By Adam Whittaker

European oil-and-gas producers are expected to report lower fourth-quarter earnings due to a drop in oil prices and weak refining margins.

Analysts also expect increased investor scrutiny on companies' investment plans, sustainability of shareholder returns and company leverage. Here is what you need to know:

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Stocks in the oil-and-gas sector fared better than the broader European market in a downbeat end to the year, with the Stoxx Europe 600 Oil & Gas sector index down 0.1% in the fourth quarter compared with the Stoxx Europe 600 index down 2.9% over the same period.

WHAT TO WATCH

-- All major European oil companies are expected to report lower fourth-quarter adjusted earnings than in the year-earlier period, except for Norway's Equinor, based on consensus estimates compiled by Visible Alpha. A drop in oil prices and continued weakness in refining margins mean sector earnings are expected to fall 3% compared with the prior quarter, analysts at Jefferies said in a research note. The earnings fall could have been greater had it not been for the around 15% rise in gas prices over the period, the analysts wrote. Firms focused on exploration and production are likely to outperform refining-exposed names given the weak oil environment and soft refining margins, analysts at RBC Capital Markets said.

-- European oil and gas executives are confident that they will meet their 2024 financial targets despite the weak margins, but there is little conviction across the sector that they will meaningfully improve in 2025, analysts at JPMorgan said.

-- The sustainability of shareholder returns will be in the spotlight. The economic environment is weaker than in previous years and some companies will have to rely on their balance sheets to defend buybacks, analysts at RBC said. Dividends across the sector, however, look well covered and should continue to grow without the need for additional borrowing, the analysts wrote. The strength of Shell's balance sheet means it will stand out as the best in the sector in terms of capital allocation, while companies like Eni and BP should be able to reduce debt through well defined asset-sale programs, Jefferies analysts wrote.

-- The retreat from net zero transition targets and green investments looks set to continue, analysts at RBC wrote. Several European oil companies will issue strategic updates alongside their fourth-quarter earnings and the shifting political landscape should embolden them to refocus on generating returns from hydrocarbon assets, the analysts added.

WHEN COMPANIES ARE SCHEDULED TO REPORT:

-- Shell: Jan. 30

-- OMV: Feb. 4

-- TotalEnergies: Feb. 5

-- Equinor: Feb. 5

-- BP: Feb. 11

-- Galp: Feb. 17

-- Repsol: Feb. 20

-- Eni: Feb. 27

Write to Adam Whittaker at adam.whittaker@wsj.com

(END) Dow Jones Newswires

January 24, 2025 05:11 ET (10:11 GMT)

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