Finances
Big Oil profits soared to nearly $200bn in 2022
Isabeau Van Halm investigates the combined profits of some of the world’s biggest oil companies – Chevron, ExxonMobil, BP, Shell and TotalEnergies – which amounted to nearly $200bn in 2022.
Many Big Oil companies are reporting their biggest annual profits ever as they release their results for the fourth quarter of 2022. ExxonMobil reported the highest profits to date for any Western oil company with $59.1bn. Shell announced the biggest profits in the company’s 115-year history ($39.9bn) and Chevron ($36.5bn), TotalEnergies ($36.2bn) and BP ($27.7bn) similarly set new records.
Oil companies have seen soaring quarterly profits this year, with oil prices sharply rising following Russia’s invasion of Ukraine.
“Of course, our results clearly benefited from a favourable market but, to take full advantage of the undersupplied market, our work began years ago, well before the pandemic, when we chose to invest counter-cyclically,” said Darren Woods, ExxonMobil’s CEO, during an earnings call with investors. “We leaned in when others leaned out.”
The profits add up to $199bn and are even higher than analysts predicted. Financial markets expert Refinitiv estimated that ExxonMobil, Chevron, BP, Shell and TotalEnergies would together haul in $190bn in 2022.
Strong results
Most of Big Oil, Shell excepted, ended the year with lower profits in the fourth quarter compared with the previous quarter. BP saw the largest downfall in profits, from $8.2bn in the third quarter to $4.8bn in the last quarter of 2022. The lower profit rates are mostly down to lower fossil fuel prices in the last few months of the year compared with the peak that followed the Russian invasion. BP blames the lower fourth-quarter results on “a below-average gas marketing and trading result”.
During 2022, the five Big Oil companies more than doubled their profits compared with the year before. The record earnings have raised scrutiny about the companies benefitting from war and the energy crisis at a time of increasing energy poverty in many countries and a need for an accelerated energy transition if the world wants to meet Paris Agreement targets.
In September 2022, the EU passed emergency legislation containing a temporary windfall tax of 33% on fossil fuel profits. Oil giant ExxonMobil filed a lawsuit in response to the tax, arguing it is not within the legal authority of the EU and will discourage investments. In its 2022 earnings report, Exxon says it could have earned $1.3bn more and partly blames the EU tax for the loss. The US Government has threatened a similar windfall tax on oil profits.
Too much to spend
“Oil companies’ record profits today are not because they are doing something new or innovative,” remarked US President Joe Biden in October when third-quarter earnings were released. “Their profits are a windfall of war; the windfall from the brutal conflict that is ravaging Ukraine and hurting tens of millions of people around the globe.”
Instead of investing in the transition to clean energy, the oil companies are using the record profits to reward shareholders and invest in stock buybacks. Chevron has announced a $75bn share buyback programme and Exxon has revealed a $50bn repurchase plan. Shell paid out $6.3bn to shareholders in the last months of 2022 and said it plans another $4bn share buyback. BP has increased the payout to shareholders by 10% and TotalEnergies raised its dividend and has announced a further $2bn buyback of shares.
Meanwhile, BP has announced the company will lower its climate ambitions as it is increasing oil and gas investments. BP now aims to cut carbon emissions from its oil and gas production by 20%–30% by 2030, down from its initial 35%–40% target.
BP now aims to cut carbon emissions from its oil and gas production by 20%–30% by 2030, down from its initial 35%–40% target.
Shell reported investing around $3.5bn in its renewable energy division in 2022, or 14% of its total $25bn capital expenditure. However, on 1 February, non-profit Global Witness filed a complaint with the US Securities and Exchange Commission, the US agency charged with investor protection, accusing Shell of mislabelling its investments and inflating its renewable energy spend in 2021. Global Witness says the company only spent 1.5% ($288m) of its Capex on solar and wind power generation in 2021, instead of the 12% it advertised, and that most of Shell's “Renewable and Energy Solutions” spend went to gas-related activities.
“Shell shouldn’t get away with using its tiny investments in renewables as a fig leaf to cover up the reality that it is continuing to profit from the energy crisis at the expense of people and the planet,” said Zorka Milin, senior adviser at Global Witness, in a press release. “We call on the US authorities to hold Shell to account and to set a precedent to ensure other fossil fuel companies do not engage in similar greenwashing.”
Shell denied mislabelling its investments and said it is confident its financial disclosures are compliant with US regulations.
Dire warnings
In 2021, the International Energy Agency warned there can be no new oil and gas field developments if the world wants to limit global warming to 1.5°C. Recent Energy Monitor analysis showed that the current extraction plans of the world's leading oil and gas producers would alone already blow almost all of the world’s remaining carbon budget for that target.
Big Oil itself is signalling the end of oil. BP’s Energy Outlook 2023, which was published on 30 January, suggests that while oil is expected to continue to play a major role in global energy for the next 15–20 years, oil demand has already peaked and will only decline in the coming decades.
ExxonMobil, Chevron, BP, Shell and TotalEnergies could have used their record profits to invest heavily in the energy transition. Instead, the oil majors continue to plan and develop new oil and gas fields.
In 2023, Big Oil's profits are expected to decline by around a quarter compared with 2022, according to S&P Global IQ. The market intelligence company expects the five oil majors will earn $150bn this year. While this would not set a new record, profits would still be higher than in the past two decades.
This article first appeared in our sibling publication Energy Monitor.
