U.S. and European giants deliver ‘excellent’ results despite the downturn in oil & gas prices

Three European oil majors – BP, TotalEnergies, and Eni – and their U.S. counterparts – ExxonMobil and Chevron – have revealed strong operating and financial performance in the first quarter of 2023 even though oil and gas prices have tumbled down from the highs seen at the peak of the global energy crisis during 2022.

While 2022 brought a lessening of restrictions imposed due to the COVID-19 pandemic, the Ukraine crisis ushered in a global energy crisis with price volatility as its fateful companion. As a result, energy security reigned supreme at the top of governments’ agendas as they set out to shield consumers from high gas prices and inflation. This brought global energy players all-time high profits in 2022, as illustrated by the results provided by Eni, Equinor, TotalEnergies, BP, Shell, Chevron and ExxonMobil.

As recently noted by Global Witness, last year was a bonanza for the oil and gas industry, as it made already high wholesale gas prices skyrocket, driving historic gains for oil and gas producers to such an extent that the U.S. President, Joe Biden, accused the industry of “war profiteering” while the UN secretary general, António Guterres, warned that the companies “have humanity by the throat.”

Based on Global Witness’ calculations, the 2022 annual profits of the five largest integrated private sector oil and gas companies – Chevron, ExxonMobil, Shell, BP and TotalEnergies – add up to $195 billion, nearly 120 per cent more than the previous year, and the highest level in the industry’s history.

However, things changed in 2023, as oil and gas prices went on a downward spiral. According to the U.S. Energy Information Administration (EIA), the statistical and analytical agency within the U.S. Department of Energy, the Brent crude oil spot price will average $85 per barrel in 2023, thanks to less global production in 2023, due to OPEC+ revealing crude oil production cuts.

On the other hand, the EIA forecasts that the Henry Hub natural gas spot price will average about $2.65 per million British thermal units (MMBtu) in 2Q 2023 as natural gas inventories begin to rise. With inventories remaining above the five-year average in 2023, the agency expects natural gas prices to average less than $3.00/MMBtu for 2023, a more than 50 per cent decrease from last year.

The lower oil and gas prices have left their mark on the UK-headquartered BP’s results for 1Q 2023. The firm’s underlying replacement cost profit for the quarter was $5 billion, compared with $4.8 billion for the previous quarter and $6.25 billion in 1Q 2022. Compared to the fourth quarter of 2022, the oil major explains that the result reflects “an exceptional gas marketing and trading result,” a lower level of refinery turnaround activity and “a very strong” oil trading result, partly offset by lower liquids and gas realisations and lower refining margins.

According to BP, the reported profit attributable to its shareholders for 1Q 2023 was $8.2 billion, compared with $10.8 billion for the fourth quarter of 2022 and a loss of $20.4 billion for 1Q 2022. The reported result for the first quarter is adjusted for inventory holding losses of $0.5 billion (net of tax) and a net favourable impact of adjusting items of $3.7 billion (net of tax) to derive the underlying replacement cost profit. Adjusting items include favourable fair value accounting effects of $4.3 billion, primarily resulting from the decline in the forward price of LNG compared to the end of 4Q 2022.

The company’s net debt reached $21.2 billion at the end of the first quarter of 2023, compared to $21.4 billion in 4Q 2022 and $27.46 billion in 1Q 2022. The oil major’s operating cash flow in the 1Q 2023 was $7.6 billion including a working capital release – after adjusting for inventory holding losses, fair value accounting effects and other adjusting items – of $1.4 billion. This is compared to the firm’s operating cash flow of $13.6 billion in 4Q of 2022 and $8.2 billion in 1Q 2022.

The company’s capital expenditure in the first quarter of 2023 was a loss of $3.6 billion, compared to a loss of $7.4 billion in 4Q 2022 and $2.93 billion in 1Q 2022. However, BP continues to expect capital expenditure – including inorganic capital expenditure – of $16-18 billion in 2023.

Based on the firm’s current forecasts, at around $60 per barrel Brent and subject to the board’s discretion each quarter, the company expects to be able to deliver share buybacks of around $4.0 billion per annum, at the lower end of its $14-18 billion capital expenditure range, and have the capacity for an annual increase in the dividend per ordinary share of around 4 per cent.

