A new report from Oppenheimer Equity Research pulls no punches in calling for losses from the large majority of the oil & gas exploration and production firms in the first quarter of 2015, but it also suggests that stabilizing oil prices and reduced costs could mean that things are looking up from here.

Oppenheimer analysts Fidel Gheit and Luis Amadeo highlight that first quarter earnings for the oil & gas sector are going to be a bloodbath. “The only good thing about 1Q15 is that it is over as we expect earnings to be at the lowest levels since 1Q09, with 11 of the largest 15 E&P companies we follow likely to report losses. Producers highly leveraged to oil prices, such as HES, MRO and MUR, are expected to report deep losses.”

Overview of the Oil & Gas sector

Oil & Gas Sector

Major integrated companies are projected to report EPS that is 68% lower YOY and 45% lower sequentially, but no losses.Gheit and Amadeo note Exxon Mobil and Shell could see losses from operations in the Americas. In the Oppenheimer coverage universe, BP is anticipated to see the steepest declines followed by CVX because of their high leverage to oil prices. The analysts also project more capex and opex cuts in 2016 even if oil prices do stabilize.

The refiners are likely to be a mixed bag in the first quarter. The report points out that the Brent-WTI differential averaged $5.36/b in the first quarter, relative to  $9.31/b a year ago and $2.98/b in the fourth quarter of 2014, and $5.84/b in 2014, compared with $5.43/b based on the current strip. For the first quarter, MPC is expected to report the highest year over year increase among peers followed by TSO. HFC and PSX are likely to report lower YOY earnings.

Gheit and Amadeo also highlight that 11 of the 15 large E&Ps in their coverage universe are anticipated to report first quarter losses and half could see full-year losses if current prices are maintained through the end of the year. Moreover, unless crude prices move up by several dollars a barrel, many of these firms could have losses in 2016 as high-price oil and gas hedges roll over.

Virtually every company in the oil & gas sector has been working on cost reductions. The Oppenheimer analysts note: “Most of the companies expect to realize cost savings between 10% and 30% from 2014 levels. Although we expect most of the oil & gas producers to realize at least 10% in cost savings, we think probably less than half of these companies can achieve the high end of the target range. We expect additional cost saving measures this year and into 2016 as long as oil prices remain under $70/b.”