BP, Chevron, Exxon Mobil, Shell and TotalEnergies
reported combined net profits of US$56 billion in the third quarter, driven by surging oil and gas
prices, record-high refining margins and strong trading results.
BP posted
its highest quarterly profit ever, US$8.5 billion, as earnings from its
refining business rose tenfold from a year earlier. For the other majors, the
quarter was generally their second-strongest on record, behind only the
extraordinary gains booked following Russia's invasion of Ukraine in February
2022.
Market
conditions remain incredibly favourable. Brent crude has surged around 60% to US$114
a barrel since the start of the Iran conflict on February 28, while benchmark
European natural gas prices have climbed to their highest levels since late
2022. Diesel prices, meanwhile, remain close to September's all-time high above
US$200 per barrel as fuel markets continue to grapple with refinery outages and
disrupted trade flows.
Big Oil has so far shied away from major new
spending, suggesting the majors do not see today's market conditions as
evidence that the industry's long-term outlook has improved.
Entering the
year, the energy industry had been bracing for a looming supply glut. Many
companies were cutting spending plans, freezing hiring and intensifying
cost-saving programs amid expectations that a flood of new oil and liquefied
natural gas (LNG) supplies would pressure prices later in the decade.
The joint
US-Israeli strikes on Iran in February and the prolonged closure of the Strait
of Hormuz upended the short-term supply picture, as exports from the Gulf
ground to a halt and refining capacity shrank.
However, energy
companies have so far maintained their conservative approach, directing excess
cash mostly to strengthening balance sheets and repurchasing shares.
The majors’
combined net debt fell to US$117 billion in the third quarter from US$204
billion in the first quarter.
BP, which
entered the conflict carrying one of the highest debt burdens among its peers,
nearly halved net debt to US$13.9 billion from a year earlier. The company will
continue to focus on debt reduction, its CEO said.
Share
buybacks also rose to US$12.3 billion in the third quarter, little changed from
the previous quarter. Shell and TotalEnergies announced sharp increases in
buybacks over the next three months, while Exxon said it planned to buy back US$20
billion of shares in 2027, a similar level to this year.
While debt
reduction and share repurchases can be dialled up or down from one quarter to
the next, capital spending and dividends are longer-term commitments that are
much harder to reverse if market conditions deteriorate.
So it is
telling that the majors' dividend policies and capital spending plans have
remained largely unchanged since the start of the war.
Shell, for
example, reduced its 2026 capital spending guidance by US$1 billion to US$23
billion to US$25 billion despite the sharp improvement in commodity
prices.
Chevron
expects 2026 spending to remain at the lower end of its US$18 billion to US$19
billion guided range.
The extreme
volatility and uncertain outlook have also curbed companies' appetite for large
acquisitions, as buyers and sellers struggle to agree on fair valuations for
assets.
The main exception has been North American natural
gas, where abundant supplies and relatively predictable pricing have made it
easier to strike deals.
Shell's U$16.4
billion acquisition of Canada's ARC Resources in April reflected growing
confidence in the continent's expanding LNG export sector and long-term gas
demand prospects.
TotalEnergies
has also indicated interest in deals that would help raise its US gas production
by around 1 billion cubic feet per day, although CEO Patrick Pouyanne said oil
assets remained too expensive at current valuations.
Boards will
review 2027 spending plans before year-end,
when companies could decide to increase shareholder distributions or accelerate
investment. But all signs so far indicate that any changes will mostly involve
returning more capital to shareholders.
What stands
out in this bumper earnings season is that energy industry executives appear
unwilling to treat today's elevated prices as the start of a new supercycle.
The
experience of the past decade, from the 2014 oil price collapse to the pandemic
crash and the post-Ukraine boom, has reinforced a preference for financial
discipline over production growth.
That is understandable,
particularly because the concerns driving the industry’s long-term uncertainty
– namely the speed and shape of the energy transition, particularly in Asia –
have not improved and may have got worse.
The wars in Ukraine and the Middle East have highlighted
the risk of being overly dependent on imported fossil fuels. This could spur
stockpiling, but it could also encourage countries to pursue more domestic
energy production, from both traditional and alternative fuel sources.
There are growing signs that oil and gas markets could remain
tight, helping to generate heftier profits for the energy majors. Over the longer term, geopolitical
fracture and energy nationalism appear set to usher in a new era of greater
energy market volatility.