Bernard Looney, BP’s chief executive officer, remarked: “This has been a quarter of strong performance and strategic delivery as we continue to focus on safe and reliable operations. Momentum continues to build across our integrated energy company strategy, with the start-up of Mad Dog Phase 2, our agreement to acquire TravelCenters of America and progress towards hydrogen and CCS projects in the UK. And importantly we continue to deliver for shareholders, through disciplined investment, lowering net debt and growing distributions.” 

BP claims that the KGD6-MJ project offshore India is in the final stages of commissioning with two wells opened to flow gas and full start-up expected during the second quarter. The company intends to form a new joint venture with ADNOC that will be focused on gas development, together making a non-binding offer for a 50 per cent interest in NewMed Energy as a significant first step. The oil major is also moving forward with concept selection for Kaskida in the Gulf of Mexico and will progress evaluation of the development concept for its Greater Tortue Ahmeyim Phase 2 project.

When it comes to low carbon energy, BP has signed an agreement to take a 40 per cent stake in the Viking carbon capture and storage project in the North Sea while three of its hydrogen and CCS projects in northeast England have been chosen by the UK government to progress to the next stage of development. The firm also launched plans for a low-carbon green energy cluster in Spain’s Valencia region to include world-scale green hydrogen production at its Castellón refinery with up to 2 GW of electrolysis capacity by 2030.

Just like BP, France’s TotalEnergies has also felt the impact of lower oil and gas prices. The company recorded a net income of $5.6 billion in the first quarter of 2023, compared to a net income of $3.3 billion in the fourth quarter of 2022 and $4.9 billion in the first quarter of 2022. The French giant’s adjusted net operating income was $6.5 billion in 1Q 2023, compared to $7.6 billion in 4Q 2022 and $9 billion in 1Q 2022, mainly due to lower oil and gas prices.

Patrick Pouyanné, CEO of TotalEnergies, commented: “TotalEnergies once again demonstrates its ability to generate strong results, posting in the first quarter 2023 adjusted net income of $6.5 billion, cash flow of $9.6 billion, and return on average capital employed of 25 per cent, in an environment of lower oil and gas prices. IFRS net income was $5.6 billion for the quarter.

“In an environment with Brent prices averaging $81/b, Exploration & Production generated adjusted net operating income of $2.7 billion and cash flow of $4.9 billion with production growth of 2 per cent compared to the previous quarter, benefiting in particular from the start-up of gas production on Block 10 in Oman and the acquisition of a 20 per cent interest in the SARB/Umm Lulu oil fields in the United Arab Emirates.”

TotalEnergies posted an adjusted EBITDA of $14.2 billion for the first quarter of 2023, compared to $16 billion for the fourth quarter of 2022 and $17.4 billion for the first quarter of 2022. The company’s cash flow from operations was $5.1 billion in 1Q 2023, compared with $5.6 billion in 4Q 2022 and $7.6 billion in 1Q 2022.

“Integrated LNG delivered adjusted net operating income and cash flow of $2.1 billion, leveraging its integrated global portfolio, in an environment of European and Asian gas prices returning to levels close to Brent parity at $16-17/Mbtu, given the mild winter and high inventories in Europe. The company launched this quarter the integrated engineering studies (FEED) on the Papua LNG project, which will contribute to the future growth of the LNG portfolio,” added Pouyanné.

The hydrocarbon production was 2,524 thousand barrels of oil equivalent per day (kboe/d) in the first quarter of 2023, up 1 per cent year-on-year – excluding Novatek – comprised of +4 per cent due to start-ups and ramp-ups, notably Mero 1 in Brazil and Ikike in Nigeria along with +1 per cent due to the increase in OPEC+ production quotas.

Additionally, the hydrocarbon production entails a -1 per cent portfolio effect, notably related to the end of the Bongkot operating licenses in Thailand, the exit from Termokarstovoye and Kharyaga in Russia and the effective withdrawal from Myanmar, partially offset by the entry into the producing fields of Sépia and Atapu in Brazil and SARB/Umm Lulu in the United Arab Emirates, as well as the increased participation in the Waha concessions in Libya, and -3 per cent due to the natural decline of the fields.

