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What to expect as Big Oil reports second-quarter earnings

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An oil pump jack operates at the Inglewood Oil Field in Culver City, California, U.S., on Sunday, July 11, 2021.

Kyle Grillot | Bloomberg | Getty Images

LONDON — Oil and gas majors are likely to report bumper second-quarter earnings in the coming days, energy analysts have told CNBC, following a brutal 12 months by virtually every measure.

The expected upswing would build on a surprisingly strong showing in the first quarter and lend further support to the oil and gas industry’s efforts to pay down debt and reward investors.

“Big Oil” companies, referring to the world’s largest oil and gas majors, still face significant challenges and uncertainties, however.

These include the remarkable success of shareholder activism in recent months, a “tremendous degree” of ongoing investor skepticism and intensifying pressure to massively reduce fossil fuel use in order to meet the demands of the climate emergency.

“Europe’s integrated oil sector already enjoyed surprisingly strong earnings in 1Q, but 2Q is set to show further improvement as commodity prices took another step up,” analysts at Morgan Stanley said in a research note.

International benchmark Brent crude futures rose to an average of $69 a barrel in the second quarter, the Wall Street bank said, up from an average of $61 in the first three months of the year. The oil contract was last seen trading at around $73.57.

Oil companies that ignore climate in their earnings calls will be seen as laggards. Long-term investors will conclude they are financially risky.

Kathy Hipple

Finance professor at Bard College

Analysts at Morgan Stanley noted that energy major share prices continue to be anchored by their dividend distributions. Notwithstanding substantial increases to free cash flow forecasts, the bank said Big Oil dividend expectations remain “rather static.”

“The energy transition confronts investors with much uncertainty, and the sector’s capital allocation track record has been mixed at best over the last decade. Hence, investors are only valuing the cash flow paid to them, with little credit given for cash flow retained within companies,” they said.

“As the dividend outlook has not improved much, and dividend yields in aggregate are already low by historical standards, share prices have trailed the earnings outlook considerably.”

In Europe, Royal Dutch Shell and TotalEnergies will report second-quarter earnings on July 29, with BP scheduled to follow on Aug. 3. Stateside, ExxonMobil and Chevron are expected to publish their latest figures on July 30, while ConocoPhillips will report second-quarter earnings on Aug. 3.

Fuel prices on a sign at a BP gas station in Louisville, Kentucky, on Friday, Jan. 29, 2021.

Luke Sharrett | Bloomberg | Getty Images

Rene Santos, manager for North America supply at S&P Global Platts Analytics, told CNBC via email that he expects second-quarter earnings from U.S.-based energy companies to be “significantly higher” when compared to the same period in 2020.

This is “mainly due to much higher oil prices,” he added. “In addition, the majors, large and mid-cap companies have kept capital discipline and have continued to focus on paying down debt and increasing free cash flow instead of increasing activity [drilling and completion] despite higher oil prices.”

Santos said S&P Global Platts Analytics also foresee an increase in the reporting of ESG activity, noting that it “looks like pressure from environmental groups and fear of more regulations from the current administration is persuading many companies to do more to decrease emissions.”

Growing climate risk

The oil and gas industry was sent into a tailspin last year as the coronavirus pandemic coincided with a historic fuel demand shock, plunging commodity prices, unprecedented write-downs and tens of thousands of job cuts. The torrent of bad news prompted the head of the International Energy Agency to suggest it may come to represent the worst year in the history of oil markets.

Oil prices have since rebounded to multi-year highs and all three of the world’s main forecasting agencies — OPEC, the IEA and the U.S. Energy Information Administration — now expect a demand-led recovery to pick up speed in the second half of 2021.

Clark Williams-Derry, energy finance analyst at IEEFA, a non-profit organization, said he expects oil and gas companies to try to claim a clean bill of health after a bumper second quarter. “That’s the mantra that we will hear,” he told CNBC via telephone.

However, while energy majors will likely have had the opportunity to pay down some debt after generating a significant chunk of cash from their operations, Williams-Derry said that this hides the fact that these companies have not invested much in future production.

Members of the environmental group MilieuDefensie celebrate the verdict of the Dutch environmental organisation’s case against Royal Dutch Shell Plc, outside the Palace of Justice courthouse in The Hague, Netherlands, on Wednesday, May 26, 2021. Shell was ordered by a Dutch court to slash its emissions harder and faster than planned, dealing a blow to the oil giant that could have far reaching consequences for the rest of the global fossil fuel industry.

