Big Oil Puts Debt Reduction Ahead of New Investments

The world’s biggest oil and gas companies have posted another strong quarter, with just Europe’s top six majors booking a collective $38 billion for the July-to-September quarter. Adding Exxon and Chevron, the figure swells considerably. But the supermajors are in no rush to start spending that windfall.The oil and gas industry is having the exact opposite year to 2020. The war between the United States and Israel, and Iran has pushed oil and gas prices to the highest in years. The war between Russia and Ukraine, meanwhile, has driven refining margins to all-time highs, adding to refining disruption in the Middle East. The combination of developments has driven Exxon’s third-quarter profit up twofold from a year ago, Chevron has booked triple the profit it booked for last year’s third quarter, and BP has reported its highest quarterly profit in its long history.Normally, with these formidable profits, Big Oil should be looking for ways to spend it. Analysts call it a supercycle, and supercycles drive super investments. Not this time, however. This time, Big Oil appears to be focusing on paying down debt, repurchasing stock, and being picky about new investments. Indeed, BP even suspended its share buyback program to cut debt faster—and it has, slashing the total by as much as $10 billion, with the remaining pile now at $13.9 billion. Big Oil appears to be approaching its strong year with a sober mind.Some observers believe this approach to extra-large profits is a sign that Big Oil remains wary of the long-term prospects for their industry. Reuters’ Ron Bousso wrote in a column this week that “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.” This is an interesting suggestion. It would be safe to say that Big Oil companies are quite aware of the fact that the market environment this year is far from the ordinary. It would also be safe to say they are unlikely to be complacent and believe the windfall will never end because that would be childishly naïve, and these are not words one tends to associate with the oil industry. However, the long-term outlook for oil and gas is arguably brighter than it was, say, two years ago. Because the war and its effect on the global economy has demonstrated unequivocally that despite the massive transition push of the past decade, hydrocarbons remain the dominant fuel globally.Not all agree within the industry itself. TotalEnergies, for instance, recently revised its peak oil demand forecast, now expecting that peak between 2035 and 2040. Previously, the company had expected demand to peak after 2040. On the other hand, back in 2024, TotalEnergies expected oil demand to peak after 2030.Meanwhile, commodity trading major Vitol has forecast that oil demand will continue growing until 2040, citing slower than expected global adoption of electric vehicles. Electric vehicles—the electrification of transport—is widely accepted as the leading factor for oil demand decline in the future. It is quite likely the reason Big Oil is being smart with its extra profits this year and not doing business as usual, splurging when the going is good and tightening belts when the cycle hits the troughStill, many forecasts about mass EV adoption and peaking oil demand within a few years turned out to be very far from reality, including a prediction by the International Energy Agency that oil, gas, and coal demand will all start declining before 2030. Big Oil may well be preparing for a long-term future with weaker overall oil and gas demand. Then again, it may just be following its new priorities shaped by the 2020 crisis: fiscal discipline and shareholder rewards.By Irina Slav for Oilprice.comMore Top Reads From Oilprice.comADNOC Gas to Supply LNG to TotalEnergies Under Five-Year DealIndian Refiner BPCL Buys U.S. WTI Crude Oil CargoDubai Benchmark Slips Into Contango for the First Time Since July