The production was up 2 per cent quarter-on-quarter, excluding Novatek and benefiting in particular from the start-up of gas production from Block 10 in Oman, the acquisition of an interest in the SARB/Umm Lulu oil fields in the United Arab Emirates, and the ramp-up of Johan Sverdrup Phase 2 project in Norway.

“TotalEnergies closed this quarter the acquisition of a 34 per cent interest in Casa Dos Ventos in Brazil, contributing to the growth of its installed renewable power generation capacity to 18 GW. Given these strong results, the board of directors confirmed the increase of 7.25 per cent in the first interim dividend for the 2023 financial year, to €0.74 per share, as well as the repurchase of up to $2 billion of shares in the second quarter of 2023,” explained Pouyanné.

After briefly falling below $75/b in mid-March, TotalEnergies outlines that oil prices rose above $80/b in April, notably due to the decision by some OPEC+ countries to reduce their production quotas to stabilise a market marked by fears of the financial crisis and recession. Given the evolution of oil and gas prices in recent months and the lag effect on price formulas, the company anticipates that its average LNG selling price should be between $10-12/Mbtu in the second quarter of 2023.

Taking into consideration the high inventory levels at the end of winter, the French oil major expects European and Asian gas prices to remain stable in the second quarter before rebounding in the second half of 2023, driven by restocking gas in Europe before winter and the demand recovery in China, in a context of limited LNG production growth with prices in the range of $18/Mbtu for winter 2023-24.

For the second quarter of 2023, TotalEnergies anticipates a hydrocarbon production of around 2.5 Mboe/d, LNG sales that should benefit from the restart of Freeport LNG and a utilisation rate in refineries up to more than 80 per cent given the end of strikes in France. The oil major confirms its guidance for net investments between $16-18 billion in 2023, including $5 billion in low-carbon energies.

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Italy’s Eni is another European oil major, which has joined BP and TotalEnergies in posting 1Q 2022 results affected by the downward trend in energy prices. In line with this, the Italian giant’s adjusted operating profit before tax of €5 billion ($5.53 billion) in 1Q 2023 was only 5 per cent lower than in 1Q 2022 despite a 20 per cent fall in crude oil price and a 42 per cent drop in gas price. The firm emphasises the 30 per cent rise in adjusted EBIT and 14 per cent rise in adjusted profit before tax on 4Q 2022 despite the weakening Upstream scenario.

Based on the company’s statement, this performance reflects a highly resilient E&P result and an outstanding contribution from the GGP business plus steady earnings from Sustainable Mobility & Refining. The oil major’s E&P segment earned €2.8 billion (over $3.09 billion) of adjusted EBIT, mainly affected by weaker realised prices and the deconsolidation of the Angolan activities. Including the contribution of Azule, the 1Q 2023 pro-forma EBIT increased to €2.93 billion ($3.24 billion), a reduction of 33 per cent year-on-year.

In line with this, GGP earned €1.37 billion ($1.5 billion) in 1Q 2023 of adjusted EBIT, 47 per cent higher than in 1Q 2022, driven by optimisation and trading activities. Eni’s Plenitude & Power delivered solid results with €0.19 billion of adjusted EBIT helped by the ramp-up in the renewable installed capacity and production volumes and optimisations in the business of power generation from gas-fired plants. The Italian firm’s net borrowings (ex-IFRS 16) as of 31 March 2023, were €7.8 billion (over $8.6 billion), and leverage stood at 0.14, versus 0.13 as of 31 December 2022.

The Italian player’s adjusted net profit attributable to its shareholders was €2.9 billion ($3.21 billion), thus, compared with 1Q 2022, it was 11 per cent lower impacted by lower oil and gas prices and the UK energy profit levy but significantly offset by the strong underlying business performance. Eni’s adjusted operating cash flow before working capital at replacement cost was €5.3 billion ($5.9 billion) in 1Q 2023, largely exceeding the cash outflows related to organic capex of €2.2 billion ($2.4 billion) and dividend payments.

