Full-year 2016 earnings have now been released for the world’s largest integrated oil and gas companies headquartered in the U.S. or Europe, the so-called supermajors. These companies, in order of descending enterprise value, are ExxonMobil (NYSE: XOM), Royal Dutch Shell (NYSE: RDS-A), Chevron (NYSE: CVX), Total (NYSE: TOT) and BP (NYSE: BP). I have previously included Eni (NYSE: E) in this group, but I am removing it for reasons explained below.

ExxonMobil

ExxonMobil reported fourth-quarter earnings of $1.7 billion, down 40% year-over-year. This was primarily caused by a $2 billion impairment the company recorded. I explained this impairment in some detail recently in ExxonMobil’s Missing Billions.

Excluding the impairment charge, Q4 earnings were 90 cents per share and beat analysts’ consensus estimate of 70 cents per share. Upstream earnings from producing oil and gas totaled $1.4 billion, up $528 million from a year earlier.

For the full year the company earned $7.8 billion (which includes the $2 billion impairment), down 51% from $16.2 billion earned in 2015. Cash from operations for the year was $22.1 billion, down from $30.3 billion the previous year.

Net liquids productions for the year was 2.365 million barrels per day, up slightly from the 2.345 million bpd in 2015. Natural gas production was down nearly 4% year-over-year. Total proved reserves at year end were 11.1 billion BOE.

For the first time in 22 years, ExxonMobil failed to find as much new oil as it produced. Its reserves replacement ratio for the year fell to 67%. The company also posted the deepest reserves cut in modern history, removing 3.5 billion barrels of oil sands in western Canada that it’s decided are no longer economical at prevailing crude prices.

Royal Dutch Shell

Shell posted fourth-quarter earnings of $1 billion compared with $1.8 billion for the same quarter a year ago. The company cited lower oil and gas prices, but costs associated with last year’s merger with BG Group were also a factor. Shell delivered $9 billion in cash flow from operations for the quarter, reduced debt, and for the second consecutive quarter free cash flow was more than sufficient to cover the dividend.

After failing to replace any of its produced reserves and writing down more for a reserves replacement ratio of -20% in 2015, Shell increased reserves from 11.7 billion to 13.2 billion BOE in 2016, thanks to its acquisition of BG Group. This gave Shell a reserves replacement ratio of 208%. BG added about 2.4 billion BOE, so without that acquisition Shell’s reserves would have fallen once again.

Shell’s 2016 capital spending was $26.9 billion. It plans to reduce that further in 2017 to around $25 billion. Shell CEO Ben van Beurden said the combined company has slashed $10 billion in costs from what Shell and BG were spending separately just two years ago. He dubbed 2017 “a year of execution” after the “year of transition” in 2016.

Chevron

Chevron badly missed on earnings estimates, blaming low refining margins, tax charges and low oil and gas prices. The company reported fourth-quarter earnings of $415 million, versus a $588 million loss in the year-ago period. However, this 22-cents-per-share profit fell far short of analysts’ consensus estimate of 64 cents per share.

For the full year 2016, Chevron reported a loss of $497 million. Cash from operations for the year was $12.8 billion, down from $19.5 billion the previous year.

Also for the full year, Chevron produced 2.59 million barrels of oil equivalent (BOE) per day. Total proved reserves at year end were 11.1 billion BOE, representing a reserve replacement ratio of 95%.

Chevron spent $22.4 billion on capital projects and exploration last year, down from $34 billion in 2015. The company expects to reduce that spending to $19.8 billion for 2017. It plans to focus $2.5 billion of capital in the Permian Basin, where it is one of the largest acreage holders.

Total

Total under-performed its larger peers for much of the past decade, but that’s changed over the past year or so. It managed to beat fourth-quarter analyst expectations by 8% as adjusted net income climbed 16% from a year earlier to $2.41 billion. The key drivers were a 4.7% year-over-year oil and gas production increase and a reduction in capital requirements.

The company estimated that it can fund 2017 operations and the cash portion of its dividend from cash flow with Brent crude at about $50 a barrel, $5 below the current price. Total added to its reserves with a replacement rate of 136%, partly as a result of major discoveries in the US (North Platte) and Nigeria (Owowo).

BP

BP’s fourth-quarter results underwhelmed. It posted underlying (adjusted) earnings of 13 cents per U.S. traded share, versus 6 cents per share a year earlier and below analysts’ consensus guess of 16 cents per U.S. share. Fourth-quarter operating cash flow was down 25% year-over-year.  

BP reported a reserves replacement ratio of 109% for 2016. Capital spending totaled $16 billion for the year, below guidance of $17-19 billion. The capital spending target for 2017 is $16-$17 billion. The company said it reached its cash cost cuts target of $7 billion versus 2014 a year early.

Uncertainty about the ultimate cost of the 2010 Deepwater Horizon oil spill has largely resolved. The company expects its spill-related spending to decline to $4.5-5.5 billion this year before falling sharply to some $2 billion in 2018 and a little over $1 billion a year thereafter.

Late last year, the company met its goal of balancing its dividend with free cash flow at a Brent oil price of $50-55/bbl. But the acquisitions made toward the year’s end will require additional spending, so this year BP will need Brent at $60 to support the dividend from operating cash flow,    

Eni

Italian explorer Eni has long been considered to be one of the world’s supermajors, but is overdue for relegation from that league. Eni’s market capitalization is only $55 billion, compared with more than $100 billion for all the other supermajors. ENI is also smaller than some other oil and gas producers, notably Norway’s Statoil (NYSE: STO). As a result, I no longer think it deserves to be discussed alongside ExxonMobil and Shell.   

Conclusions

Big Oil offers investors yield and some protection against the ups and downs of energy prices. When oil prices rise the oil majors’ upstream business outperforms while the refining segment usually suffers. In fact, several supermajors cited weaker refining margins as a reason for weaker-than-expected earnings. The end result was that although many oil and gas stocks surged in 2016, those of the supermajors have lagged considerably.

Four of the five have a positive 12-month return, led by the 28% gain for Conservative pick Chevron. But the average return of the group was only 14.4%, well behind the gains of around 40% for the likes of Conservative Portfolio recommendation ConocoPhillips (NYSE: COP) or Growth pick EOG Resources (NYSE: EOG).

We continue to rate Chevron a Hold and BP a Buy despite their fourth-quarter disappointments.