The five biggest oil majors in the world are expected to report record profits for 2022 in the coming days, for around $200 billion in combined yearly earnings thanks to the jump in oil and gas prices last year.
This year, earnings at ExxonMobil, Chevron, BP, Shell, and TotalEnergies are set to be around a quarter lower than the combined profits for 2022, but they will still be a whopping $150 billion for 2023, analysts say.
The record quarterly earnings which the majors reported for the second and third quarters of 2022 have already drawn intense criticism from the White House, which has scrambled to have gasoline prices down from the record levels seen in June. The Biden Administration has accused Big Oil of “war profiteering” and has called on companies to invest in more supply or “face higher taxes.” In Europe, the record earnings are already subject to windfall taxes, which ExxonMobil has challenged in court.
The five oil and gas supermajors are expected to report at the end of January and early February combined 2022 earnings of $200 billion, according to early estimates compiled by S&P Capital IQ and cited by the Financial Times. Fourth-quarter earnings will still be well above year-ago levels, although lower than the record quarterly profits for Q2 and Q3.
The majors’ earnings for 2023 are set to drop from the 2022 record to around $150 billion, which – despite the decline – would be the second-highest profit haul for Big Oil, per projections by S&P Capital IQ.
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For 2022, the U.S. supermajors alone are set to post combined yearly profits of nearly $100 billion, analysts say.
Exxon is set to report a record of as much as $56 billion in profit for 2022, while Chevron’s earnings are projected to exceed $37 billion, also a record-high, per estimates compiled by S&P Capital IQ cited by the Financial Times.
Although oil prices traded below $90 per barrel in the last weeks of 2022 and prices increased on an annual basis by only around 10% last year compared to 2021, extreme volatility and the frequent surges above $100 per barrel helped all oil firms, including the biggest American integrated companies, generate record or near-record quarterly profits and cash flows.
The industry, the top performer in the S&P 500 index over the past year, has boosted dividends and share buybacks in recent quarters thanks to the massive cash flows. And its earnings are set to lead the 2022 earnings growth of all 11 sectors in the S&P 500.
The energy sector is expected to report the highest annual earnings growth of all eleven sectors at 151.7%, John Butters, Vice President and Senior Earnings Analyst at FactSet, said in a report last month.
“The Energy sector is also expected to be the largest contributor to earnings growth for the S&P 500 for CY 2022. If this sector were excluded, the index would be expected to report a decline in earnings of -1.8% rather than growth in earnings of 5.1%,” Butters noted.
Lower oil and gas prices in the fourth quarter will impact Q4 earnings at the majors, but refining has held up, and LNG trading at the European majors is also expected to have helped Big Oil in the October-December quarter.
Early this month, Exxon said in an SEC filing that lower oil prices could have an up to $1.7 billion negative effect on Q4 earnings, while the drop in natural gas prices could have a negative effect of up to $2.4 billion. Those negative effects will be partly offset by a positive contribution of mark-to-market derivative gains of up to $1.5 billion.
In Europe, Shell said that trading and optimization at its integrated gas and LNG division is expected to have been significantly higher in the fourth quarter of 2022 compared to the third quarter, despite a decline in production volumes.
Although Q4 and 2023 earnings at the majors are expected to come off the record highs seen in the previous quarters and full-year 2022, profits this year would still be huge compared to the years before 2022. Analysts expect that Big Oil will continue to seek to reward shareholders with the surplus cash, much to the resentment of the Biden Administration.
U.S. supermajor Chevron announced this week a $75 billion share buyback program without a fixed expiration date, which immediately drew criticism from the White House.
White House Assistant Press Secretary Abdullah Hasan said, commenting on the news, “For a company that claimed not too long ago that it was ‘working hard’ to increase oil production, handing out $75 billion to executives and wealthy shareholders sure is an odd way to show it.”
By Tsvetana Paraskova for Oilprice.com
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Any other mere trillions we need to worry about?
Therefore, the oil majors are duty-bound to allocate a big chunk of their earnings to investments in oil and gas exploration and capacity expansion to ensure that oil and gas prices don’t continue to rise sharply and cripple the global economy. The alternative is a windfall tax.
This is also essential for their own future wellbeing at a time when the power structure of global oil markets is already undergoing a major transformation exemplified by the rising power of the National Oil Companies (NOCs) and the declining influence and power of IOCs. In coming years, this power structure is set for a major shakeup if the reserve lifespan of IOCs continues to decline.
Resource nationalism has been on the rise around the world underpinned by oil-producing nations wanting to fully control whatever hydrocarbon and mineral resources they have in order to maximize their revenues, growing global demand, a fast depletion of reserves and also growing influence of the NOCs. That is why resource nationalism has become a major threat for the IOCs.
Whilst top IOCs such as Total, BP, Shell, Chevron, ENI, ConocoPhillips, ExxonMobil, Equinore and Repsol have reserve estimated to last from 8.0-10.0 years, the NOCs of countries like Saudi Arabia, Iraq, UAE, Venezuela, Russia and Kuwait to name but a few have access to proven reserves which could last from 66-91 years at the 2019 production levels. For instance, Shell expects to have produced 75% of its current proven oil and gas reserves by 2030, and only around 3% after 2040.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert
Hmm, the last I looked, the stock market is one of the most democratic institutions around. In fact anyone, even a felon who can't vote in an election, can own stock. For someone who says he is focused on restoring truth and transparency in government, I wonder how much stock Mr. Hasan and his family have?