Oil majors favour debt cuts and buybacks as profits surge

Oil majors are expected to maintain tight control over spending despite a sharp rise in profits, directing cash towards debt reduction, shareholder returns and selected exploration projects, OilPrice.com reported. The outlet linked the earnings strength to the war in the Middle East and pressure on regional supply, while noting that some jurisdictions were planning windfall taxes.

Citing Reuters forecasts based on LSEG data, OilPrice.com put Exxon’s expected third-quarter profit at $16.2 billion, ahead of Shell at $10 billion, Chevron at $9.3 billion, TotalEnergies at $8.4 billion and BP at $5.6 billion. The projected annual earnings increases ranged from 84% for Shell to 158% for Chevron. BP was expected to post growth of 155%, TotalEnergies 111% and Exxon 101%. These remain forecasts rather than reported quarterly results.

The anticipated gains follow a strong second quarter, when the S&P 500 energy sector recorded annual earnings growth of 128.2%, according to the report. Refiners achieved triple-digit earnings growth, while upstream businesses benefited from the oil-price premium associated with disrupted Middle Eastern supplies. Nevertheless, OilPrice.com said the 2014 industry downturn, the pandemic and investor concerns surrounding decarbonisation had encouraged a more restrained approach to capital allocation.

Exxon and Chevron were identified as using surplus earnings to reduce debt. Shell plans to repurchase another $3.5 billion of shares during the final quarter, while BP is seeking to lower its net debt-to-operating cash ratio from 1.7 times at the end of the previous year to 0.8 times. Chevron had reduced its debt-to-operating cash ratio from 1 times to 0.4 times in the current quarter, the outlet reported, citing Reuters.

Exploration remains a spending priority as producers consider how to replace output lost through natural field depletion. OilPrice.com identified Africa, South America and the Middle East as destinations for frontier exploration. It also cited Eni chief executive Claudio Descalzi as saying earlier in the year that war-related disruption had redirected more exploration investment towards South America and Southeast Asia. The report’s central expectation was that investment would remain selective even with substantially stronger profits.