Large Integrated Oil Companies Report Strong Earnings, Highlight Low-Carbon Moves

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Big Oil reported big profits for the fourth quarter of 2021 and the full year, helped greatly by strong year-over-year demand growth and average crude oil prices that were about $30 per barrel higher than in 2020.

Four large integrated supermajors--BP plc (NYSE:BP) (London, England), Shell plc (NYSE:SHEL) (London), ExxonMobil Corporation (NYSE:XOM) (Irving, Texas) and Chevron Corporation (NYSE:CVX) (San Ramon, California)--swung to hefty profits in 2021 from large full-year losses in 2020. A good bit of the higher profits has been and will continue to be returned to shareholders in the form of higher dividends and share buybacks. The companies each repaid billions of dollars in debt in 2021, and their de-leveraging of their balance sheets is expected to continue this year.

Click on the image at right to see a top-line comparison of revenue and net income for 2021 and 2020 for four large, integrated supermajors.

The good news about oil prices may continue throughout 2022: The February issue of the Short-Term Energy Outlook, produced by U.S. Energy Information Administration (EIA), predicted sharply higher yearly average prices for Brent and West Texas Intermediate (WTI) crude oil in 2022. Both are expected to fall in 2023, however.

All four supermajors also detailed their work to transition to a lower-carbon future. Summaries are below.

ExxonMobil
The Irving, Texas-based company, soon to move its headquarters to Houston, highlighted its growing profile in the Permian Basin, where volumes increased by 100,000 barrels of oil equivalent per day in 2021, largely due to higher prices and increased capital efficiency. In 2022, the company said, the focus will remain on continuing to grow free cash flow by increasing production through efficiency gains and technology applications.

The supermajor generated $48 billion of cash flow from operating activities, the highest level in nine years. Cash flow from operations more than covered capital expenditures (capex), debt reduction and dividends. The company said it reduced "structural" costs by an estimated $1.9 billion last year, and it paid down about $20 billion in debt.

Flush with cash, the company this quarter began repurchasing shares from shareholders. It will spend about $10 billion on that program over the next 12 to 24 months.

In its February 1 earnings release, ExxonMobil said it expected to achieve its 2025 carbon dioxide (CO2) emission-reduction plan by yearend 2021, four years ahead of schedule. ExxonMobil has committed to reduce Scope 1 and Scope 2 emissions, but not Scope 3, which is where the overwhelming majority of emissions occur--when consumers burn ExxonMobil's hydrocarbon products. The company said it aims to achieve net-zero Scope 1 and 2 greenhouse gas emissions for operated assets by 2050. In the Permian, it is pursuing net zero by 2030.

"Our effective pandemic response, focused investments during the down cycle and structural cost savings positioned us to realize the full benefits of the market recovery in 2021," said Darren Woods, the company's chairman and chief executive officer. "Our new streamlined business structure is another example of the actions we are taking to further strengthen our competitive advantages and grow shareholder value."

"We've made great progress in 2021, and our forward plans position us to lead in cash flow and earnings growth, operating performance and the energy transition."

Shell
Shell Chief Executive Officer Ben van Beurden said 2021 was "a momentous year" for the company: "We launched our Powering Progress (decarbonizing) strategy and simplified our share structure and organization. Progress made in 2021 will enable us to be bolder and move faster. We have a compelling strategy, with customers at its core. We have ambitious plans to generate shareholder value, to decarbonize our products, and to provide energy to our customers while respecting nature."

Shell, now based in London, repurchased about $3.5 billion of stock last year, and it plans to spend another $8.5 billion repurchasing shares during the first half of 2022. That program will be funded in part by proceeds from divestment of its Permian Basin assets. Van Beurden added that Shell expects to increase the dividend about 4% this quarter. Shell released its earnings February 3.

Like its brethren in the Oil Patch, Shell is working to lower the carbon content of its products. Its capital spending totaled about $20 billion in 2021, a sum it expects to increase to the lower end of a $23 billion-to-$27 billion range this year.

