S&P 500 Energy Sector Earnings Update: Q3 2023

S&P 500 Energy Sector Earnings Update: Q3 2023 Earnings

By John Butters| October 30, 2023

The Energy sector is a current focus for the market, as Exxon Mobil and Chevron reported earnings results on October 27. Both companies reported actual EPS numbers for Q3 that were below the mean EPS estimates. Overall, this sector is reporting the largest (year-over-year) earnings decline of all 11 sectors for Q3 at -38.1%. The Energy sector is also the largest detractor to earnings growth for the index. If this sector were excluded, the blended earnings growth rate for the S&P 500 would improve to 8.4% from 2.7%.

At the sub-industry level, three of the five sub-industries in the sector are reporting a year-over-year decrease in earnings of 20% or more: Integrated Oil & Gas (-51%), Oil & Gas Exploration & Production (-37%), and Oil & Gas Refining & Marketing (-20%). On the other hand, two sub-industries are reporting year-over-year earnings growth: Oil & Gas Equipment & Services (32%) and Oil & Gas Storage & Transportation (11%).

Lower year-over-year oil prices are contributing to the year-over-year decrease in earnings for this sector. Despite the rise in price during the month of September, the average price of oil (WTI) in Q3 2023 ($82.22) was still 10% below the average price for oil in Q3 2022 ($91.43).

Looking ahead for the sector, analysts are predicting earnings declines of -21.4% and -9.8% for Q4 2023 and Q1 2024, respectively. However, analysts are calling for earnings growth of 22.4% in Q2 2024.

FactSet Energy analysts Connor McLean and Matthew Hoza provided commentary on key trends to watch going forward related to energy.

Below Connor highlights key themes related to M&A and oil prices. You can also view more energy insights from him.

"The energy M&A market appears to be accelerating with two mega-deals in as many weeks - first, Exxon's agreement to acquire Pioneer Natural Resources, followed by Chevron's acquisition of Hess. This fits within a broader trend of consolidation in the industry. In the past two years, US E&Ps have taken advantage of strong commodity pricing to repair balance sheets and increase returns to shareholders but have been reluctant to increase drilling activity in the face of investor pressure, inflation, and growing concerns around drilling inventory. Meanwhile, despite sluggish global demand growth, the outlook for oil pricing remains strong, supported by continued OPEC production cuts. However, a strong oil market continues to be bearish for US gas pricing near-term as growth in associated gas production outpaces LNG demand additions until 2027."

Next, Matthew Hoza discusses key trends related to renewable energy. View more of his energy insights.

"Wind, solar, and battery storage project economics are facing increased headwinds as costs from strained supply chains and higher interest rates grow. The most recent illustration has been the challenges facing offshore wind projects. The state of New York has denied petitions to renegotiate contracts for four offshore wind projects being developed by Orsted, BP, and Equinor totaling over 4 GW. This comes on the heels of the Swedish utility, Vattenfall, pulling out of its 1.8 GW offshore wind project off the coast of the UK. These delays and cancellations of projects contribute to an improved outlook for natural gas consumption in the power sector. However, regional midstream constraints and robust government support for climate change initiatives will offset upside potential."

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