Big Oil is under intense scrutiny after earning $200 billion last year
BP (BP), Chevron (CVX), ExxonMobil, Shell and Total (TOT)Energies made record earnings of $199.3 billion in 2022, benefiting from the surge in oil and gas prices that followed the Russian invasion of Ukraine.
TotalEnergies closed the historic earnings streak on Wednesday by reporting annual profit of $36.2 billion, more than double the profit of the previous year.
This extraordinary increase in profits has been replicated in other Western energy giants, and shareholders have been rewarded with huge windfalls.
But the influx of cash has not caused a commensurate boom in renewable energy investment, despite proof that the world must move much faster in its efforts to tackle the climate crisis.
Record results mark a dramatic turnaround for an industry that has suffered steep losses and reduced payouts to shareholders in 2020, when pandemic shutdowns sharply reduced energy demand and oil prices crashed. The reversal of fortune was almost entirely due to soaring oil and gas prices as economies reopened, and then to overdrive after Russia invaded Ukraine last February.
The scale of Oil company gains are generating renewed scrutiny of their renewable energy investments and the prices they charge their customers. It has also led European governments to impose windfall taxes to raise the funds needed to help households struggling with high energy bills.
But the additional tax burdens – that ExxonMobil, for its part, is being challenged in court – and the investments in new energy sources pale in comparison to the sum that the world’s five largest private oil and gas companies have returned to shareholders: the premium has exceeded 100 billion dollars for 2022.
“It’s been a spectacular year for shareholder distributions,” said Tom Ellacott, senior vice president for corporate research at Wood Mackenzie, an energy consultancy.
Shareholders have also benefited from strong share price increases over the past year, ranging from TotalEnergies’ 11% rise at the bottom to Exxon’s 39% rise at the top.
Ellacott expects dividends to remain high this year, but said oil prices would likely need to rise from the current level to support the volume of share buybacks seen in 2022.
However, several companies have already announced their intention to spend tens of billions of dollars buying back their own shares, including Chevron. The company, the best-performing stock in the Dow last year, announced last month that it would buy $75 billion worth of its own stock.
The decision drew a rebuke from the Biden administration.
“For a company that claimed not so long ago that it was ‘working hard’ to increase oil production, handing out $75 billion to executives and wealthy shareholders is certainly an odd way of showing it.” said White House spokesman Abdullah Hasan.
Compared to rewards for shareholders, companies have spent a fraction on renewable energy investments, even as they have increased spending on oil and gas as demand recovers and European governments scramble to replace Russian supplies.
Globally, capital expenditure on oil and gas, excluding exploration for new fields, was about $470 billion in 2022, according to Wood Mackenzie. It’s still below its pre-pandemic level, but could rise further this year, the consultancy said.
Big oil companies are pumping billions into the development of oil and gas resources, despite a warning from the International Energy Agency in 2021 that investment in new fossil fuel supplies must end immediately if the world is to reach l goal of the Paris climate agreement to limit global warming to 1.5. degrees Celsius above pre-industrial levels.
“If the bulk of your investments remain tied to fossil fuels, and you even consider increasing those investments, you can’t continue to be aligned with Paris, because you won’t get large-scale emissions reductions. by 2030,” Mark van Baal, the founder of activist shareholder group Follow This, said in a statement.
Just three years ago, BP unveiled a plan to cut oil and gas production by 40% below 2019 levels by 2030. On Tuesday, it backed away from that target, saying that production in 2030 would now be around 25% lower. It also now aims to reduce carbon emissions from its oil and gas production by 20-30% by 2030, down from the previous target of 35-40%.
“It is clearer than ever after the past three years that the world wants and needs safe, affordable and low-carbon energy,” BP CEO Bernard Looney said in a statement. . “We need continued short-term investment in today’s energy system – which depends on oil and gas – to meet today’s demands and to ensure that the transition happens in an orderly fashion. .”
BP still plans to be a net-zero emissions company by 2050. It has invested about 30% of its $16.3 billion capital expenditure budget in “transition” companies in 2022. company that extracts natural gas from organic waste.
Shell, meanwhile, spent 14% of its total capital expenditure, or about $3.5 billion, on its Renewables and Energy Solutions business, which includes power generation, hydrogen generation, capture and carbon storage and carbon credit trading.
The company said the total amount spent on “low or zero carbon businesses”, including operations, was much higher, at around $21 billion, or a third of total spending.
Shell CEO Wael Sawan told reporters last week that the world needs to move faster on renewable energy, which requires changes in government policy, customer adoption and continued investment by companies. companies like Shell.
He said he believed Shell, which is also targeting net-zero emissions by 2050, was “finding the right balance in our capital allocation”.
— Allison Morrow contributed reporting.