U.S. oil producers have raked in more than $200 billion in profits since Russia invaded Ukraine as they capitalized on a period of geopolitical turmoil that rocked the global energy market and skyrocket prices.
Overall net profit for publicly traded oil and gas companies operating in the United States was $200.24 billion for the second and third quarters of the year, according to an analysis of earnings reports and estimates conducted by S&P Global Commodity Insights for the Financial Times.
The figure – which includes supermajors, mid-sized integrated groups and smaller independent shale operators – marks the sector’s most profitable six months on record and puts it on track for an unprecedented year.
“Operating cash flow will likely hit record highs — or at least very close — by year-end,” said Hassan Eltorie, executive director of upstream equity research at S&P.
The cash bonanza has infuriated the White House as high gasoline prices weigh on Democrats’ poll results ahead of next week’s critical midterm elections.
This week, President Joe Biden called outrageous revenues a “war gain” and accused corporations of “profiting” from the invasion of Moscow. Unless they invest the money in pumping more oil to drive down pump prices, he said he would ask Congress to hit them with higher taxes.
Extraordinary tax legislation is unlikely to pass in Washington. But it has become a reality on the other side of the Atlantic: Brussels has introduced a “solidarity contribution” of 33% on excess profits, while London has decreed an additional “levy on energy profits” of 25% which has increased the profits tax at 65% until the end of 2025. Rishi Sunak, the new British Prime Minister, plans to increase the levy to 30% and extend it until 2028.
Windfall earnings were supported by soaring free cash flow, a key industry metric that is defined as operating cash flow less capital expenditure. High commodity prices drove the former up; investors’ insistence on frugality has reduced the latter.
Brent crude, the international oil benchmark, averaged over $105 a barrel in the second and third quarters, well above an average of around $70 a barrel over the past five years. It reached a peak of nearly $140/bbl in early March after the arrival of Russian tanks in Ukraine.
Meanwhile, Wall Street, still reeling from a decade of profligacy and persistent losses, demanded that companies enter a new era of capital discipline – prioritizing shareholder returns over drilling campaigns. costly in the pursuit of ever-increasing production growth. Investment bank Raymond James estimates capital spending by the world’s 50 largest producers will be around $300 billion this year, about half of what it was in 2013, the last time prices were at a comparable level.
“Over the past five years, the industry has gone from ‘drill, baby, drill’ to focusing on what shareholders really want, which is return of capital,” said Pavel Molchanov, analyst at Raymond James. “Dividends and share buybacks have never been more generous than they are today.”
Big Oil’s new discipline contrasts with Big Tech, which has frustrated Wall Street over a perceived failure to rein in investment. Tech stocks have been pummeled in recent weeks after companies such as Google and Meta reported lackluster earnings.
Reacting to the prospect of a windfall tax, Darren Woods, chief executive of ExxonMobil, which had its most profitable quarter ever, said his company’s large dividend should be seen as its way to “return a portion of our profits directly to the American people”.
“We prioritized building value per share over chasing volumes,” said Rick Muncrief, managing director of Devon Energy, a major shale driller. “And we’ve rewarded shareholders with market-leading cash returns.”
Additional reporting by Alice Hancock in Brussels and David Sheppard in London
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