Oil giants have made more than 200 billion dollars in profits in 2022

Posted January 6, 2023, 6:30 am

The “super profits” of oil companies are history and will surely exceed $200 billion in 2022 for Western oil companies alone. The upcoming publication of annual results from ExxonMobil, Chevron, TotalEnergies, BP, Shell and others should confirm the exceptional nature of 2022, when energy prices rose… and oil companies benefited greatly.

Among them, the big American companies ExxonMobil and Chevron will approach 100 billion dollars during the year. Overall, it will easily surpass the four main European companies in the sector, BP, Shell, TotalEnergies and Equinor. Profits from Saudi Arabia’s Aramco and other state-controlled players will also be at the top.

Dividends ahead

This “war chest” is primarily for the benefit of shareholders. Redistributed amounts reached a record high in 2022, and Europeans tend to close the historically existing gap with Americans in this area. While ExxonMobil and Chevron shareholders will get back around 60% of last year’s profits, the payout ratio will average 48% in Europe, according to AlphaValue. However, in Shell, for example, it should rise to 73%.

Europe’s oil companies have returned or will return a total of $122 billion to shareholders by 2022 through $78 billion in dividends and $44 billion in share buybacks. “European oil companies need to attract investors and prove to them that renewable energy projects can be profitable. Therefore, they have to reward this risk,” explains Elif Binici, an analyst at Alphavalue.

Transition financing

But these exceptional gains are also reflected in modest growth in investment, particularly in financing the energy transition. Thus, TotalEnergies has planned to allocate one third of its investments to renewable energy sources during the period 2022-2025.

“The group clarified its strategy after the Covid crisis. Priority is now being given to renewable energy sources, with large investments being made in LNG as a transition energy. Thus, TotalEnergies has the largest gasification capacity in Europe. A lot of work has been done to optimize and adapt strategies for traditional activities and low-carbon energies,” Elif Binici comments.

At the same time, BP and Shell, which plan to reduce hydrocarbon production, are also increasing investments in renewable energy sources. As for Equinor, it seems more closed and has chosen to position itself on blue hydrogen.

The historical profits of oil companies and this context of the energy transition also suggests action on the mergers and acquisitions front. While oil companies seek to diversify their renewables portfolio, they must continue to sell assets in their traditional activities.

A new deal in the US

In the United States, the situation is different, with strategies focused more on biogas and biofuels than solar or wind, and a less developed energy transition. Even as Joe Biden rose to the front against “superprofits,” the pressure was less intense across the Atlantic. The result: ExxonMobil boosted its shareholder redistribution plans with a $50 billion share buyback over three years. American majors took advantage of this to massively reduce their debt.

However, the Inflation Reduction Act (IRA) will provide a preferential investment framework for years to come. UBS energy analyst Henri Patricot emphasizes: “At the moment, despite the IRA, we do not see a noticeable trend towards renewable energy sources of the American base. But there is a topic of real attraction, and additional investment costs of European groups can be directed to the United States. »

Therefore, there is a danger that the war chest of oil tankers will find its way to the United States for Europe. Especially since the regulatory and fiscal framework is less favorable in the Old Continent. Oil companies, which will be less affected by income taxes than initially expected, are all behind a “European-style IRA.” In particular, the situation should not continue beyond this year.

“Earnings per share in 2023 are expected to be relatively flat compared to 2022, even though the year will not be as good on a macroeconomic level,” says Henri Patricot. We are in the context of improving returns on investments, but also in the context of profit normalization in the next two to three years. »

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