Tristan Bove
Thu, May 5, 2022,
Eddie Seal—Bloomberg/Getty Images
Oil prices have been soaring this year, as Western sanctions hit the Russian economy hard, disrupting the global oil supply from one of the world’s largest producers. But while high gasoline prices at the pump make life difficult for consumers, fossil fuel companies are making a killing.
Since the Russian invasion of Ukraine over two months ago, Brent crude, an international benchmark for oil pricing, has surged past $100 a barrel, the highest oil has sold for since 2012.
According to the latest round of quarterly reports from the world’s largest oil and gas companies, the fossil fuel industry has been benefiting massively from this surge. Demand for energy this year has soared as economies rebound from historically low demand during the pandemic, and coupled with a constrained supply from Russia, one of the world’s largest fuel exporters, the rest of 2022 could be just as profitable for fossil fuel companies.
Oil companies posting big profits
The COVID pandemic hit the oil industry hard as global industry came to a standstill and the need for fuel collapsed. But oil demand had begun to steadily rebound in 2022.
Russia’s invasion of Ukraine, subsequent sanctions on Russia and the exit of Western oil and gas companies from the country sent prices soaring, and fossil fuel companies are reaping the rewards.
British petroleum company Shell announced their quarterly profits on Thursday, posting a record $9.1 billion in earnings. That’s compared to $6.4 billion in the fourth quarter of 2021.
Although Shell posted the highest profits, other major oil companies also announced major gains.
BP announced it hit $6.2 billion in first quarter earnings, up from the $4.1 billion reported last quarter. French oil major TotalEnergies also reported a $9 billion profit in the first quarter, up 32% from the last quarter of 2021. U.S.-based Chevron reported $6.3 billion in earnings, up from $5.1 billion last quarter.
The windfall comes despite many oil majors making the call to end most investment projects and relationships in Russia this year in the wake of the invasion. Shell, BP, Halliburton, and ExxonMobil have all suspended their operations in Russia to comply with Western sanctions, but the withdrawal appears to have done little damage to these companies’ earnings.
Oil remains highly volatile, with factors other than sanctions and the Ukraine War affecting the commodity, but analysts still believe that prices this year will stay high, and major oil companies are likely to continue bringing in high profits as energy costs around the world soar.
A strong year ahead
A number of factors have collided in the early months of 2022 to send oil prices swinging wildly.
Prices first went over $100 a barrel at the end of February when Russia invaded Ukraine and continued rising for several weeks, nearly topping $140 a barrel in March.
Prices have since been in a constant state of volatility, dropping below $100 later in March of this year, when demand for oil dropped in China, the world’s largest crude importer, in response to a resurgent COVID-19 wave. But prices rebounded quickly, and did so again in April after another wave of city-wide lockdowns in China impacted demand.
The price swings have led some analysts to revise their earlier worst-case scenario predictions of $200 oil barrels this year, but that doesn’t mean that the good times are ending for the world’s largest fossil fuel companies.
While slower demand in China will continue to be important for oil prices, demand in the rest of the world is continuing to surge, as countries move past pandemic-era restrictions and industries such as travel reopen.
“Except for China, which is still imposing a zero-Covid policy, the economy reopening worldwide has been ongoing for some time,” oil analyst Lukman Leong recently told trading platform Capital.com on Wednesday. “If there are no more shocking factors and [the Russia–Ukraine] conflict does not worsen, ideally, oil should range from $100–$110 per barrel this year.”
While prices are likely to fluctuate, oil will likely stay around $100 a barrel for the rest of the year, according to many analysts.
“Because of war-related trade and production disruptions, the price of Brent crude oil is expected to average $100 a barrel in 2022,” the World Bank announced in a statement on April 26 accompanying its April Commodity Markets Outlook report.
That range would still be the highest oil has been since 2012, the last time fossil fuel companies reported such high profits. And while oil prices should stay high, major oil companies are selling another highly-valuable commodity this year: natural gas.
Demand is spiking for natural gas, especially for its liquid form (LNG), which can be frozen and shipped worldwide without the need for pipelines, as countries scramble to replace missing Russian gas imports. And the same companies that have been profiting off of high oil prices could soon begin profiting from the LNG boom.
Shell is the world’s largest LNG trader, operating over 40 carriers around the world. Chevron is another major LNG player, managing nearly 150 terminals around the world to either freeze natural gas or regasify LNG. Chevron also has large stakes in some of the biggest LNG development plans in the world, such as the Gorgon Project in Australia.
