Major oil companies have achieved significant profits since the onset of the war in the Middle East and are now on the verge of reporting another record-breaking quarter of profits. However, some areas where these companies operate are looking to impose unexpected taxes on their profits. The question is what the major oil companies will do with these profits. It seems they will not enter a period of extensive spending.
Profit Increase in the Energy Sector
According to recent reports, in the second quarter of 2023, the energy sector in the S&P 500 experienced a year-over-year growth of 128.2 percent. Meanwhile, the oil refining subsector has also seen significant profit growth, with upstream players benefiting from rising oil prices due to supply constraints in the Middle East. It is expected that in the third quarter, Shell will see an 84 percent increase in revenue compared to last year, while for BP this figure will be 155 percent, for TotalEnergies 111 percent, and for Exxon 101 percent. Chevron is also expected to experience the largest profit increase of the year at 158 percent in the third quarter.
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Financial Strategies of Major Oil Companies
BP has forecast a profit of $5.6 billion for the third quarter of 2023, the lowest among major oil competitors. Shell's profit is estimated at around $10 billion, TotalEnergies at $8.4 billion, and Chevron at $9.3 billion. Exxon, as the largest oil company, expects to report a profit of $16.2 billion for this quarter. However, none of these companies, including Exxon, are likely to spend these billions on new projects.
Instead of spending, major oil companies are focusing more on paying down debts and buying back their shares. For example, Shell plans to allocate $3.5 billion for share buybacks in the final quarter of the year. BP will also continue to pay down its debts, similar to Exxon and Chevron.
Chevron has currently reduced its debt-to-operating cash flow ratio from 1 to 0.4. Meanwhile, major oil companies are investing in new explorations, especially in Africa, South America, and even the Middle East, despite the challenges posed by the war. According to Francisco Reynés, CEO of Repsol, now is the time to think about replacing current production.
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