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Integrated Energy Companies’ Segment-Wise Earnings in 3Q16

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Integrated energy companies’ segmental earnings: Upstream

Integrated energy companies’ upstream earnings have put up a mixed trend in 3Q16. ExxonMobil’s (XOM) Upstream segment contributed 32% of its total earnings in 3Q15, compared with 23% in 3Q16. Earnings from its Upstream segment fell 54% year-over0year to $620 million in 3Q16.

The situation is similar for BP (BP). The company’s Upstream segment, which contributed 25% to its URC (underlying replacement cost) EBIT[1. earnings before interest and tax] in 3Q15, reported a loss in 3Q16.

However, Chevron’s (CVX) earnings have improved in 3Q16 compared to 3Q15. Its Upstream segment, which reported a loss in the past three quarters, has become profitable in 3Q16.

Royal Dutch Shell’s (RDS.A) Upstream segment earnings, which stood at -$582 million in 3Q15, turned a profit of ~$4 million in 3Q16, excluding the identified items.

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Downstream and other segments earnings stay positive

ExxonMobil’s (XOM) earnings from its Downstream segment fell due to lower margins, partly offset by favorable volume and mix effects. Similarly, BP’s Downstream URC EBIT fell 38% year-over-year (or YoY) to $1.4 billion in 3Q16. This was due to a fall in BP’s average refining marker margin from $20.00 per barrel in 3Q15 to $11.60 per barrel in 3Q16.

Shell’s Downstream segment’s earnings fell 21% to ~$2.1 billion in 3Q16 over 3Q15 due to a weaker refining environment. Also, Chevron’s Downstream segment saw its earnings fall 52% YoY to ~$1.1 billion in 3Q16.

While the integrated energy companies’ overall earnings have slumped, few companies have seen their upstream segment earnings recover from their losses. Although these companies’ downstream earnings fell, the segment has notably resisted the fall in overall earnings.

For exposure to integrated energy sector stocks, you can consider the iShares Global Energy ETF (IXC). This ETF has ~55% exposure to the sector.

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