Our Take: Signs of What Lies Ahead

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As energy companies prepare to report back on a highly profitable 2022, our eyes and ears will be focused on what their executives have to say about the year ahead. Fourth-quarter earnings season — and the strategy updates and outlooks that accompany it — will provide clues on everything from corporate investment priorities to the pace of the energy transition. Here are the main themes Energy Intelligence will be watching out for in the upcoming round of earnings calls and company disclosures:

  • Outlook for oil and gas prices. The reopening of China and a Western embargo on Russian oil should support higher prices, but further interest rate hikes and a near-universal desire to curb inflation hang over the global economy. We expect CEOs to preach caution and discipline but will be watching for any hints at their thinking about pricing trends and broader economic conditions.

  • Impact of inflation on investment and production. Supply chain constraints and higher costs hit energy companies hard last year and are expected to bite even deeper in 2023. We will be watching for signs of corporates prioritizing projects where they can better control costs and of further project delays as they look to preserve returns. If companies get less bang for their buck, that also means less oil and gas for global markets.

  • Low-carbon dreams becoming reality. Inflation and rising interest rates could also dampen the investment thesis for energy transition projects, either by reducing rates of return for renewable electricity or increasing the costs of burgeoning — but cash flow-negative — concepts like carbon capture and green hydrogen. What does and what doesn't make the cut will have a big impact on the pace of development of industries that companies have put at the center of their transition strategies.

  • Direction of incremental spending. Even the most disciplined companies have said they will nudge up spending on oil and gas. Where they choose to deploy this capital is important and we will be monitoring this closely. Exxon Mobil, Chevron and BP are all putting more cash to work onshore the US, saying their size can help offset inflationary pressures, while companies like Equinor and Eni are spending to bolster gas supplies to Europe. National oil companies (NOCs) — even those in the oil-rich Mideast Gulf — are increasingly targeting gas as well.

  • Responses to changing trade flows. The Mideast Gulf NOCs have opportunities to replace not only Russian crude oil and gas supplies to Europe, but also deliveries of refined products. A wide range of state and public companies are still buying Russian oil, including refiners in India and China. Western companies with flexible portfolios and adept trading desks could share in the windfall. We expect discussions will be carefully worded, but executives will not be able to ignore the fact that the energy world is rearranging itself rapidly.

Earnings, Corporate Strategy , Capital Spending
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