Main image: Oil rig. Credit: travelview via Shutterstock
US and the Gulf of Mexico
The number of active drilling rigs in the lower 48 states of the US, excluding the Gulf of Mexico, stood at 753 in February. This fell to 738 in March, before reaching a four-year low of 572 in April, the lowest since May 2016. As of 8 May 2020, the Lower 48 land rig count reached 355 rigs, according to Baker Hughes’ data.
When it comes to the sought-after oil and gas fields in the Gulf of Mexico, production is estimated to remain relatively flat. The US Energy Information Administration (EIA) forecasts an average of 1.9 million bpd over 2020 and 2021, almost unchanged from its 2019 average.
The administration said that it does not expect any cancellations to Gulf of Mexico projects announced in 2020 and 2021.
Before the oil price crisis in the first half of 2020, Shell had awarded a contract to Sembcorp Marine for construction of the topsides and hull of a floating production unit for the Whale exploration project in the US Gulf of Mexico. Later this year, uncertain economic conditions forced Shell to postpone the project to 2021.
Regarding crude oil production in Alaska, the EIA predicted that it would remain relatively stable, at an average of 460,000 b/d in 2020, and that it will slightly rise in 2021.
Norway
Oil companies operating in Norway, Western Europe’s largest petroleum producer, drilled just 30 exploration wells off the coast of Norway by the end of 2020. This marked the lowest level in 14 years, as announced by the Norwegian Petroleum Directorate (NPD) in October.
The search for new oil and gas reserves has also decreased from 57 drilled wells in 2019 and falls behind previous projections of about 50 wells.
The NPD said in a statement: "The decline in demand for oil and lower prices have led oil companies to reduce their exploration budgets for the year and postpone a number of exploration wells.”
Companies including Equinor, Aker BP, and Lundin Energy announced considerable cost cuts in the early phases of the Covid-19 crisis, attempting to preserve capital and weather the storm.
In response, NPD director of exploration Torgeir Stordal expressed concerns over the near future of the industry: "Without new discoveries, oil and gas production could decline rapidly after 2030."
In the meantime, Norway still believes that there are significant resources to be found beneath its seabed, which are projected at around 3.9 billion cubic meters (bcm), a slight decrease from 4 bcm two years ago, the NPD said.
Brazil
The Brazilian oil and gas industry has been deeply influenced by the unusual events of 2020.
In November 2019, Petrobras announced its 2020–24 investment plan, with a new budget of approximately $75.7bn (84.94% allocated to exploration and production). Despite the challenges, the company has not reported massive obstacles.
It also continued with its divestment programme of some upstream, midstream, and downstream assets, opening new opportunities for foreign investment.
During the Covid-19 outbreak, Petrobras and other oil companies shifted focus from their own projects onto divesting in ancillary projects, which helped reduce their expenses while generating income for the sale of such non-core assets.
November’s bidding rounds by the National Agency of Petroleum, Natural Gas and Biofuels (ANP), showed that the usual interest in Brazil’s offshore upstream rounds has plunged, which led to the suspension of the Brazil Round 17 for exploratory blocks under the concession regime.
Despite the hardships, the ANP managed to keep the First Cycle of the permanent offer, which involves a continuous offer of fields returned and exploratory blocks offered in previous tenders that were not acquired or returned to the agency.
The UK Continental Shelf
British consultancy Westwood Global estimated in September 2020 that the UK Continental Shelf (UKCS) was on course to reach a record low of offshore exploration wells this year, its lowest since companies started exploring the North Sea for oil in the 1960s.
In May 2020, along with the publication of its annual review of global exploration activity and outlook for 2020 and beyond, the consultancy said that while dealing with the immediate Covid-19 crisis, “societal pressure is building for a rapid transition to a low-carbon future”.
In September, Alyson Harding, technical manager at Westwood, said in Energy Voice that the company predicts only five exploration wells will be drilled in 2020, one less than in 2018. By comparison, 14 exploration wells were drilled last year with only one becoming commercial.
According to Westwood’s early estimations from February, the UKCS was predicted to reach 17 wells by the end of the year, but the pandemic hampered these plans. So far, Chrysaor’s and Apache’s Solar well and Total’s Isabella well are commercially viable.
While the Oil and Gas Authority offered 113 licence areas over 259 blocks or part-blocks to 65 companies in early September, it is not certain that operations will take advantage of this opportunity because of current market instability.
Looking ahead, Harding said in a company webinar that the firm has been given indications from companies that 23 exploration and 10 appraisals wells could be drilled in the UKCS next year, depending on the impact of Covid-19 in 2021.
Mozambique
Mozambique’s untapped oil and gas potential was first revealed by initial exploratory drilling in 2007.
Later, natural gas became part of Mozambique’s oil and gas strategy to help industrialise the northern provinces of the country. However, after some recent project cancellations, Mozambique’s Council of Ministers is now planning to transport the north’s oil and gas to the better developed south.
In a tender process run in 2017, Shell was given the right to build a gas-to-liquids plant that would convert gas to synthetic diesel, naphtha, and kerosene; Norwegian chemical company Yara International was allowed to build a fertiliser plant to power the northern town of Palma using domestic market gas; and Kenyan power company Great Lakes Africa Energy was allocated gas to build a 250MW power plant in the north-eastern city of Nacala.
However, whether influenced by the Covid-19 crisis or rising environmental scrutiny in the country, it appears that only the Nacala power plant will take place. Yara has cancelled its fertiliser project and Shell’s CEO has been giving indications that the company does not expect to develop any new greenfield gas-to-liquids projects.