Peter Boer | Bloomberg | Getty Images

“What I think the market is starting to signal is that it kind of likes when the oil companies shrink and aren’t going all out into new production but they are using the cash that their operations are generating to pay down debt and reward investors.”

Longer term, Williams-Derry warned there’s a “tremendous degree” of investor skepticism about the business models of oil and gas firms, citing the deepening climate crisis and the urgent need to pivot away from fossil fuels.

“We saw earlier in the year signs of a sea change in investor thinking about, frankly, the legal status of some of the supermajors,” he said, referring to a series of landmark courtroom and boardroom defeats for the likes of Royal Dutch Shell, ExxonMobil and Chevron.

“So, even if you are riding high for a quarter or two when prices are high, the reality is still that stock prices are way below the market as a whole and there’s just not the investor enthusiasm for the old business model that I think these companies probably expected to see,” he said.

Energy transition

Kathy Hipple, finance professor at Bard College in New York, told CNBC via email that she believes two key themes are likely to emerge this earnings season: Addressing investor concerns around climate risk and the outlining of new business models to survive a pivot toward renewables.

“Investors are future-oriented and will look past a short-term pop in earnings compared to last year’s dismal second-quarter results,” Hipple said. “They want to see concrete business strategies that acknowledge the energy transition that is gathering speed.”

She argued it was important to note that these earnings will be announced “against a backdrop of climate disasters around the globe,” from extreme heat in the Pacific Northwest to flooding in Europe and China.

“Oil companies that ignore climate in their earnings calls will be seen as laggards. Long-term investors will conclude they are financially risky,” Hipple said.

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The 10 fastest-growing jobs of the next decade—and how much they pay

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The Covid-19 pandemic has radically shifted the work landscape, as millions of Americans switched career paths or said goodbye to the office forever. While U.S. employment will experience stunted growth over the next 10 years, the Bureau of Labor Statistics reports, certain jobs will be soaring in demand. 

According to a new analysis from the BLS, the U.S. will add 11.9 million jobs through 2030, many in industries that were hit hardest by the pandemic. Food preparation and service-related jobs including servers, cooks and fast food employees are projected to add about 1.5 million jobs by 2030. 

Wind turbine service technicians topped the list for the most in-demand jobs of the next decade, with that group of workers expected to jump by 68.2%. Other jobs in the ranking fall into three categories: renewable energy, data and health care. Interest in wind and solar energy has skyrocketed as installation costs drop and more countries prioritize reducing their carbon emissions, Bureau of Labor Statistics Division Chief Michael Wolf tells CNBC Make It. 

Other occupations, such as information security analysts and data scientists, will become more popular as people continue to work from home and online. “As companies have more of their employees working remotely, they’re going to invest more in software and systems that enable them to be productive in that environment,” Wolf says. “There’s also an increased emphasis on protecting their data and information online.” 

While the pandemic has created an unprecedented need for health care, continued demand for jobs in this sector is actually driven by an aging population, Wolf explains. “The baby boomer generation is much larger than previous generations, and they’re starting to enter their 60s and 70s, when people depend on more health care services,” he says. “We’re going to see a huge increase in the number of people consuming those services.”

Wolf also predicts that the country’s labor participation rate will decline as workers age and fewer young people (those between the ages of 16 and 24) pick up jobs. “We’re seeing a higher number of people decide to pursue post-high school or post-secondary education, so people are not entering the labor force as early as they were before,” Wolf notes. “It also used to be a lot more common for people to have a part-time job while attending high school or college, but now, a lot more people are deciding to be full-time students and not work in the labor force at the same time.”

Though the long-term projections are promising, the U.S. job market is facing more immediate challenges as a surge in Covid-19 cases disrupts economic recovery. After solid job growth in July, the economy has slowed, adding just 235,000 positions in August, according to the Bureau of Labor Statistics. That number is a lot less than the 720,000 new hires economists had predicted. 

 Check out:

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Elon Musk pledges $50 million to Inspiration4 fundraiser for St. Jude

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SpaceX CEO Elon Musk poses with the crew before launch on September 15, 2021.

John Kraus / Inspiration4

SpaceX CEO Elon Musk helped achieve the St. Jude Children’s Research Hospital fundraising goal of the Inspiration4 spaceflight, just hours after his company returned the crew from orbit.

The main goal of the Inspiration4 mission, which launched on Wednesday and splashed down on Saturday, was to raise $200 million for St. Jude.

