Boosted by the recovery of the global economy and the rebound in energy demand, international oil prices rose by nearly 25% in the second quarter of this year. The financial conditions of oil companies continued to improve. The world’s four major energy giants, including Exxon Mobil, made more than 13 billion US dollars, successfully turning a loss compared with the same period last year. However, high oil prices have not spurred companies’ plans to significantly increase exploration spending. As the global economy gradually normalizes in the future, the tight balance between supply and demand may push oil prices further upward.
Tamas Varga, senior market analyst at crude oil broker PVM Oil Associates, was interviewed by a reporter from China Business News It can be seen from the changes in U.S. shale oil production capacity behind the rise in oil prices that energy companies are now focusing on capital discipline and investor returns. Compared with the possible market risks of increasing production, maintaining the current oil price level also provides opportunities for corporate transformation.
Dividend repurchases to retain investors
For energy in the second quarter of last year This is undoubtedly the darkest period for enterprises. Due to the impact of the epidemic, global road and air traffic has dropped sharply, and blockade measures have been adopted in various places, which has stifled the demand for oil and natural gas. International crude oil futures once experienced a historic negative quotation in April. At that time, ExxonMobil had its worst performance since World War II, and Shell lost more than 10 billion US dollars in a single quarter.
Since November last year, against the background of the rollout of the new crown vaccine and the gradual relaxation of restrictive measures by various countries, factors such as the return of energy demand and the production restriction measures of the Organization of the Petroleum Exporting Countries (OPEC) have This has pushed crude oil prices higher. In the first half of this year, international oil prices have risen by more than 50%. The latest oil company performance reports are generally better than expected.
Spurred by rising oil prices and record profits from its chemicals business, Exxon Mobil’s first-quarter revenue jumped to $67.74 billion from $32.61 billion in the same period last year. , far higher than Wall Street’s expectations of $63.96 billion, with quarterly profit of $4.69 billion, refreshing the best performance since the fourth quarter of 2019. It is worth noting that ExxonMobil’s capital and exploration expenditures in the second quarter were US$3.803 billion, which continued to decline from US$5.327 billion in the same period last year. The company’s board believes now is an opportunity to use the recovery in oil prices to reduce debt and increase shareholder returns, rather than increase spending to boost production. ExxonMobil CEO Darren Woods said in a statement that as the global economy recovers, all of the company’s businesses will continue to maintain positive momentum in the second quarter, and capital expenditures in 2021 are expected to be within the previously planned range of 16 billion to 190 billion. The lower end of the billion-dollar range.
At the same time, ExxonMobil used free cash flow to pay dividends and repay debt, with overall debt falling by $2.7 billion in the second quarter. At the same time, according to the plan, the company is in the stage of achieving cost savings of US$6 billion by the end of 2023. On the basis of reducing US$3 billion in 2020, it will reduce costs by more than US$1 billion in the first half of 2021.
The second quarter revenue of Chevron, the second largest oil company in the United States, increased from 13.49 billion last year. The US dollar increased to US$37.6 billion, and net profit reached US$3.09 billion, the highest level in the past six quarters. Chief Executive Officer Mike Wirth said in a statement that the strong earnings reflected improving market conditions, coupled with transformation benefits and merger synergies.
Like ExxonMobil, Chevron has also lowered its annual capital expenditure forecast to $13 billion. Earlier this year, the company had budgeted annual capital expenditures through 2025. Set at $14 billion to $16 billion per year. The cost reduction has begun to bear fruit. Chevron’s production profit and loss cost has dropped to US$50 per barrel, which has also brought the company’s cash flow back to the level of 2019. The company will repurchase US$2 billion to US$3 billion of shares in the third quarter, approximately its entire half of the annual plan.
Europe’s two major energy giants also announced beautiful financial results last week. Royal Dutch Shell’s second-quarter revenue was US$60.515 billion, a year-on-year increase of 8.6%, and net profit was US$3.428 billion, turning a profit. Shell announced a dividend increase of nearly 40% and a repurchase of nearly US$2 billion in shares. In the second quarter, Total’s energy, oil and natural gas revenue increased by 13% and 28% quarter-on-quarter respectively, with net profit of US$3.5 billion. The company stated that it aims to maintain the lowest “A” long-term debt rating, while fixing the debt ratio below 20%, and will Use 40% of cash surplus for stock repurchases to share additional income with shareholders.
Varga told China Business News that after experiencing dismal stock price performance in previous years, energy companies are trying to win back the confidence of investors. The signal sent by these oil companies is that they will not go all-in on new production capacity in the short term and will use the gains from rising oil prices to revitalize their balance sheets, pay down debt and return cash to shareholders, while buying time for future transformation.
The green transformation of oil companies may boost oil prices
Globally The escalating clean energy transition also has oil companies looking for changes. The Energy Outlook report released by BP last year stated that as the government takes more active measures to control carbon emissions, people’s energy orientation will undergo major changes, and crude oil consumption will drop by more than 50% by 2050.The share of renewable energy in primary energy will rise from 5% in 2018 to more than 40%.
Major energy companies are taking action. For example, BP is increasing investment in local offshore wind energy, while Exxon Mobil and Total are focusing on carbon capture. Shell proposed a business transformation plan at the beginning of this year. The company plans to gradually reduce oil production by 1 to 2 percentage points each year and expand in areas such as power and biofuels.
ExxonMobil’s business strategy of adhering to the development of fossil energy has encountered strong challenges from activist investors. The No. 1 Engine Fund, which only holds 0.02% of the shares, proposed to re-elect the board of directors and won received broad support from shareholders. “Refuse to accept that demand for fossil fuels will decline over the coming decades could lead to long-term business risks. What boards need are directors with experience in the energy transition who can help translate the desire to address climate change risks into long-term business plans,” Rather than just talk,” the hedge fund said in a statement at the shareholder meeting.
Total CEO Patrick Pouyanne has previously made it clear that the group is Accelerating its transformation into a broad-based energy company, the company announced last week that it will acquire Blue Charge, Singapore’s largest network of electric vehicle charging stations. The latest financial report shows that the French energy giant’s capital expenditure in 2021 is expected to be between US$12 billion and US$13 billion, 50% of which will be used to invest in renewable energy.
Currently, the International Energy Agency (IEA) has set sustainable development goals for the global energy industry to address climate change. Taking BP as an example, the IEA requires it to reduce its emissions intensity by 9.4% to achieve its 2030 preset target. Over the past five years, UK oil emissions intensity has dropped by 11%. Varga told reporters that the world is at an inflection point in dealing with climate change, and governments seem more eager than ever to reduce carbon emissions and develop alternatives such as renewable energy. This was on full display at the global leaders’ climate summit in June. It is foreseeable that peak oil demand will always arrive in the future, so energy companies must be fully prepared for this.
Against the backdrop of global economic recovery and production restrictions by oil companies and the Organization of Petroleum Producing Countries (OPEC+), inventories in the Organization for Economic Co-operation and Development (OECD) have fallen below the five-year average , the potential contradiction between supply and demand is considered to be likely to further push up oil prices in the future. Bank of America predicted last month that international oil prices could rise to $100 next year as travel demand picks up.
Goldman Sachs is also firmly optimistic about oil prices. Jeffrey Currie, head of commodities research at Goldman Sachs, believes that the basic scenario forecast is that oil prices will reach an average of US$80 per barrel in the third quarter, of which In mid-summer, prices can “easily” rise to US$85 to US$90 per barrel, or even higher. </p