The energy giant further underlines that around 200 million boe of new resources were added to the reserve base in 1Q 2023, driven mainly by the discoveries made off Cyprus, Mexico and Egypt while a positive appraisal of prior findings was also made in Abu Dhabi. In March, Eni announced the Yatzil discovery in the Block 7 exploration prospect in the Sureste Basin, off Mexico. This was the second commitment well of Block 7 and the eighth successful exploration well drilled by Eni in this basin.

In April, the FPSO Firenze – to be renamed Baleine upon its mooring – sailed away from Dubai to the Baleine field in Côte d’Ivoire. This FPSO has been refurbished and upgraded to increase its processing capacity up to 15,000 bbl/d of oil and around 25 mmcf/d of associated gas. A restructuring of Eni’s natural gas transport business from the Southern route was agreed with Snam in January 2023, entailing a divestiture of a 49.9 per cent stake in the equity interests of Eni’s subsidiaries managing the TTPC/Transmed pipelines connecting Algeria’s network to Italy through Tunisia and the Mediterranean Sea, and the relevant transportation rights.

Claudio Descalzi, Eni CEO, stated: “Eni has delivered an excellent set of operating and financial results despite a weakening scenario. This was driven by a resilient E&P result that featured a recovery in hydrocarbon production and very strong gas and LNG performance. We also saw a steady contribution from biorefineries, the commercial network and continued growth from Plenitude and Power meaning the company recorded €4.6 billion of adjusted EBIT and €2.9 billion of adjusted net profit. During the quarter, we made substantial progress against our strategy and plans.”

Within Eni’s updated operational and financial guidance for 2023, the company confirms hydrocarbon production in the range of 1.63-1.67 million boe/d at its price scenario of $85/bbl. In 2Q 2023, production is forecast at 1.6 million boe/d due to planned maintenance taking place mainly in the quarter. The Italian player also affirms its exploration target of 700 mln boe of discovered resources.

“Plenitude has increased its renewable capacity to 2.3 GW and is on track to reach the yearly target of more than 3 GW, while Versalis has just finalised a transformative deal regarding its interest in Novamont’s green chemicals business. Therefore in confirming the progress of our decarbonisation pathway, to address energy security and deepen our gas exposure, we signed a landmark agreement with NOC to develop the A&E Structures in Libya and we strengthened our position in Algeria, closing the acquisition of BP’s natural gas assets,” pointed out Descalzi.

In the GGP segment, the firm confirms narrowed adjusted EBIT guidance to be in the range of €2.0 billion – €2.2 billion for the year, versus the initial guidance of €1.7 billion – €2.2 billion. Eni’s adjusted EBIT and cash flow are expected to be €12 billion and over €16 billion, respectively, while capex is now expected to be around €9.2 billion, lower than the original guidance at €9.5 billion, taking into account a stronger Euro.

“We remain financially disciplined as a necessity to meet the challenges of the energy market and deliver value for our shareholders,” says Descalzi.

Compared to its European peers, ExxonMobil’s earnings for 1Q 2023 were $11.4 billion, compared with $12.8 billion in the fourth quarter of 2022 and $5.5 billion in the first quarter of 2022. Excluding the identified item associated with additional European taxes on the energy sector, earnings were $11.6 billion compared to $14.0 billion in the prior quarter and $8.8 billion in 1Q 2022. Additionally, identified items in the fourth quarter included a higher impact from the additional European taxes on the energy sector, asset impairments, and one-time adjustments related to the Sakhalin-1 expropriation.

The firm’s earnings were unfavourably impacted sequentially by lower liquids and natural gas realisations and the absence of favourable mark-to-market impacts on unsettled derivatives, fewer days in the quarter, and higher scheduled maintenance. These impacts were partially offset by higher volumes, mix improvements driven by advantaged project growth, strong operating execution, and disciplined cost management. The results also benefited from the absence of year-end inventory effects and lower corporate and financing costs.

The company claims that it remains on track to deliver $9 billion of structural cost savings by the end of 2023 relative to 2019, having achieved cumulative structural cost savings of $7.2 billion to date. The oil major’s cash flow from operations totalled $16.3 billion, compared to $17.6 billion in the fourth quarter of 2022 and $14.8 billion in 1Q 2022. The U.S. player’s free cash flow was $11.4 billion for the quarter while its debt-to-capital ratio remained at 17 per cent and the net-debt-to-capital ratio declined to about 4 per cent, reflecting a period-end cash balance of $32.7 billion.

