Big Oil generated $613bn in cash on post-pandemic energy price surge

The share buybacks of the world's biggest five crude companies hit a record $57 billion last year

Exxon Mobil Corp signage on the floor of the New York Stock Exchange. Bloomberg

The record profits and cash flows of the world's biggest oil companies have enabled shareholders to reap significant return while driving a rise in mergers and acquisitions activity, a report has said.

BP, Chevron, ExxonMobil, Shell and TotalEnergies, collectively known as Big Oil, generated a combined operating cash flow of $613 billion between January 2021 and September 2023, Moody’s said in a report last week.

Brent crude, the benchmark for two thirds of the world’s oil, soared to about $140 a barrel after Russia’s invasion of Ukraine last year.

Oil prices have since nearly halved amid demand concerns and an ease in supply restrictions.

The big energy companies increasingly opted to return surplus cash flow to shareholders via dividends and share buybacks.

Last year, share buybacks reached a record $57 billion, which was more than the total combined amount from 2015 to 2021, Moody’s said.

For the nine months to September 2023, share buybacks already stood at $48 billion.

Moody’s expects the “sharpened focus” on shareholders to persist.

The rating agency said it viewed that as a “credit negative” because it directs cash flow away from the companies’ balance sheets and investments.

Meanwhile, the combined capital expenditure of the five companies rose by 19 per cent between 2020 and 2022, but still only represented around half of what they invested during the last peak investment cycle a decade ago, Moody’s said.

“Total investment may grow in the coming years but will likely remain well below historical peaks,” the rating agency said.

“This investment discipline is driven by investor demands but also greater focus on low costs, more stringent emissions criteria, and desire for quick return on assets.”

Since 2020, Big Oil has also used the record cash flow to reduce debt.

Debt have fallen by 28 per cent, or $134 billion, since the end of 2020 to its lowest in eight years, the report said.

Record profits have also triggered a rise in M&A activity in the oil and gas sector.

The big oil companies stepped up acquisitions in 2022 and 2023 but some of the larger deals announced in October were funded from shares and not cash.

Between 2021 and September of this year, the companies received $52 billion from the sale of investments or assets, while only spending $27 billion on acquisitions, Moody’s said.

In October, Exxon Mobil said it would buy Pioneer Natural Resources in a deal valued at $59.5 billion. Meanwhile, Chevron agreed to acquire smaller rival Hess in a $53 billion deal.

“Acquisitions made since 2022 have often been to support low-carbon and growth businesses in areas such as renewable energy, bioenergy, distribution networks or carbon capture,” the rating agency said.

Growing uncertainty

Despite the industry’s recent gains, oil and gas companies face major long-term uncertainties around the evolution of energy demand.

Stricter regulations and increased taxes on oil and gas companies can strain their cash flows, operations and fossil fuel production, Moody’s said.

Policies such as the US Inflation Reduction Act are also encouraging the transition to a low-carbon economy and newer growth markets, such as hydrogen, according to the International Energy Agency.

Meanwhile, the UK and the EU have levied windfall taxes on the profits that oil and gas companies made during the

-19 recovery.

“However, the taxes shouldn’t be a major issue for the Big Five because their cash-flow generation remains strong,” Moody’s said.

Outlook for 2024

Oil prices have trended lower since mid-October amid concerns of lower global demand, higher supply from non-Opec+ sources and doubts over whether some Opec+ members would comply with the pledged cuts in output.

The Institute of International Finance expects Brent to average $80 a barrel in 2024, down from $83 a barrel in 2023.

However, the international benchmark will trade at $83 a barrel in the first quarter of the coming year, driven by Opec+ cuts, the IIF said, adding that oil may resume its decline after the first three months.

On November 30, Opec+ members agreed on 2.2 million million barrels per day of crude oil production cuts, which includes the extension of Saudi Arabi’s voluntary cut of one million bpd through to March 2024.

Opec expects oil demand to grow by 2.2 million bpd next year, about double the International Energy Agency’s estimate of a growth of 1.1 million bpd.

"Global oil demand growth will slow in 2024 as overall economic activity cools. The absence of a strong demand story like the return of China from Covid-19 will limit upside risk to demand," Emirates NBD said in a research note.

"Supply from outside of the Opec+ alliance will expand by more than 1 million bpd [next year], led by North and South American production."