Bloombeg beat me to it. I was thinking the same thing yesterday:
It says something that an oil major leaning in these days means cutting production by only a quarter. BP Plc is something of an outlier among peers. But its course change — shrinking the scope of planned declines in output this decade — was at least in keeping with the broad message of earnings season: With profits booming, investment in oil and gas is going up.
But this really is nothing like booms of yore, by which I mean over the past 15 years or so. Consider: The five integrated majors — BP, Chevron Corp., Exxon Mobil Corp., Shell Plc and TotalEnergies SE — raked in more than a quarter of a trillion dollars of cash flow last year. That’s 40% more than at the prior peak: 2008’s super-spike. Free cash flow, after capital expenditure, was more than double.
Having shed roughly a fifth of their workforce since 2008, the majors are leaner. But the biggest difference concerns reinvestment versus distributions. Even raised guidance implies capex this year only getting back to 2018 levels (and not in real terms). Whereas the majors used to reinvest $3 or $4 for every dollar of dividends and buybacks, the balance is now even.The majors are finally the cash machines long promised — but they got there mainly by shrinking. They’ll produce less oil and gas in 2023 than 15 years ago. That decline is more pronounced among the Europeans, but even Exxon’s output is lower.
This is what investors wanted. The US majors, leaning harder into the current upswing, enjoy higher multiples. Yet they haven’t thus far leveraged those to acquire the Europeans, and they also look set to reinvest less this year than in 2019. Such caution prevails despite ongoing geopolitical turmoil and expectations of a tighter oil market — stoked anew by Russia’s threat to cut production.
BP may be an outlier, but all the majors are grappling with an equity market that prizes barrels today but largely shrugs at those due to appear a decade out.
--Liam Denning, Bloomberg Opinion
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Chart of the Day
The picture of how the oil majors divide up their cash flow has flipped. Prior to the pandemic, cash went first to the business, second to the shareholders, and the balance sheet usually took some of the strain. Now, dividends and buybacks enjoy at least equal footing with capital expenditure, and there’s still a lot left over. Using consensus forecasts compiled by Bloomberg and company guidance, this year might see the majors raise capex by double digits, distribute over $100 billion (again) and still have enough cash flow left over to cut net debt by a third. Or, maybe, buy stuff.
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