Oil company profits exceed estimates by 46 percent

Bloomberg:

If you thought oil prices were hard to predict, try estimating oil company earnings.

Exxon Mobil Corp., BP Plc and other major oil producers beat analysts’ profit estimates by an average of 46 percent for the first quarter, according to data compiled by Bloomberg. The companies, along with Royal Dutch Shell Plc, Eni SpA and Total SA, raked in more than $15 billion in combined quarterly profit after the worst oil price crash since 2009.

It wasn’t that the results were that impressive in a bear market -- most companies reported profits down around 50 percent from the first quarter of 2014. Rather, the earnings show how far off estimates were. More specifically, they show how much easier it is to model profit estimates from producing oil than from refining or trading it, which is where most of the bigger companies saw earnings surge for the quarter.

Oil trading strategies are kept opaque for competitive reasons, and prices at the pump fell more slowly than crude, said Fadel Gheit, a New York-based analyst at Oppenheimer & Co. “We could not see that coming,” he said. “As oil prices collapsed, refined product prices did not go down as fast, which created an unusually fat margin.”
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The cost of  their raw material dropped for those companies who focus on downstream uses of those raw materials.  Most of the companies were also cutting cost as the price dropped.  Those who were hardest hit were highly leveraged companies focused on drilling wells and servicing them.  Companies also also focusing on becoming more efficient in order to maintain profitability during a down market.