Although crude oil had a strong run in July and is now trading back above $80 a barrel, the price has been largely trending lower since peaking at $122 per barrel in June 2022 after Russia invaded Ukraine. The decline is starting to show up in energy companies’ earnings. Most oil majors just announced their second-quarter prints, and the results were not pretty. Many companies saw their profits cut in half from record levels a year ago during what was arguably the biggest boon to oil and natural gas producers in a generation. Dividend payments have been cut, and stock buybacks lowered at many energy concerns as the good times abruptly come to an end.
While crude oil prices may continue inching upward in the near term, they are unlikely to retest the highs seen in summer 2022. And the long-term outlook for energy is not encouraging, given the world’s move away from fossil fuels. Here are three energy stocks to sell ASAP.
Exxon Mobil (XOM)
Energy giant Exxon Mobil (NYSE:XOM) just reported a 56% decline in its second-quarter profit due to the steady drop in crude oil prices from their peak last year. Exxon Mobil said its Q2 net income, or profit, amounted to $7.88 billion, or $1.94 a share, compared to a record $17.85 billion profit reported a year earlier. Revenue was also lower in the quarter, declining 27% from a year earlier to $80.8 billion.
The company said it achieved structural cost savings of $8.3 billion from 2019 levels during Q2, nearing its $9 billion cost-cutting goal. Exxon Mobil’s oil production currently stands at 3.7 million barrels of oil equivalent per day, in line with the company’s annual target. While the company distributed $8 billion in cash to shareholders in Q2, including $3.7 billion of dividend payments, the long-term trend for XOM stock is not encouraging, making it an energy stock to avoid. Year to date, Exxon Mobil’s share price is flat (up 0.10%).
Shell (SHEL)
International oil major Shell (NYSE:SHEL) also reported a 56% decline in its Q2 profit, dropping to $5 billion on falling crude oil and natural gas prices. The latest earnings missed Wall Street forecasts of a Q2 profit of $5.80 billion, following record quarterly earnings of $11.5 billion during the same period in 2022 as energy prices spiked. In this year’s first quarter, the company reported a profit of $9.65 billion. Shell also lowered its stock buybacks to $3 billion during the next quarter, down from $3.60 billion in the previous three months.
The lower earnings also reflect a decline in liquefied natural gas (LNG) prices, which fell to $11.6 per million British thermal units (mmBtu) from $33 in Q2 2022. Shell is the world’s largest LNG trader. The company announced that it reduced its debt to $40.3 billion in Q2, down from $44.2 billion in this year’s first quarter. However, like Exxon Mobil, Shell’s financials and stock are not trending in the right direction. Over the last five years, SHEL stock has decreased by 8%.
TC Energy (TRP)
Change is underway at TC Energy (NYSE:TRP). The Canadian oil and natural gas pipeline operator recently said that it plans to split into two separate companies after reporting that its Q2 net income fell 72% year-over-year from $889 million to $250 million. Specifically, TC Energy said it intends to spin off its crude oil pipelines business, creating two publicly traded companies. The company will operate more as a utility company going forward, focusing on natural gas infrastructure as well as nuclear, pumped hydro energy storage and other new energies.
At the same time, TC Energy said it is selling its 40% stake in two natural gas pipelines for 5.2 billion CAD by year-end. The sale of Columbia Gas Transmission and Columbia Gulf Transmission is going to private equity firm Global Infrastructure Partners.
TC Energy also reported its revenues for the quarter ended June 30 totaled $3.8 billion, up 6% from $3.6 billion a year ago.
However, it’s important to remember that TC Energy is restructuring due to long-term issues with its business. TRP stock has declined 30% over the last 12 months.
On the date of publication, Joel Baglole did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
