The world’s largest energy companies, including TotalEnergies, Exxon Mobil and Chevron are ramping up buyback programmes despite criticism that they are not moving swiftly enough to increase oil and gas output as high fuel prices pinch consumers worldwide.
Exxon Mobil, Chevron, Shell and TotalEnergies produced a combined profit of $51 billion, with Exxon topping the pile at $18 billion.
BP is set to report next Tuesday.
That money is increasingly going into shareholder buybacks, which are frequently criticised by investor advocates as a less desirable use of funds than business investment.
Companies are prioritising returning cash to investors rather than investing in new oil and gas production, and keeping their eye on capital discipline and the long-term shift to low carbon energy.
Chevron boosted its annual buyback plans to a range of $10 billion to $15 billion, up from $5 billion to $10 billion. Chief Financial Officer Pierre Breber said the company plans on maintaining a high levels of buybacks “for a number of years,” even if the investment cycle turns.
He added that the company will continue to pay down debt, and said that it can do that as well as increase output and investment.
Exxon aims to repurchase $30 billion of shares through 2022 and 2023. Shell said it would buy back $6 billion in shares in the current quarter after buying $8.5 billion in the first half.
The companies are also wary of investor pressure, after years when the oil and gas sector routinely underperformed broad-market indexes. Last year, Exxon Mobil lost an expensive proxy battle against a little-known hedge fund after major institutional shareholders backed a slate of new board members – in part due to the company’s weak returns.
The speed of the economic recovery from the pandemic has caught the energy industry wrong footed, and shortfalls in supply have been exacerbated by disruptions caused by Russia’s invasion of Ukraine.
This has caused friction with governments that are coming under pressure from voters struggling to pay soaring energy and fuel bills.
Earlier this month, Britain passed a 25% windfall tax on oil and gas producers. TotalEnergies Chief Executive Officer Patrick Pouyanne said the tax would cost his firm $500 million.
U.S. lawmakers have discussed a similar idea, though it faces long odds in Congress.
Shell Chief Executive Officer Ben van Beurden blamed the elevated energy prices on an investment shortfall of around $1 trillion in recent years as well as pressure on companies to move away from oil and gas towards renewables.
“These (profit) margins are not our doing, they are the doing of how global markets play out,” van Beurden told reporters.
In France, TotalEnergies has reduced fuel prices at its service stations, even as Finance Minister Bruno Le Maire ruled out taxing energy companies.
HOUSTON – Exxon Mobil Corp on Friday posted its biggest quarterly profit ever on the back of soaring energy prices and as it kept a tight rein on spending.
The top U.S. oil producer reported second-quarter net income of $17.9 billion, or $4.21 per share, an almost four-fold increase over the $4.69 billion, or $1.10 per share, it earned in the same period last year.
Oil and natural gas prices have scaled multi-year highs this year as Western sanctions against major exporter Russia squeezed an already under-supplied global market. Margins for making fuels like gasoline and diesel surged worldwide, boosting the profits of oil giants, including European majors Shell and TotalEnergies , both of which reported results on Thursday.
Exxon’s results also beat its best quarter of 2008, when Brent crude oil prices peaked at $147 per barrel, and its best-ever quarter reached in 2012, when the company earned $15.9 billion, largely due to asset sales in Japan and tax-related items.
Exxon’s first-quarter profits led U.S. President Joe Biden last month to say the company and other oil majors were capitalizing on a global supply shortage to fatten profits. Exxon, he said, was making “more money than God” after posting its biggest quarterly profit in seven years.
Exxon has been using extra cash to pay down debt and raise distributions to shareholders. It maintained its 88-cent-per-share dividend for the third quarter.
The company earlier this year more than doubled its projected buyback program to $30 billion through 2022 and 2023. Shell and Total on Thursday extended their share buybacks after their second-quarter results both beat what had been a record-breaking previous quarter.
Exxon kept its capital investments at $9.5 billion in the first half of the year, in line with full-year guidance. The profit included a $300 million booked identified item associated with the sale of the Barnett Shale upstream asset.