This story was originally featured on Fortune.com
Shell: record profit makes life no easier for oil producer
May 5, 2022
It was a week of firsts for Shell. A new chief financial officer, Sinead Gorman, presented her first set of hard numbers in its first-quarter results on Thursday. Those, too, set a precedent. The Anglo-Dutch oil company boasted its best-ever ebitda result in that period, and the top quarterly out-turn since June 2008.
She must help her boss Ben van Beurden perform a tricky balancing act. Shareholders hunger for payouts while some politicians hope to divert surfeit cash flow towards other perceived societal priorities.
Certainly, Shell gushes profit from every unit, including its downstream products division, which included a strong trading result. This business’s $2bn of ebitda gets credit for the group’s pleasant earnings surprise.
Adjust its earnings for various write-offs, including those for its abandoned Russian operations, and the oil major had returns on average capital employed of more than 10 per cent, well above its cost of capital. All this for 3.4 times (including net debt) its estimated ebitda.
BP, too, had excellent quarterly results this week. And so, some in Westminster howl for windfall taxes. Lex generally opposes these as investment hindrances. But arguing that any such tax would curb production of oil and gas makes it sound like a carbon tax.
That is not so far from the oil producer’s thinking process. Shell already weighs down any prospective project’s internal rate of return with carbon costs. It may well have its own global internal estimate, but says it varies by country. That must be rising if Europe’s emissions trading system is anything to go by. Its carbon price topped €91 per tonne this week, up 82 per cent over 12 months. The new UK contract trades at a similar value.
Just tipping its overflowing free cash flow coffers into the pockets of Shell shareholders via increased buybacks is hard for UK ministers to defend. A hint of better than expected payouts later in the year helped boost the share price 4 per cent on the day, first among its peers. Yet a Janus-like approach by US and European governments to the energy sector — harangued over both climate change and supply shortfalls — only encourages inertia.
Eventually, worries about economic recession should temper commodity prices and any fury over Big Oil’s profits. No wonder investors are greedy for all they can get this year.
Source: Financial Times
May 5, 2022
It was a week of firsts for Shell. A new chief financial officer, Sinead Gorman, presented her first set of hard numbers in its first-quarter results on Thursday. Those, too, set a precedent. The Anglo-Dutch oil company boasted its best-ever ebitda result in that period, and the top quarterly out-turn since June 2008.
She must help her boss Ben van Beurden perform a tricky balancing act. Shareholders hunger for payouts while some politicians hope to divert surfeit cash flow towards other perceived societal priorities.
Certainly, Shell gushes profit from every unit, including its downstream products division, which included a strong trading result. This business’s $2bn of ebitda gets credit for the group’s pleasant earnings surprise.
Adjust its earnings for various write-offs, including those for its abandoned Russian operations, and the oil major had returns on average capital employed of more than 10 per cent, well above its cost of capital. All this for 3.4 times (including net debt) its estimated ebitda.
BP, too, had excellent quarterly results this week. And so, some in Westminster howl for windfall taxes. Lex generally opposes these as investment hindrances. But arguing that any such tax would curb production of oil and gas makes it sound like a carbon tax.
That is not so far from the oil producer’s thinking process. Shell already weighs down any prospective project’s internal rate of return with carbon costs. It may well have its own global internal estimate, but says it varies by country. That must be rising if Europe’s emissions trading system is anything to go by. Its carbon price topped €91 per tonne this week, up 82 per cent over 12 months. The new UK contract trades at a similar value.
Just tipping its overflowing free cash flow coffers into the pockets of Shell shareholders via increased buybacks is hard for UK ministers to defend. A hint of better than expected payouts later in the year helped boost the share price 4 per cent on the day, first among its peers. Yet a Janus-like approach by US and European governments to the energy sector — harangued over both climate change and supply shortfalls — only encourages inertia.
Eventually, worries about economic recession should temper commodity prices and any fury over Big Oil’s profits. No wonder investors are greedy for all they can get this year.
Source: Financial Times
Conoco posts a five-fold profit leap, raises shareholder returns
By Sabrina Valle and Rithika Krishna
By Sabrina Valle and Rithika Krishna
Thu, May 5, 2022,
HOUSTON (Reuters) - U.S. oil producer ConocoPhillips on Thursday reported a first-quarter profit that jumped five-fold and exceeded Wall Street estimates on higher energy prices and volumes.
Conoco pledged to bump up shareholder returns by 25% to $10 billion this year but gave a weaker-than-expected outlook for full-year production while raising project spending.
Still, its year-over-year profit gain outshone that of rivals Exxon Mobil Corp, BP Plc and TotalEnergies thanks to the absence of Russia writedowns and a primary focus on crude and gas production instead of fuels or renewable energy sources.