Inspiration4 commander Jared Isaacman, a billionaire entrepreneur who purchased the flight from SpaceX, donated $100 million personally to St. Jude. The Inspiration4 mission had raised another $60.2 million in donations, before Musk pledged to contribute $50 million himself – pushing the campaign’s total raised to more than $210 million.

“Count me in for $50M,” Musk said in a tweet on Saturday.

The historic Inspiration4 mission with a private crew spent three days in space, carrying Isaacman, pilot Sian Proctor, medical officer Hayley Arceneaux and mission specialist Chris Sembroski. The crew orbited the Earth at an altitude as high as 590 kilometers, which is above the International Space Station and the furthest humans have traveled above the surface in years.

The spaceflight achieved multiple milestones, including: The first private SpaceX spaceflight, the first entirely nonprofessional crew to become astronauts, the first Black female spacecraft pilot, the youngest American astronaut to date, and the first person to fly in space with a prosthesis.

The Inspiration4 passengers pose in the crew access arm of Launch Complex 39A at NASA’s Kennedy Space Center in Florida. From left: Commander Jared Isaacman, medical officer Hayley Arceneaux, pilot Sian Proctor, and mission specialist Chris Sembroski.

SpaceX

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Crew cupola window view in orbit

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The first look at the crew in orbit, from left: Jared Isaacman, Hayley Arceneaux, Chris Sembroski, Sian Proctor.

Inspiration4

Inspiration4, which launched with Elon Musk’s SpaceX on Wednesday evening, shared the first photos from day one in orbit and gave an up-close look at the expansive views of Earth from the spacecraft’s “cupola” window.

The crew spent its first day in orbit floating in zero gravity inside the capsule, taking photos from the Crew Dragon window and spoke to patients of St. Jude Children’s Research Hospital, answering questions from space.

The historic private mission — which includes commander Jared Isaacman, pilot Sian Proctor, medical officer Hayley Arceneaux and mission specialist Chris Sembroski — is orbiting the planet at an altitude of 585 kilometers (363.5 miles), which is above the International Space Station and the highest altitude humans have traveled in years.

Inspiration4, which is expected to return to Earth and splash down this weekend, was paid for by Isaacman for an undisclosed amount, with the main goal of the spaceflight to raise $200 million for St. Jude.

Hayley Arceneaux takes in the view of Earth from the Crew Dragon cupola window.

Inspiration4

SpaceX modified the top of Crew Dragon capsule Resilience to add a massive window for the astronauts, replacing the docking hatch that is under the spacecraft’s nose cone with the cupola.

Spacecraft commander Jared Isaacman speaks into a microphone as he peers out the cupola window.

Inspiration4

The cupola is the largest window by surface area ever put in space.

Mission specialist Chris Sembroski is seen taking a photo through the cupola, from an exterior camera on Crew Dragon.

Inspiration4

Isaacman is the third billionaire to fly to space this year, following Sir Richard Branson and Jeff Bezos in July. But the latter two — flying with their respective companies, Virgin Galactic and Blue Origin — spent only a couple of minutes each in space, as those companies’ rockets fly on what are known as suborbital trips. In contrast, Inspiration4 is an orbital mission, with the crew spending multiple days in space and going around the Earth as many as 15 times in day.

Musk, among those who saw them off before launch, tweeted that he spoke to the Inspiration4 crew Thursday and that “all is well.”

“Missions like Inspiration4 help advance spaceflight to enable ultimately anyone to go to orbit & beyond,” Musk wrote in another tweet.

SpaceX CEO Elon Musk poses with the crew before launch on September 15, 2021.

John Kraus / Inspiration4

The Inspiration4 crew is making history in ways beyond becoming the first group of nonprofessional astronauts in orbit: Proctor is the first Black female to pilot a spacecraft, and Arceneaux is the youngest American and first person with a prosthesis to fly in space.

Check out more photos from launch day at NASA’s Kennedy Space Center in Florida:

Medical officer Hayley Arceneaux points to the camera as she and pilot Sian Proctor board the Tesla Model X after suiting up before the launch on September 15, 2021.

John Kraus / Inspiration4

SpaceX’s Falcon 9 rocket lifts off carrying Crew Dragon spacecraft Resilience on September 15, 2021.

John Kraus / Inspiration4

The view inside the Crew Dragon spacecraft about 30 seconds after liftoff as the Falcon 9 rocket accelerated away from Earth on September 15, 2021.

SpaceX

The shimmering exhaust plume of SpaceX’s Falcon 9 rocket launching into the dusk sky above Florida on September 15, 2021.

John Kraus / Inspiration4

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