The two largest U.S. oil companies, Exxon Mobil Corp and Chevron Corp, posted record revenue on Friday, bolstered by surging crude oil and natural gas prices and following similar results for European majors a day earlier.
The U.S. pair, along with UK-based Shell and France’s TotalEnergies, combined to earn nearly $51 billion in the most recent quarter, almost double what the group brought in for the year-ago period. All four have ramped up share buybacks in recent months, capitalizing on high margins derived from selling oil and gas.
Exxon outpaced its rivals with second-quarter net income of $17.9 billion, several billion dollars ahead of its previous record reached in 2012, which was aided by asset sales in Japan. The fifth major, BP Plc, reports next week.
The companies posted strong results in their production units, helped by the surge in benchmark Brent crude oil futures, which averaged around $114 a barrel in the quarter.
High crude oil prices can cut into margins for integrated oil majors, as they also bear the cost of crude used for refined products. However, following Russia’s invasion of Ukraine and numerous shutdowns of refineries worldwide in the wake of the coronavirus pandemic, refining margins exploded in the second quarter, outpacing the gains in crude, adding to earnings.
“The strong second-quarter results reflect a tight global market environment, where demand has recovered to near pre-pandemic levels and supply has attritted,” said Exxon Chief Executive Darren Woods, in a call with analysts. “Growing supply will not happen overnight.”
The results from the majors are sure to draw fire from politicians and consumer advocates who say the oil companies are capitalizing on a global supply shortage to fatten profits and gouge consumers. U.S. President Joe Biden last month said Exxon and others were making “more money than God” at a time when consumer fuel prices surged to records.
Earlier this month, Britain passed a 25% windfall tax on oil and gas producers in the North Sea. U.S. lawmakers have discussed a similar idea, though it faces long odds in Congress.
A windfall tax does not provide “incentive for increased production, which is really what the world needs today,” said Exxon Chief Financial Officer Kathryn Mikells, in an interview with Reuters.
The companies say they are merely meeting consumer demand, and that prices are a function of global supply issues and lack of investment. The majors have been disciplined with their capital and are resisting ramping up capital expenditure due to pressure from investors who want better returns and resilience during a down cycle.
“In the short term (cash from oil) goes to the balance sheet. There’s no nowhere else for it to go,” Chevron CFO Pierre Breber told Reuters.
Worldwide oil output has been held back by a slow return of barrels to the market from the Organization of the Petroleum Exporting Countries and allies, including Russia, as well as labor and equipment shortages hampering a swifter increase in supply in places like the United States.
Exxon earlier this year more than doubled its projected buyback program to $30 billion through 2022 and 2023. Shell said it would buy back $6 billion in shares in the current quarter, while Chevron boosted its annual buyback plans to a range of $10 billion to $15 billion, up from $5 billion to $10 billion.
Exxon shares were up 3.2% to $95.60 in morning trading. Chevron shares rose 6.5% to $160.06.
LONDON – Europe’s biggest oil companies Shell and TotalEnergies extended share buybacks on Thursday after their second-quarter profits beat an already record-breaking previous quarter on the back of soaring crude, gas and oil product prices.
The two companies combined are buying back $8 billion in shares in the third quarter after recording their respective highest quarterly profits while keeping their dividends steady, which might disappoint some investors.
Benchmark Brent crude oil futures have risen more than 140% in the past twelve months, averaging around $114 a barrel in the quarter.
High crude prices normally weigh on refining margins, but tight refined fuel supply supported record profitability in the second quarter, with Shell’s refining margin virtually tripping to $28 a barrel.
Benchmark European natural gas prices and global liquefied natural gas prices were on average at all-time highs in the quarter.
Boosted by a record quarterly profit of $11.5 billion, Shell is buying back $6 billion of its own shares by late October, it said on Thursday, on the back of an $8.5 billion buyback scheme finished in the first half.
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While this is in excess of the company’s guidance for shareholder returns of up to 30% of cash from operations, Shell did not raise its dividend from its current level of 25 cents a share, a 4% annual increase after a 60% cut during the pandemic.