"We see demand continuing to grow over the next couple of years," Chief Executive Ryan Lance told analysts, adding oil prices are "going to be probably above $90 a barrel" for the year.
Major oil producers in recent years have faced investor pressures to shift from fossil fuels and cut carbon emissions, and more recently to pump more oil to reduce fuel prices for consumers.
Shares were down 0.5% at $103.36 on Thursday afternoon with analysts raising concerns about Conoco's 8% increase in the year's capital spending budget.
Results "will be viewed as fairly neutral," RBC Capital Markets analysts Scott Hanold and Davis Petros said in a note.
The Houston-based company's adjusted earnings leapt to $4.29 billion, or $3.27 per share in the first quarter, from $902 million, or 69 cents per share a year earlier, beating Wall Street estimates of $3.03 per share, according to Refinitiv IBES data.
Its oil and gas fetched $76.99 per barrel, 70% higher than in the first quarter of 2021, reflecting crude's jump above $100 per barrel this year on rising demand and supply worries over Russia's invasion of Ukraine.
Output rose about 15% in the quarter to 1.75 million bpd of oil and gas from a year earlier on a large acquisition of Shell Plc's shale holdings. But excluding Shell's assets, production fell in the quarter.
The company also expects a sequential decrease in second- quarter output, to between 1.67 million-1.73 million bpd.
Conoco raised its capital spending budget to $7.8 billion from previous guidance of $7.2 billion. Rising cash flow will help accelerate debt reduction, it said.
While the company has committed to making its operations generate net zero carbon emissions by 2050, it has rejected broader, Scope 3 targets, in which emissions from use of its fuels are counted.
"Should you hold a company like ConocoPhillips responsible for a consumer's decision to buy a pickup truck versus a Toyota Prius?" Lance asked. "The problematic piece has always been the Scope 3 because of the double counting."
(Reporting by Sabrina Valle in Houston and Rithika Krishna and Arunima Kumar in Bengaluru; Editing by Barbara Lewis, Bernadette Baum and Matthew Lewis)
HOUSTON (Reuters) - U.S. oil producer ConocoPhillips on Thursday reported a first-quarter profit that jumped five-fold and exceeded Wall Street estimates on higher energy prices and volumes.
Conoco pledged to bump up shareholder returns by 25% to $10 billion this year but gave a weaker-than-expected outlook for full-year production while raising project spending.
Still, its year-over-year profit gain outshone that of rivals Exxon Mobil Corp, BP Plc and TotalEnergies thanks to the absence of Russia writedowns and a primary focus on crude and gas production instead of fuels or renewable energy sources.
"We see demand continuing to grow over the next couple of years," Chief Executive Ryan Lance told analysts, adding oil prices are "going to be probably above $90 a barrel" for the year.
Major oil producers in recent years have faced investor pressures to shift from fossil fuels and cut carbon emissions, and more recently to pump more oil to reduce fuel prices for consumers.
Shares were down 0.5% at $103.36 on Thursday afternoon with analysts raising concerns about Conoco's 8% increase in the year's capital spending budget.
Results "will be viewed as fairly neutral," RBC Capital Markets analysts Scott Hanold and Davis Petros said in a note.
The Houston-based company's adjusted earnings leapt to $4.29 billion, or $3.27 per share in the first quarter, from $902 million, or 69 cents per share a year earlier, beating Wall Street estimates of $3.03 per share, according to Refinitiv IBES data.
Its oil and gas fetched $76.99 per barrel, 70% higher than in the first quarter of 2021, reflecting crude's jump above $100 per barrel this year on rising demand and supply worries over Russia's invasion of Ukraine.
Output rose about 15% in the quarter to 1.75 million bpd of oil and gas from a year earlier on a large acquisition of Shell Plc's shale holdings. But excluding Shell's assets, production fell in the quarter.
The company also expects a sequential decrease in second- quarter output, to between 1.67 million-1.73 million bpd.
Conoco raised its capital spending budget to $7.8 billion from previous guidance of $7.2 billion. Rising cash flow will help accelerate debt reduction, it said.
While the company has committed to making its operations generate net zero carbon emissions by 2050, it has rejected broader, Scope 3 targets, in which emissions from use of its fuels are counted.
"Should you hold a company like ConocoPhillips responsible for a consumer's decision to buy a pickup truck versus a Toyota Prius?" Lance asked. "The problematic piece has always been the Scope 3 because of the double counting."
(Reporting by Sabrina Valle in Houston and Rithika Krishna and Arunima Kumar in Bengaluru; Editing by Barbara Lewis, Bernadette Baum and Matthew Lewis)
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