Oil profits collapsed due to the correction of world energy prices

Leading oil and gas companies in the US and Europe reported a sharp drop in profits in the second quarter. After a record rise in energy prices in 2022, companies made equally record profits that year. But this year, after the correction of world oil prices, the drop in profits has already become a record. However, the companies believe that they manage to adjust to the changed market conditions, and some of them even increased their dividends and buybacks of their shares from the market.

Yesterday, the season for quarterly reporting of leading Western oil and gas companies closed the British BP. Net profit for the second quarter amounted to only $1.8 billion, which is 5 times less than a year earlier ($9.3 billion), and 4.5 times less than in the first quarter of the current year ($8.2 billion). The collapse of indicators turned out to be so significant that it did not fit into the already very modest forecasts of experts. Analysts polled by Refinitiv expected from BP quarterly basic income from replacement cost – one of the company’s key performance indicators – at $3.5 billion, while BP reported receiving only $2.6 billion.

Reporting BP only consolidated the trend identified by other leading Western oil and gas companies in the quarter – profit fell by half, or even more.

The only intrigue was how this or that company will cope with the fall in oil prices, meeting or not meeting the very modest forecasts of analysts.

July 27 another British company, Shell, informedthat its profit in the second quarter decreased by 56%, amounting to $ 5 billion. A year earlier, the company made a profit of $ 11.5 billion. Such a significant decrease is due to falling energy prices this year. If in June last year the price of Brent oil reached $122 then during the second quarter of this year it traded at about $75. Shell did not meet the forecasts of analysts polled by Refinitiv – they expected Shell’s profit for the quarter to be $6 billion. After the publication of financial statements, the company’s shares fell by 1.3%.

A day later, last Friday, the two largest US oil and gas companies reported for the second quarter – Chevron And ExxonMobil. At Chevron quarterly profit was $6 billion, almost half of the $11.7 billion figure a year earlier. However, thanks to an increase in production in the US Permian Basin to a record 770 thousand barrels per day, Chevron managed to show results that exceeded forecasts analysts who expected the company to earn $2.97 per share, while the company received $3.08.

Another American company ExxonMobil reported on the results of its activities in the second quarter. The company’s total revenue was $82.9 billion, down 28% from the second quarter of 2022. Net profit reached $7.9 billion, down 55% from a year earlier. The company almost managed to meet the expectations of experts – according to forecasts According to Refinitiv Eikon analysts, the company’s quarterly earnings per share should have dropped to $2.01, the company showed a result of $1.94.

However, despite the fall in profits in the second quarter, a number of companies gave a fairly positive assessment of their performance in a difficult environment.

Chevron CEO Mike Wirth said that even in a difficult second quarter, it was able to return $7.2 billion to its shareholders in the form of a $2.8 billion dividend payout and a $4.4 billion share buyback. Such results allowed the Chevron CEO to say that she is ready to increase dividends for its shareholders, and to new transactions on mergers and acquisitions.

ExxonMobil has been quite successful in cutting costs in the face of declining energy prices, dropping $8.3 billion since the start of the year, compared to a $9 billion cut planned for the full year. Successful cost-cutting efforts amid falling energy prices and key indicators saw ExxonMobil’s stock tumble 1.2% since the release of quarterly results. In turn, BP announced that it would raise its dividend by 10% to $7.27 per share and said it would buy back $1.5 billion of its own shares over the next three months.

Analysts hope that such actions of companies speak of their confidence in successfully overcoming the consequences of a difficult market environment.

“BP’s decision to increase its dividend and allocate another $1.5 billion for share buybacks – on top of the $1.75 billion already spent on this in the second quarter – was a pleasant surprise for us, giving us confidence for the second half of the year,” notes Will Hares, Energy Market Analyst at Bloomberg Intelligence.

Evgeniy Khvostik