TotalEnergies, with a 9% rise in quarterly profit to $9.8 billion, guided it would buy back $2 billion in the third quarter after purchasing $3 billion of its own shares in the first half of the year.
It had already announced a 5% yearly increase for its first quarterly dividend for this year to 0.69 euros per share, and said on Thursday it would keep that level for its second interim dividend of 2022.
“(TotalEnergies) has opted to maintain its buyback flat into (the third quarter), which may be disappointing to some investors given the current macro environment,” RBC analyst Biraj Borkhataria said.
TotalEnergies’ shares dipped 2.1% and Shell’s shares were up 1.6% after the results announcement, having risen about 35% and 49% respectively in the past twelve months.
This compares with an index of European oil and gas firms gaining 1.6% in early trading.
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The buybacks from Europe’s two biggest oil and gas groups by market capitalisation came in the same week that Norway’s Equinor raised its dividend and share buyback guidance for 2022 by 30% to a total of around $13 billion.
Smaller rival Repsol also announced a boosted share buyback programme on Thursday on the back of bumper profits, which doubled in the first half.
A rapid recovery in demand following the end of pandemic lockdowns and a surge in energy prices driven by Russia’s invasion of Ukraine have boosted profits for energy companies after a two-year slump.
The strong profit windfall has allowed companies to reduce debt piles that grew sharply during the pandemic as well as boost returns to shareholders.
TotalEnergies’ debt-to-capital ratio, or gearing, fell to below 10%, or half its level a year ago, from 12.5% in the first quarter, while Shell’s dipped to 19.3% from 21.3%.
Eni, Exxon and Chevron are due to announce results on July 29 and BP on Aug. 2.
(Bloomberg) — Shell Plc said soaring margins from fuel production may have added more than $1 billion to the earnings of its refining business last quarter, when gasoline prices broke records in several countries.
The trading update from the London-based energy giant is the first indicator of just how much cash was flowing into the coffers of major oil companies due to the inflationary surge in the price of gasoline, which climbed above $5 a gallon in the US for the first time.
While the rising cost of energy is strengthening the oil majors after several tough years, it risks a political backlash. US President Joe Biden has directly called on fuel retailers to cut prices and companies are facing windfall taxes in some countries.
Shell’s indicative refining margin jumped to $28.04 a barrel in the second quarter from $10.23 in the first three months of the year, the company said in a statement on Thursday. That’s expected to have a positive impact of $800 million to $1.2 billion on the results of its products division, compared with the prior period.
Shell’s shares advanced as much as 2.5%, and traded up 1.2% at 1,997.2 pence as of 9:36 a.m. in London.
Still, analysts at RBC Europe Ltd. saw the update as “neutral,” citing uncertainty around the “magnitude of working capital outflows.” In May, Shell said that it would be hit by around $7.4 billion of working capital movements.
Oil prices have jumped 30% this year as the war in Ukraine stokes supply concerns. Having ramped up its long-term price assumptions, Shell now expects to reverse previous writedowns on asset values by $3.5 billion to $4.5 billion.
The company took a $3.9 billion impairment in the first quarter, stemming from its planned exit from ventures in Russia. It will take an additional hit of as much as $350 million from the loss of LNG volumes from the Russian Sakhalin-2 project, it said on Thursday.
Trading and optimization results from Shell’s sprawling integrated gas unit fell from the previous quarter, when the business benefited from “exceptional” trading opportunities. The renewables and energy solutions division is expected to report adjusted earnings of $400 million to $900 million for the second quarter amid an “exceptional market environment,” the statement showed.
Shell didn’t give an update on the future of its buyback program, having said it completed $8.5 billion of repurchases in the first half of the year. The company has previously signaled an acceleration in returns, saying that shareholder distributions would be in excess of 30% of operating cash flow.
(Bloomberg) — The global oil industry is on pace to repeat or even surpass the heady days of 2008 when crude ascended to dizzying heights and drilling profits soared, according to the world’s biggest oilfield contractor.
