In 2022, the world witnessed an unprecedented financial boom for the five largest Western oil companies: ExxonMobil and Chevron from the US, Shell from Anglo-Dutch, BP from the UK, and TotalEnergies from France.
These firms recorded a combined net profit of over $196 billion, which is double the amount earned in 2021, and 50% more than their previous record earnings. The oil majors’ profits skyrocketed due to various reasons, including a surge in crude oil prices, recovering demand, and supply constraints from sanctions imposed on Russia.
The massive profits have made a considerable impact on the companies’ finances, reducing their debt levels and increasing shareholder remuneration. The value of stocks in circulation has also gone up with record dividends and share repurchases. With the transition to renewable energy underway, these companies are doubling their investments in green energy sources such as wind, solar photovoltaic, and hydrogen.
Energy companies have become the bright spot in the stock markets, with the 10 top-performing US-listed companies operating in the sector. Oil and gas companies account for 10% of the total profits of the S&P500, despite only making up 5% of the total market value.
However, calls for higher taxes on windfall profits have gained momentum, with the European Commission endorsing the idea and countries like Spain, Italy, and the UK taking unilateral steps. President Biden criticized the oil giants in his State of the Union address, accusing them of using their record profits to buy back their stock instead of increasing domestic production and keeping gas prices low.
Despite the recent drop in crude oil and natural gas prices, the outlook for oil companies remains favorable. Refineries are still facing bottlenecks, and demand remains strong, especially after the recent reopening of the Chinese economy and declining fears of a recession.
TotalEnergies CEO Patrick Pouyanné believes that crude oil prices could return to $100 a barrel, with China’s increasing consumption and falling Russian supply of crude oil and derivatives tightening the markets. The tight market is expected to result in more favorable income statements for the oil companies.
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