Our Take: It's How You Spend It That Counts

Western majors are sure to post healthy increases in adjusted earnings when TotalEnergies and Spain’s Repsol kick off first-quarter results this week. But our attention will be mostly centered on how companies plan to channel their bumper cash flows from high oil and gas prices and eye-popping refining margins. Also on our radar are majors’ ongoing responses to the continued challenges wrought by the Russia-Ukraine crisis and persistent cost inflation.

• Oil prices north of $100 will inflate upstream profits, but refining is the business to watch. Repsol flagged a 50% quarter-on-quarter jump in refining margins in its pre-earnings trading update, with Total signaling a 175% boost. The bonanza has continued into the current quarter, with Energy Intelligence seeing global refining margins at their highest levels in more than a decade. The strong performance could provide vindication for majors defending the merits — and competitive advantage — of integration. Separately, European majors are likely to face questions about how affected refineries are weaning themselves off Russian crude — and the long-term implications for those plants.

• Billions of dollars in Russia-related write-downs from BP, Shell and Exxon Mobil signal intent to wind down Russian operations, but we’ll be looking for tangible timelines and signs of progress. Divestments may remain impossible to navigate for the foreseeable future, but operations are expected to wind down. So, too, the trading of Russian crude and products. We’re also keen for updates on efforts to source alternate natural gas for Europe. Total is likely to face continued questions around its decision to stick with Russian LNG.

• Majors’ oil and gas budgets are fairly fixed, but we’ll be on the lookout for any signs of additional output being wrung from portfolios to counter expected losses in Russian barrels and Btus. Included on our watch list is upward movement to Exxon and Chevron’s already-big growth plans in US shale — although both will be mindful of the impact labor and supply-chain constraints could have on operational efficiency and returns. Earnings calls also provide an opportunity to gauge the mood music on pre-FID LNG projects and to get more clarity from Italy’s Eni on its incremental North Africa gas pivot and time frame for delivery. The Italian major has been among the most active companies in securing additional gas supplies for Europe but now attention will focus on the ability of its fields to deliver the volumes.

• Shell’s results broadly have our attention for providing separate Renewables and Energy Solutions figures for the first time, having previously included those operations within Integrated Gas. More granular reporting has been a key ask from investors looking to better understand the returns potential of transition businesses that will be relied upon for future cash flows. Shell has already advised that the new unit contributed $100 million-$600 million to adjusted first-quarter earnings.