In the sector’s most bullish forecast yet, Schlumberger told investors and analysts Friday that the widespread disarray set off by Russia’s invasion of Ukraine is creating growth opportunities last seen during the so-called supercycle of 14 years ago.
Exploration companies are now expanding the search for crude from onshore shale fields to the deep seas, spurred at least in part by a widespread aversion to Russia’s oil since it went to war in late February, Chief Executive Officer Olivier Le Peuch said during a conference call.
“The combination of these effects creates an exceptional sequence for our sector, likely resulting in a cycle of higher magnitude and duration than previously anticipated,” Le Peuch said after the company disclosed its strongest first-quarter margins since 2015 and rewarded investors with a surprise dividend increase.
Le Peuch’s optimism was the culmination of a week in which his biggest rivals — Halliburton Co. and Baker Hughes Co. — unveiled similarly positive, if more modest, business outlooks.
Halliburton, which controls more fracing capacity than any other company, predicted North American explorers will boost spending by 35% this year, up from a pre-war forecast of 25%.
Meanwhile, Baker Hughes estimated that overseas growth will reach the low- to mid-double digits, while North America will see a 40% boost this year.
“We expect global oil and gas supply to remain constrained in the coming years which should support higher commodity prices and multiple years of spending growth from our customers,” Baker Hughes CEO Lorenzo Simonelli said earlier this week during a call with analysts and investors. “Recent geopolitical events have severely constrained what was already a tight global natural gas market and have refocused the world on the importance of energy, security, diversity and reliability.”
Often the first to feel the pain in a oil-price bust and the last to benefit from a boom, oilfield servicers are looking to cash in on the global energy rally.
Schlumberger’s allusion to 2008 resonates with oil-market veterans, for in that year international crude surged above $145 a barrel in a so-called supercycle that only ended when financial markets collapsed under the weight of the mortgage crisis.
Since then, the oil-services sector added capacity in order to meet customer demand only to run headlong into a worldwide crude glut that crushed prices and their order books. A wave of bankruptcies in subsequent years helped chew through that oversupply of gear, positioning contractors like Liberty Oilfield Services Inc. to capitalize going forward.
“The emerging cycle is likely to last longer and be characterized by a much slower and more modest rise in active frack,” Liberty CEO Chris Wright said. “It is encouraging to see improving returns moving the last sector that has yet to see them in the oil and gas industry: energy services.”
LONDON – Shell again boosted its dividend and share repurchases on Thursday after fourth quarter profits hit their highest in eight years, fuelled by higher oil and gas prices and strong gas trading performance.
The strong results cap a dramatic recovery in 2021 for Shell and the oil and gas sector after energy demand and prices collapsed in 2020 in the wake of the COVID-19 pandemic.
Shell, which moved its headquarters from The Hague to London last month, said it expected to lift its dividend by 4% in the first quarter of 2022 to $0.25 per share, which would be the fourth rise since Shell cut its dividend in early 2020 for the first time since the 1940s.
The company also said it would buy back $8.5 billion worth of shares in the first half of 2022, including $5.5 billion from the sale of its Permian shale assets in the United States. That compares with share buybacks totalling $3.5 billion in 2021.
“2021 was a momentous year for Shell,” Chief Executive Ben van Beurden said in a statement.
Shell’s results came on the day British regulators hiked energy prices by 54% in response to higher power prices, prompting calls to levy a tax on oil and gas producers.
Natural gas and electricity prices around the world have soared since the middle of last year on tight gas supplies and higher demand as economies rebounded from the COVID-19 pandemic.
Benchmark European gas prices and Asian LNG prices hit all-time highs in the fourth quarter.
Shell, the largest trader of liquefied natural gas (LNG), said its integrated gas earnings were boosted by “significantly higher” profits from trading.
Trading helped offset an 11% fall in LNG sales and a 7% drop in LNG production in 2021 as a result of plant maintenance and unplanned outages, including at its flagship Prelude floating LNG plant in Australia.
Prelude would stay shut for the first three months of 2022, van Beurden told reporters, adding that Shell would help supply Europe with gas in case of Russian disruptions.
