Citi: Integrated oil and gas giants beat third-quarter earnings expectations by 16% as Citi focuses on peer valuation gaps

Why did third-quarter results broadly beat expectations?

According to Citi, integrated oil and gas companies’ third-quarter earnings averaged 16% above the pre-results market consensus, while operating cash flow before working capital movements was approximately 14% higher. The comparison uses the consensus as of 30 September.
Exceptionally high refining margins provided a favorable backdrop, while higher utilization rates helped companies translate those conditions into results. Citi noted that no company experienced a major unplanned shutdown during the quarter, and none made a significantly wrong directional bet in oil and gas trading.
BP was a major contributor to the earnings beat. Repsol’s operating cash flow exceeded market expectations by a particularly wide margin, as its refining business captured margin opportunities effectively.

Favorable industry conditions drove deleveraging: net debt fell nearly 30% quarter on quarter and nearly 40% year on year, while average leverage fell from 0.6 times at the end of 2024 to 0.4 times. Citi defines leverage as net debt divided by operating cash flow over the past 12 months; net debt includes hybrid capital instruments but excludes lease liabilities.
Although Eni, Repsol, Shell and TotalEnergies all increased shareholder returns to varying degrees, Citi believes the industry as a whole still favors controlling leverage and retaining financial flexibility for opportunities that may arise later in the current cycle.
Investment plans are similarly cautious: only TotalEnergies has recently indicated a modest increase in investment, while other companies point to flat or lower capital expenditure. Citi sees some contrast between this and the positive guidance from US oilfield services companies for international business growth in 2027.
Leverage trends are also diverging among companies. Eni has overtaken BP as the most leveraged company in the group; Citi expects Eni’s increased buybacks and BP’s forthcoming sale of its lubricants business to widen the gap further in the fourth quarter.

Citi says valuation multiples for integrated oil and gas companies have risen by approximately 10% overall since the end of 2024, but by far less than the changes in oil prices and refining indicators over the same period. The bank believes the market has mainly priced in earnings momentum.
BP’s earnings performance has recovered markedly over the past three to four quarters, but its valuation multiple has fallen 17%, and its valuation discount to European peer Eni has reached 40%. Citi believes that as macroeconomic conditions stabilize, the market may be more willing to focus on such valuation differences.
In the US market, Chevron’s valuation discount to ExxonMobil is close to 20%. Citi notes that the two companies have similar growth prospects and portfolio options looking toward the 2030s, making the gap, which is close to its widest historical level, worthy of attention.
Citi also cites Repsol and Neste: since July, as diesel crack spreads stabilized, Neste has underperformed Repsol by 40%. Their enterprise value to debt-adjusted cash flow multiples are 7 times and 3 times, respectively, while approximately 30% of Repsol’s business is highly comparable to Neste’s.