And seldom was heard an encouraging word…. At least from the oil producers and oil service companies that have reported second quarter earnings as of the close of trading on July 29.
The best news is that oil companies aren’t slashing capital spending budgets anymore. But no one is increasing them much either on the early evidence from BP (BP) and oil service companies such as Oceaneering International (OII).
We’ll know later today and tomorrow, respectively, if ExxonMobil (XOM) and Chevron (CVX), tell the same story when they report.
Typical of the sector so far is this from BP (BP) CEO Tony Hayward: “We see little evidence of any growth in demand and expect the recovery to be long and drawn out.”
You can see why BP isn’t upping its capital budget if you look at the company’s cash flow so far this year. BP’s operating cash flow for the second quarter of $6.7 billion didn’t cover the company’s $2.6 billion in dividend payments and $5.2 billion in capital spending. The company projects that further cost cutting will take it to operating cash flow break even by the end of the year even if oil prices stay stuck near current levels. BP has plenty of room to borrow but borrowing to expand capital spending a this point isn’t on the agenda.
Quarterly reports from Oceaneering iInternational, Oil States International (OIS), National Oilwell Varco (NOV) and other oil service companies echo BP’s projection that the turn around for oil is still out there somewhere.
Oil States International, for example, beat Wall Street expectations for earnings per share by 4 cents (once you took out the effect of a $1.70 a share write-down for imparied goodwill.) Revenue was in line with Wall Street projections.
But rather than talking up the chance of better times in 2009, the company emphasized that it has the financial strength to survive while it waits for the turn in business. Oil States has paid down debt; cash flow is healthy; liquidity is ample, and substantial bank lines are still untapped, management noted
Sounds like a company that has hunkered down for the a hard winter while it waits for spring.
ExxonMobil is scheduled to report today before the market opens and Chevron is to report tomorrow July 31. We’ll see if the two strongest oil majors paint a different picture.