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Darren Woods, ExxonMobil’s chairman and chief executive officer, underlined: “Our people’s hard work to execute on our strategic priorities delivered a record first quarter following a record year. We are growing value by increasing production from our advantaged assets to meet global demand. At the same time, our Low Carbon Solutions team is rapidly growing this new business with an additional carbon capture, transportation and storage agreement that underscores the company’s growing momentum in providing industrial customers with large-scale emission reduction solutions.”

The firm’s capital and exploration expenditures were $6.4 billion in 1Q 2023, on track to meet the company’s full-year guidance of $23 billion to $25 billion, compared to $7.5 billion in the fourth quarter of 2022 and $4.9 billion for 1Q 2022. ExxonMobil’s net production in 1Q 2023 was 3.8 million oil-equivalent barrels per day, an increase of nearly 160,000  oil-equivalent barrels per day compared to the same quarter last year.

According to the U.S. oil major, net production increased by nearly 300,000 oil-equivalent barrels per day – excluding divestments, entitlements and the Sakhalin-1 expropriation – driven by advantaged projects in Guyana and the Permian. Regarding activities in Guyana, ExxonMobil announced its final investment decision for the fifth offshore project in the Stabroek block – Uaru – which is expected to provide an additional 250,000 oil-equivalent barrels per day of gross capacity with start-up targeted for 2026. In addition, two new exploration discoveries were made this year.

The other U.S. energy giant, Chevron reported earnings of $6.6 billion for the first quarter of 2023, compared with $6.4 billion in 4Q 2022 and $6.3 billion in the first quarter of 2022. The oil major outlined that a $130 million tax charge related to changes in the energy profits levy in the United Kingdom was included in this quarter while foreign currency effects decreased earnings by $40 million.

The company’s adjusted earnings were $6.7 billion in the first quarter of 2023, compared to adjusted earnings of $7.9 billion in 4Q 2022 and $6.5 billion in the first quarter of 2022. The earnings in 1Q 2023 increased compared to the first quarter of 2022, primarily due to higher margins on refined product sales, partially offset by lower upstream realisations. Chevron’s sales and other operating revenues in 1Q 2023 were $48.8 billion, compared to $52.3 billion in the year-ago period primarily due to lower commodity prices.

Commenting on this, Mike Wirth, Chevron’s chairman and CEO, said: “We’re delivering strong financial results and increasing cash returned to shareholders. At the same time, we’re investing more to help grow future energy supplies. We intend to leverage our capital discipline, advantaged assets and financial strength to deliver lower carbon energy to our customers and superior cash distributions to our shareholders.”

The U.S. firm’s worldwide net oil-equivalent production was down 3 per cent from the year-ago quarter, primarily on lower international production due to the end of the Erawan concession in Thailand. In lieu of this, Chevron’s international net oil-equivalent production was down 64,000 barrels per day from a year earlier while the U.S. net oil-equivalent production was down slightly from the first quarter of 2022, primarily due to the Eagle Ford asset sale.

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The company’s capex in the first three months of 2023 was up 55 per cent from a year ago primarily due to higher investment in the United States while its free cash flow excluding working capital was lower than a year ago mainly due to higher capex. Over the past two years, the firm has generated over $80 billion in cash flow from operations and over $60 billion of free cash flow.

Chevron’s return on capital employed has been greater than 12 per cent for seven consecutive quarters, and the company returned $6.6 billion to shareholders in the first quarter, an increase of 65 per cent from last year. The U.S. player also increased its dividend per share by approximately 6 per cent in the first quarter and recently increased its targeted annual share repurchase rate to $17.5 billion.

Meanwhile, ExxonMobil and Chevron relinquished 20 offshore oil and gas exploration permits earlier this year off the coast of British Columbia and were among the companies which submitted the biggest chunk of high bids during the latest oil and gas lease sale for acreage in federal waters in the Gulf of Mexico, which was held under the Biden administration.

While Chevron submitted 75 high bids, BP Exploration & Production and ExxonMobil submitted 37 and 69 high bids, respectively.

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