BP
BP Chief Executive Bernard Looney used most of his February 8 earnings release to discuss steps the company was making to transition from an international oil company to an integrated energy company. In particular, he highlighted investments and aspirations for the company's low-carbon businesses.

In BP's earnings release, Looney said, "Over the past two years we have set a new purpose, direction and strategy for BP and completed the largest reorganization in our history. With this period of change fully behind us, we are now solely focused on driving value through the safe, efficient delivery of our strategy.

"We enter 2022 with growing confidence," he continued. "The past two years have reinforced our belief in the opportunities that the energy transition presents--to create value for our shareholders and to get to net zero. The need for, and role of, an integrated energy company (IEC) has--to our minds--never been clearer. Underpinning all of this is our steadfast commitment to perform while transforming."

The global energy firm said it expects to increase the share of its capex in energy transition growth businesses to more than 40% by 2025 and is aiming for around 50% by 2030. It aims to generate earnings of $9 billion to $10 billion from these businesses by 2030, driven by five transition growth engines: bioenergy, convenience, electric vehicle (EV) charging, renewables and hydrogen.

The company said its "resilient hydrocarbons" business has delivered 35 major projects over the last six years, and those projects have been delivered on time, on average, at about 15% under budget. It defined "resilient hydrocarbons" as low-carbon forms of energy, which BP plans to ramp up as it ramps down oil and gas production 40% by 2030.

BP officials have said the transition to low-carbon energy, and a phasing down of oil and gas production, is at the heart of the company's strategy.

Looney said BP now expects that its resilient hydrocarbon business will generate about $33 billion a year in earnings before interest, tax, depreciation and amortization (EBITDA) by 2025 and $30 billion to $35 billion by 2030, even while oil and gas production is expected to decline sharply. BP said it plans to deliver this through "a continued focus on costs and performance, and disciplined investment in high margin opportunities, while also continuing to focus and high-grade its portfolio."

The earnings statement said, "As the world seeks lower carbon fuels, BP sees clear opportunities to leverage its portfolio of assets and customer base--hence bioenergy is one of (our) transition growth engines. This includes biofuels, including sustainable aviation fuel, and biogas. Building on its refinery footprint, BP anticipates investing in five major biofuels projects, including the conversion of up to two refineries. It also sees opportunity for considerable growth in biogas in the U.S., Europe and U.K."

Looney commented: "We are accelerating the greening of BP. Our confidence is growing in the opportunities that the energy transition offers. This allows us to raise our low-carbon ambitions, and we are now aiming to be net zero across operations, production and sales by 2050 or sooner--unique among our peers. In a world heading for net zero, we're best positioned for success if we are also heading for net zero. We believe our ambition is both good business and supports society's drive towards the Paris goals."

Chevron
In announcing its fourth-quarter and full-year earnings for 2021, Chevron said its free cash flow hit a record of $21.1 billion for the year. It spent about $11.6 billion last year on dividends and share repurchases.

Last year Chevron increased its dividend 4%; its January 28 earnings release said it would raise the dividend an additional 6%. It repurchased about $1.4 billion of company shares last year and slashed debt by $12.9 billion. Its stock buyback program will accelerate during the current quarter.

Chevron said it made progress last year to advance its lower carbon future by:

• Lowering the targeted carbon intensity of its operations
• Adopting a 2050 net zero aspiration for upstream scope 1 and 2 emissions
• Expanding its renewable fuels business
• Creating the Chevron New Energies organization that aims to grow hydrogen, carbon capture and offsets businesses
• Tripling its associated planned capital investment to approximately $10 billion through 2028

"In 2021, we delivered record free cash flow and accelerated our progress towards a lower carbon future," said Mike Wirth, Chevron's chairman and chief executive officer.

"We're an even better company than we were just a few years ago. We're more capital and cost efficient, enabling us to return more cash to shareholders."

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