was guesstimate where oil prices would be in a year’s time. That is courage beyond sense. Most oil chieftains these days will talk only about those things they can directly influence and possibly control, such as output, costs and asset sales.
So with a slight pick-up in oil prices on Wednesday after the buoyant weekly inventories data from the Energy Information Administration, the West Texas Intermediate settled at $41.11 – up a healthy 4.1% on the day.
Output has remained at a strong clip for the companies despite a recent oil price nadir. Their reasons are perfectly sensible. Not only is there an expense is turning off the tap, like everyone, they have bills to pay and need to generate cash flow even if at decreasing oil prices.
As most oil companies are cash flow-negative there is no easy way to walk away from output. But at least there is a good balancing factor. The more oil they produce, the lower the per-unit costs.
That was especially true for Devon, which engaged new technology to help drive down the costs of marginal output and saved nearly $1bn in operating costs in 2016 into the bargain.
Devon was a leader in the asset sales kiosk. IN the past year it released $3.2bn of assets – above the company’s earlier forecasts.
One thing companies like Occidental and Devon might also be doing, however, is helping restructure the oil industry as well as their own balance sheets. While they contribute to prolonging the oil glut, such individual companies’ efforts also make shale output less attractive. Not ideal, since both Occidental and Devon are engaged in shale gas exploration too. But they might inadvertently, in the longer term, be helping to halt a structural decline in oil prices, and setting up the industry for better times ahead, not just a better day like today.
Occidental shares ended up 1.7% at $74.38 while Devon shares jumped by 5.2% to $38.00. Both stocks were at a one-week high.
Elsewhere one US insurer synonymous with the credit crunch doghouse less than a decade ago, American International Group (NYSE:AIG) reported adjusted quarterly profit of 98 cents per share, five cents a share above estimates. The insurer also announced a $3bn increase in its stock buyback programme. AIG's results were helped by lower expenses and strong underwriting results.
AIG shares closed up 7.3% at $58.10 – their highest close since May 27.