Record Profits Support Majors' 'All of the Above' View

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Continuing the trend of their European peers, Exxon Mobil and Chevron reported record earnings for the second quarter, as oil and natural gas prices and refining margins sat well above historical cyclical averages.

The four leading Western majors to report so far culled more than $50 billion in adjusted earnings for the three-month period. Quarterly records aside, that’s more than they earned across all of 2019.

The bumper profits have allowed the group to aggressively pay down the massive debts built during the height of the Covid-19 pandemic-led downturn, shower shareholders with higher dividends and billions of dollars in share buybacks, and bump capital spending from recent multiyear lows.

But they also come at a delicate time. Rapidly rising — and at times, record — energy prices have fanned wider inflationary pressures on consumers and put major producers in the political crosshairs. Countries like the UK and France have passed or are considering windfall taxes in response to what they see as outsized profiting and constrained reinvestment — although demands for an accelerated transition toward lower-carbon energy are partially driving that constraint.

This tug-of-war has set oil and gas markets up for continued tight supply-demand fundamentals over the medium-term, executives at both major oil-field services companies and producers have warned in recent days. At the same time, opportunities to invest in everything from carbon capture and storage (CCS) to hydrogen to renewable electricity continue to solidify as governments seek out long-term energy security from more home-grown, yet cleaner, supplies.

‘Holistic’ Approach

When asked if the current energy crisis — stoked by Russia’s late February invasion of Ukraine — was accelerating the push toward either greener energy or hydrocarbons, Exxon CEO Darren Woods answered: “Yes.”

“It’s incentivizing, I think, both of those,” he told investors on the company’s second-quarter earnings call Friday.

Earlier in the call, Woods said he saw “a broader net being cast with respect to how we think about the transition and how that evolves,” with governments, particularly in Europe, becoming increasingly mindful of the need to diversify their energy mix and limit their dependency on a single external country.

Woods later called it “appropriate” for countries to take advantage of “natural endowments” in areas like solar and wind, while also acknowledging their current limitations.

Those limitations mean “we need to do more” with respect to oil and gas investment — and particularly gas — to ensure energy continuity, he argued, while making decarbonization of those resources a top priority.

“And so my sense and the conversations I’m having with governments around the world is a recognition of this broader approach, a basket of technologies is going to be needed,” Woods said, adding that he find this “more holistic” approach “encouraging.”

The sentiment echoes comments earlier this week from Woods’ counterpart at Shell.

Ben van Beurden noted that the “quality and the depth” of energy supply discussions is “definitely stepping up” in the wake of Russia-Ukraine, as governments come to a “deeper realization of the depths of the challenge” of shifting the world’s energy mix, with demand-led policies crucial to facilitating this process in a more orderly way.

CCS Spotlight

The potential widening of the tent on decarbonization solutions could lend support to one of the key pillars of Exxon and Chevron’s decarbonization strategy: CCS.

CCS promises significant emissions savings across larger oil and gas operations, but its price tag generally necessitates policy support through some combination of direct government investment, a price on carbon or CCS-specific tax or other fiscal incentives.

Encouragingly, Exxon has seen a “much more significant and serious effort” by governments globally in evaluating CCS, hydrogen, ammonia and biofuel opportunities in recent months, with Woods “pleased” at the level of interest in discussing such opportunities with his firm.

Although far from project sanction, both majors advanced a handful of opportunities in the second quarter across a diverse set of geographies: the US, China, the Netherlands, Australia and Indonesia.

US Majors Advance CCS Opportunities in Q2
Exxon Mobil 
MOU to explore CCS at Dayawan Industrial Park, Guangdong Province, China; among the first large CCS projects for a petrochemical complexUp to 10 million tons/yr
Agreement alongside Neptune Energy, Rosewood, EBN to advance L10 CCS project in Dutch North Sea; first stage in wider L10 potential development4 million-5 million tons/yr
Early Feed work for Southeast Australia CCS hub at Gippsland, Victoria; potential 2025 startUp to 2 million tons/yr
Joint study agreement with Pertamina of CCS and hydrogen opportunities in IndonesiaNA
Completed expanded JV with Talos and Carbonvert to develop Bayou Bend CCS hub in Texas; claims to be first US offshore lease dedicated to CCSNA
Filed for permits in Kern County, California to store CO2 emissions from co-generation plantNA

Among the areas to watch in the second half of the year is the Porthos CCS project in Rotterdam. Exxon and its partners are eyeing a final investment decision before year end, allowing the 2.5 million ton per year scheme to start up in 2024-25.

Chevron Q2 Earnings
($ million)Q2'22Q2'21%Chg.Q1'22
Operating Cash Flow13,8007,000979,500
Net Income11,6223,0822776,259
Adjusted Income11,3653,2742476,543
Upstream 8,5583,1781696,934
Downstream 3,523839320331
Corporate and Other-459-935---1,006
Liquids Production ('000 b/d)1,6871,847-91,736
Gas Production (MMcf/d)7,2537,671-57,947
Oil and Gas Output ('000 boe/d)2,8963,126-73,060
Refinery Throughput ('000 b/d)1,5151,536-11,534
Products Sales ('000 b/d)2,5472,4414%2,544
Exxon Mobil Q2 Earnings
($ million)Q2'22Q2'21%Chg.Q1'22
Cash Flow From Operations19,9639,65010714,788
Net Income17,8504,6902815,480
Adjusted Income17,5514,7022738,833
Upstream 11,3713,1852574,488
Energy Products5,273-856---196
Chemicals Products1,0762,200-511,405
Specialty Products417750-44476
Corporate and Other-286-576---596
Liquids Production ('000 b/d)2,2982,20042,266
Gas Production (MMcf/d)8,6068,29448,452
Oil and Gas Output ('000 boe/d)3,7323,58243,675
Refinery Throughput ('000 b/d)3,9883,85833,983
Energy Products Sales ('000 b/d)5,3105,00665,111
Chemicals Products Sales ('000 b/d)4,8114,73125,018
Specialty Products Sales ('000 b/d)2,1001,9428%2,006

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact >

Carbon Capture (CCS), Low-Carbon Policy, Earnings, Majors, Corporate Strategy , Ukraine Crisis
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