The world’s major oil companies are pumping out cash as if crude oil has already touched $100 per barrel.
As per Bloomberg News, Exxon Mobil Corp, BP Plc, Shell Plc, Chevron Corp., and Total Energies SE had generated the highest cash flow since 2008 when the crude oil surpassed $100 a barrel. This time it has not yet touched that high, but the spending is much lesser, which means these oil companies can pay back the investors.
Laura Hoy, an equity analyst with Hargreaves Lansdown, Laura Hoy said that oil companies had trimmed plenty of fat over the past decade. The lean structure has helped them benefit from the current rally, and with the elevated oil prices are looking to stay.
The above-mentioned supermajor oil companies’ results have already exceeded expectations for the earnings in the fourth quarter, resulting in a combined $37 billion of free cash flow. The Brent crude is averaging $80 a barrel compared to $96 a barrel in the first year of 2008.
The combined adjusted income soared to $31 billion, the highest in a quarter in more than nine years. This industry which was reeling under ballooning debt and crashing commodity prices has seen a dramatic U-turn after the Coronavirus pandemic in 2020. The five major oil companies posted a combined loss of $19 billion.
Oil companies spent 2020 on cutting costs, announcing layoffs of thousands of workforces, and in some cases slashing dividends. These measures helped them to rally in 2021 after the remarkable turnaround.
This year the outlook also looks bullish as demands increases while the supply side is still constrained after years of under-investment, according to CEO Patrick Pouyanne of TotalEnergies.
According to Bernard Looney, CEO of BP, the world is witnessing a lack of investment even as soil prices accelerate higher on energy transition.
All the five majors are holding on to spend with only a small increase in budgets for 2022. Chevron and Exxon are planning to boost investment in Shale Production in Permian Basin, but this will offset declines in production in other areas. BP’s incremental spending will mainly focus on low carbon businesses, which will mean less cash surplus for investors.
Biraj Borkhataria, the RBC Co-head of European Energy Research, said there is plenty of room to invest.
