Most companies reported strong earnings growth in the second quarter, but investors were disappointed. Expectations had risen in line with oil prices and profits, but cash flow generation of some companies fell short of consensus estimates.

1. Quarterly oil and gas earnings
Analyst themes
Q2 2018

2. Page 2
Overview of themes1
Contents
Top 10 themes ranking2
Key themes in detail3
Scope and methodology4
3
4
5
10

3. Page 3
Overview of Q2 2018 themes
Healthy quarterly earnings
still left some investors
disappointed. Lower
production and higher costs
for some operators offset
higher oil prices.
Companies are holding firm
on capital spending limits
but are expected to build
more optionality into their
portfolios and set
themselves up for future
growth or business
transformation. LNG may
come into play again if the
brakes are removed from
project sanctions.
After a sustained period of capital discipline, and focus on value creation, investors are concerned that the pendulum could swing
back to volume growth. Greater confidence that “lower for longer” doesn’t mean lower forever, could prompt a change in investment
strategy. The theme of capital spending guidance moved up the ranking as companies reiterated a commitment towards their
previously declared capital expenditure levels, despite higher cash flows. Inflationary pressure is an upcoming story, especially in
the US Lower 48, keeping efficiency improvement efforts in focus.
Despite capital constraints, and preference for smaller projects with faster pay-back, continued interest was shown in operational
and regulatory updates on capital projects, helping the major project updates theme retained the second spot this quarter.
Adi Karev
Global Sector Leader, Oil & Gas
Most companies reported strong earnings growth in the second quarter, but investors were
disappointed. Expectations had risen in line with oil prices and profits, but cash flow generation
of some companies fell short of consensus estimates. Production growth also underwhelmed in
some cases as the lack of spending and divestments during the downturn began to bite. Cash
flow targets emerged as the top theme in Q2 2018. Unsurprisingly, analysts were keen to
understand the priorities for excess cash. Companies appear to be shifting their focus on capital
discipline for now, opting instead to return cash to shareholders and pay down debt.
Higher crude prices prompted questions on refining performance and downstream
performance, both of which re-entered the top 10 themes. Refining and retail margins for most
companies were in the spotlight, as were the strategies being considered to protect profitability.
Downstream was the leading profit generator during the period of lower oil prices, especially for
integrated IOCs, and will continue to feature heavily in capital allocation.
LNG market developments featured among the top 10 themes for the first time since the fourth
quarter of 2016. Since then, just two LNG projects reached final investment decision. Eighteen
projects were delayed or canceled. However, the market sentiment around LNG has quickly
shifted from oversupply to impending shortfall. Some LNG developers see a window of
opportunity to sanction new projects or brownfield expansions. There will be an early mover
advantage because the volume of planned but unsanctioned capacity additions far exceed even
the most optimistic LNG demand outlooks.

4. Page 4
1 Cash flow targets
2 Major project updates
3 Capital spending guidance
4 Production outlook
5 Portfolio optimization
6 Shareholder distributions
7 Cost control
8 Downstream performance1
9 Refining performance2
10 LNG market developments3
Top 10 themes from quarterly earnings calls
Q2 2018
1 Production outlook
2 Major project updates
3 Portfolio optimization
4 Capital spending guidance
5 Shareholder distributions
6 Cost control
7 Policy and regulation
8 Tax position
9 Cash flow targets
10 Price realizations
Q1 2018

5. Page 5
Key themes
Cash flow targets
Balance between sources and uses of cash
► Why higher oil prices are failing to translate into proportionate increases in free cash flow
► Whether excess cash flow will be used to reduce debt and lower gearing
► Possibilities for higher dividend payouts or increased share buybacks in light of stronger cash flows
► Whether cash flow targets will continue to remain important as against revenue targets
► Changes in baseline oil price realization assumptions and resulting changes in cash flow guidance
1
The execution of current projects and the pipeline of future projects
► Whether final investment decisions are expected on major projects in the short-term
► Updates on the status (cost and schedule) of planned new project start-ups
► When major projects under development are likely to begin contributing to cash flow
► Response to partner comments relating to progress with major projects
► Milestones that need to be achieved for projects to move toward the final investment decision (FID)
► Steps taken to remove bottlenecks and improve efficiency and utilization of specific projects
Major project updates
2

