Riyadh Newspaper | Oil companies expect combined profits of about $200 billion

Riyadh Newspaper | Oil companies expect combined profits of about $200 billion
Riyadh Newspaper | Oil companies expect combined profits of about $200 billion
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Oil majors will report combined earnings of close to $200 billion for 2022, with several majors posting record quarterly profits during the year thanks to a combination of strong energy demand and limited supply. According to “Riyadh” data, the industry had an opportunity to reduce debt thanks to the strong performance of its products last year. Total debt of major oil companies has fallen to $100 billion, the lowest level in 15 years, and is down more than 50 percent from 2020, when it reached more than $270 billion as companies borrow to survive. Last year was a good year for the oil industry, and despite predictions of its imminent demise as renewable energy drives electricity which in turn dampens oil, fossil fuel commodities were the star of the year, with demand for all, including coal, rising significantly. Meanwhile, opposition to the oil majors has escalated and protests have grown more extreme, with activists barricading themselves in streets and buildings, vandalizing world-famous artwork in order to raise awareness of climate change. Despite this, the major oil companies continued to reap record profits, thanks to the high prices of the commodities they produce. But not everything is smooth from now on. First, there is the windfall profit tax that the European Union and the United Kingdom decided to impose on energy companies in order to generate some money for energy aid programmes.

Shell said it expected the impact of the unexpected taxes in the UK and EU to cost it $2.4 billion. It also said it may have to reconsider investment plans for the North Sea in light of that blow. Meanwhile, despite political opposition to developing more oil and gas reserves in the UK, more than 100 bids were submitted this month for new exploration in the basin.

France’s Total Energy also said it would take a big hit from unexpected UK and EU taxes. She added that taxes would come in about $2.1 billion. As a result, the company said it would reduce its investment in the North Sea by a quarter, noting that the tax did not provide for any adjustments in the event of a drop in oil and gas prices.

Meanwhile, oil and gas prices fell. Right now, oil is trading at about the same level as it was a year ago, and natural gas prices have fallen dramatically in both Europe and the United States – their biggest suppliers. “The energy industry operates in a cyclical market and is subject to the volatility of commodity prices,” said Jean-Luc Giseau, head of exploration and production at Total Energy. “We believe the government should remain open to reviewing the energy dividend tax if prices fall before 2028.”

Exxon has taken a step beyond criticism, suing the European Union to get it to drop the windfall profits tax. The company argued that the tax was counterproductive, discouraging investment and undermining investor confidence.

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However, the oil majors have some big investment plans, not just for Europe. Exxon and Chevron plan to spend 10 percent more this year than they did last year, bringing their combined value to $41 billion.

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While BP will spend more on its shale oil operations in the US and the Gulf of Mexico although European giants as a whole are expected to be more cautious with their money due to unexpected taxes. But they will continue to spend heavily on low carbon projects. HSBC said in a recent note: “Europe’s major currencies appear to have a more attractive value than their US counterparts.” It is among the banks that expect a stronger performance in the stocks of major European oil companies, after the stock market was dominated by slackers in the United States last year.

If investing in low-carbon projects is the guarantee of stronger stock performance, then the bank’s predictions are right. Indeed, pressure is mounting on the oil industry to set itself tougher emissions reduction targets and make stronger commitments to decarbonisation. That pressure is unlikely to stop this year as governments in the European Union, the United Kingdom and the United States double down on their climate change plans, too. 2023 is likely to be another strong year for the oil industry and the demand for oil and gas is not expected to decline, on the contrary. The EU will need to buy more gas to refill its stores and will continue to use the oil products it no longer buys from Russia. US and non-OPEC producers are expected to add 2.4 mb/d of oil production in 2023 and 1.1 mb/d in 2024, while liquid fuel production in Russia is expected to decrease by 1.4 mb/d in 2020. 2023 to 9.5 million barrels, and another 100,000 barrels per day to decline by an average of 9.4 million barrels per day in 2024. The EIA said the United States is set to contribute 40% to global oil production growth in 2023 and 60% in 2023. 2024, making it the largest source of production growth in its forecast, followed by OPEC. The Energy Information Administration cited US crude production mostly in the Permian fields as well as increases in hydrocarbon gas liquids and biofuel production as the main drivers of US production growth.

The Energy Information Administration raised its forecast for 2023 for US oil production by 70,000 barrels per day, to 12.41 million barrels per day, and expects production growth to continue through 2024 to put US crude production at 12.81 million barrels per day.

As China reopens, most observers expect a recovery in oil and gas demand sooner rather than later. Even the United States, despite all its green ambitions, is unlikely to stop being the largest consumer of oil for months, which gives the greatest indication of the impossibility of the world’s largest economy abandoning oil, and which confirms that the near future of the major oil companies is really bright.

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