4 minute read 18 Mar 2020
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How Q4 2019 earnings calls examined the challenges for oil and gas


Andy Brogan

EY Global Oil & Gas Leader

Oil & Gas sector leader, speaker and industry advocate, optimist, music addict and avid traveler.

4 minute read 18 Mar 2020
Related topics Oil and gas

Analysts focused on cash flow and capitalization, LNG performance and the status of alternative energy and decarbonization projects.

This article is a part of the Oil and Gas Quarterly Trends series.

Oil and gas prices rose steadily during Q4 following the decision by OPEC+ to extend oil production cuts, although the cuts were still below last year’s levels. The refining and chemicals segment faces seasonal and cyclical weakness, with reduced runs and temporary capacity shut-ins due to weaker margins.

Despite the weak market environment, companies recorded cash flows in line with expectations, though earnings lagged. As the first quarter progressed and since the last earnings call, mounting concerns over demand have led to the disintegration of OPEC+ supply discipline and a complete collapse of crude oil prices.

The macro perspective

Looking toward an increasingly uncertain future where headwinds remain, financial matters were clearly the focal point for the analyst community. With record levels of cash being returned to shareholders via dividends and share buybacks, analysts were concerned about the sustainability of dividend growth if current macroenvironment conditions continue.

Companies were asked several questions regarding their cash flow guidance for 2020, any risks to their cash flow ambitions and also the likelihood of upside in their guidance. Analysts also wanted to understand whether the companies would deploy any excess cash flow, if generated, toward meeting their dividend or share buyback commitments or would instead reinvest the excess into the business.

Capital discipline continues to remain important in a world where oil and gas are under increasing scrutiny by capital markets. Companies announced their plans to operate at the lower end of their capital guidance ranges in 2020. This led several analysts to question the subsequent impact on their activity levels and production targets. Analysts were also keen to get a view of the long-term capital intensity of their core business as companies reshape their portfolios by diversifying into the alternative energy business.

Capital discipline continues to remain important in a world where oil and gas are under increasing scrutiny by capital markets.

Focus on LNG

LNG market performance had significant attention from analysts this quarter. Customers continue to see low spot prices and are demanding to reopen contracts linked to long-term oil prices. Analysts wanted to understand the potential implications of such a move on company portfolios. Recognizing that the economics of gas-focused upstream assets and LNG infrastructure are under pressure, analysts were eager to hear about companies’ LNG capacity expansion plans and how they intend to mitigate medium-term weakness in global LNG prices.

From an operational standpoint, progress on major capital projects, mainly LNG projects, was featured in the analysts’ questions. They want visibility around the long-term project queue and asked specific questions about the schedule of potential FIDs and ramping up of production. Several questions addressed 2020 production guidance and the amount of confidence companies have in meeting those targets.

Analysts also wanted a view of companies’ ongoing operations and future plans in the US shale plays and the likely impact on companies’ production growth. Some companies provided lower production guidance for 2020 than consensus expectations, emphasizing a focus on value over volume. This was a major point of concern for the analyst community, and there were pointed questions concerning production drivers. Gas volumes were of particular interest.

oil&gas q4 top three themes

On the strategic front, portfolio optimization, alternative energy investments and M&A opportunities topped the list of issues. Portfolio high-grading continues to be a key priority, and analysts wanted to understand how companies plan to adjust their portfolios through the cyclical downturn in downstream if current macro conditions continue.

Companies were also asked about their divestment plans and any challenges they foresee in executing asset divestment in what is perceived to be a difficult market. When it came to M&A, analysts were clearly interested to know the type of assets — O&G assets or non-O&G assets — that are expected to see heightened levels of activity in upcoming quarters.

Alternative energy and decarbonization

Although oil and gas will remain a critical part of the global energy mix for decades to come, increasing investor focus on climate change is compelling companies to invest in alternative energy businesses. However, analysts’ skepticism toward oil and gas companies’ ability to achieve ambitious alternative energy business targets was clearly evident. Analysts inquired about returns on already operating alternative energy assets and questioned whether companies possess the competencies and skill sets needed to ramp up alternative energy businesses.

Environment, sustainability and governance (ESG) emerged as a key topic among the analyst community during the quarter. Companies have announced major decarbonization initiatives, and analysts were interested in their execution plans. Analysts also asked questions around companies’ medium- and long-term exploration plans to get a view of how core oil and gas businesses will compete for capital in the age of decarbonization.

Analysts expect market volatility to continue in the next few quarters. These uncertainties may continue to pose challenges to companies.

Looking forward

The confluence of indefinite demand disruption and the breakdown of supply discipline has led the market into a period of unprecedented uncertainty. Forces that have supported commodity pricing are gone for the time being. The focus on capital deployment, project economics, operational efficiency and cash flow will likely reach new heights. Share buybacks and dividends may be at risk, access to capital will be difficult and consolidation will take on new urgency. On top of it all, pressure to reengineer businesses in the face of energy decarbonization will be relentless.

  • Scope, limitations and methodology

    The purpose of this review is to examine key themes arising from the questions asked by analysts during the Q4 2019 earnings reporting season among 12 global oil and gas companies. Identification of the top three themes is based solely on an examination of the transcripts of the earnings conference calls. For this analysis, these companies were included:

    • BP plc
    • Chevron Corporation
    • ConocoPhillips
    • Eni SpA
    • Exxon Mobil Corporation
    • Husky Energy Inc.
    • Repsol SA
    • Royal Dutch Shell plc
    • Equinor ASA
    • Suncor Energy Inc.
    • TOTAL S.A.
    • Woodside Petroleum Ltd.


Based on Q4 2019 earnings calls, oil and gas companies expect headwinds to increasingly pose challenges to performance in the next few quarters. In the LNG space, several companies emphasized a focus on value over volume. Companies also reported on the status of major decarbonization initiatives.

About this article


Andy Brogan

EY Global Oil & Gas Leader

Oil & Gas sector leader, speaker and industry advocate, optimist, music addict and avid traveler.

Related topics Oil and gas