6. Page 6
Key themes
Targeted production levels and factors that may impact a company’s ability to increase production
► Plans and targets for production of unconventional resources, especially US shale
► Factors leading to a decrease or increase in production volumes during the first half of the year and the level of
uncertainty in the production guidance
► Utilization and prioritization of assets to achieve production targets and the availability of capacity to increase
output
► Reasons why production may be at the lower or upper end of the guidance range in the next year
► The contribution of recent major project start-ups and acquisitions to production
Production outlook4
Capital spending guidance
3 Companies’ flexibility to ramp up or down their capital expenditure in response to market
conditions
► Will higher-than-expected oil prices drive higher capital spending levels?
► How buybacks and debt commitments could affect spending levels
► Targets for return on capital and plans to achieve those targets
► Whether higher planned capital spending is the result of inflation or efficiency gains
► Reasons for capex trending above or below guidance and any changes to full-year targets
► Early indications of the potential range for capital spending for the next two to three years

7. Page 7
Key themes
Portfolio optimization
The appetite for asset sales or purchases. Includes observations on the state of M&A markets,
issues of portfolio balance and exposure to particular asset classes
► Have companies reset their asset disposal targets following the completion of major divestment programs?
► The assets within the portfolio that are considered core or non-core
► Appetite and capacity for opportunistic bolt-on acquisitions and possible areas of value-creating assets
► How recent acquisitions fit into the portfolio and their effect on the pace of divestments
► How market conditions might lead to more deal activity (specifically in gas and LNG)
► How potential acquisitions compare to the organic investment options
5
Companies’ strategy for returning capital to shareholders, changes to that strategy and potential
risks to delivery
► Reasons for an increase or decrease in shareholder distribution targets
► The potential to raise the dividend due to stronger cash flows and balance sheets
► How buybacks would be tied to asset disposal programs
► The priorities for cash – shareholder payouts, debt repayment or reinvestment, and return to investors through
capital investment
► The factors that would trigger the resumption of share buyback programs and the potential size of such programs
Shareholder distributions6

8. Page 8
Key themes
Actions companies have taken to reduce costs, and trends in the cost of equipment and services
► Reasons for higher costs
► The scope for further reductions in operating costs compared with previous guidance
► Initiatives that have enabled reductions in operating costs
► The impact of maintenance activities on unit costs
► Guidance on the level of operating costs going forward and supply chain areas that are most prone to inflation
Cost control
7
Downstream performance
Investment and returns in the refining and marketing segments
► Impact of higher crude oil prices on the marketing business
► Prospects for the gas retail business
► Factors leading to lower-than-expected results of the downstream business and efforts in place to improve
them
8
1Resurfacing theme from Q4 2017.

9. Page 9
Key themes
Refining performance
Profitability of the refining segment
► Factors shaping refining margins and the short-term margin outlook
► Possible impact on product yield and margins due to IMO 2020
► How upcoming maintenance plans will impact output this year
9
LNG market developments
LNG project performance and the outlook for supply, demand, contracting activity and
pricing
► Prospects for continued high demand from Asia, especially China, and reaction to softness in demand
from Europe
► Possible sanctions of new projects in response to a potential supply gap opening up in the market over
the next two to three years
► The nature and extent of headwinds to the LNG business
► Buyers’ demand for new supply contracts as existing long-term agreements expire
10
2Resurfacing theme from Q2 2016.
3Resurfacing theme from Q4 2016.

10. Page 10
The purpose of this review is to examine the key themes arising from the questions asked by analysts during the Q2 2018 earnings
reporting season among 12 global oil and gas companies.
The identification of the top 10 themes is based solely on an examination of the transcripts of the earnings conference calls held from
21 July to 1 August 2018.
For this analysis, the following 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. (the company was not included in the analysis this quarter as the analyst call is scheduled after
publication date)
Scope, limitations and methodology of
the review

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