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U.S. rival Exxon Mobil on Tuesday reported its largest profit in seven years, while Chevron’s profit missed estimates.
BP , TotalEnergies and Equinor report results next week.
Shell officially ditched “Royal Dutch” from its name this month and merged its dually-listed shares after moving its head office from The Hague to London as part of a tax and structure simplification drive, which van Beurden said would help the company plan to grow its low-carbon business.
Fourth-quarter 2021 adjusted earnings rose by 55% from the previous quarter to $6.4 billion, well above an average analyst forecast provided by the company for a $5.2 billion profit. It earned $393 million a year earlier.
For the year, Shell’s adjusted earnings rose to $19.3 billion, compared with $4.85 billion in 2020.
“Net income came in 22% ahead of consensus expectations and net debt fell sharply. On top, Shell announced an $8.5 billion share buyback programme for (the first half), also ahead of market expectations,” Morgan Stanley analyst Martijn Rats said.
The energy company said it planned this year’s spending at the lower end of the $23 billion-$27 billion after spending $20 billion in 2021.
Net debt dropped in the year to $52.55 billion from $75.4 billion at the end of 2020. Shell’s debt-to-capital ratio, or gearing, dropped to 23.1% from 32.2% over the same period.
Shell’s cash generation soared by a third to $45 billion in 2021 as global economic activity recovered from the pandemic.
GRAPHIC – Shell’s annual profits
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(Bloomberg) — Exxon Mobil Corp. will accelerate the pace of a $10 billion share buyback after posting the biggest profit in almost eight years amid a broad rally in energy prices.
Net income adjusted for one-time items was $2.05 a share, 12 cents above the average of analyst estimates compiled by Bloomberg. Exxon paid down $9 billion in debt during the fourth quarter, reducing outstanding obligations to pre-pandemic levels. The shares rose as much as 5.9% to the highest intraday level since April 2019.
One measure of cash flow more than tripled to almost $18 billion during the final three months of 2021 compared with a year earlier as oil and gas prices soared. Exxon and its four supermajor peers probably raked in record free cash flow during 2021, according to analyst forecasts, and with energy prices still rising this year may be even more bountiful.
Chevron Corp. reported record free cash flow late last week. Shell Plc, BP Plc and TotalEnergies SE are scheduled to post fourth-quarter earnings during the next two weeks.
The boost in cash flow will allow Exxon to increase the pace of a $10 billion share buyback previously announced as taking place over two years. Now, the company expects the buybacks to be “faster than that 12-24 month pace,” Chief Financial Officer Kathy Mikells said during a conference call.
Exxon also expects to grow oil production in the Permian basin of West Texas by 25% in 2022 after increasing by the same amount from 2020 to 2021. That dwarfs the 10% increase that rival Chevron announced last week and is the latest sign that U.S. shale is ramping up again after years of restraint.
Exxon’s results come a day after the driller disclosed yet another belt-tightening move, this time involving shuttering its corporate headquarters in suburban Dallas and consolidating those offices near Houston. Exxon shares have risen more than 20% this year, capping an almost 50% advance in 2021 for the best annual performance in at least four decades.
Natural gas sales provided the primary uplift in fourth-quarter results as Exxon and other suppliers reaped hefty returns amid fuel shortages across Europe and parts of Asia. Escalating oil prices also proved a boon to the Western world’s largest crude explorer.
Chief Executive Officer Darren Woods’ decision to reverse course on a pre-pandemic growth plan and hold capital spending at historically low levels means high commodity prices are translating directly into massive cash flow.
While some observers have raised concerns about Exxon’s long-term commitment to fossil fuels, in the near term the company is profitably harvesting older reserves and replacing them with high-margin barrels from new discoveries in places such as Guyana.
In 2021, Exxon garnered ample cash to repair its balance sheet, pay the S&P 500 Index’s third-largest dividend and pledge to restart share buybacks. It’s a remarkable financial turnaround for the oil giant a year after it incurred its first annual loss in at least 40 years during the darkest days of the pandemic.
Exxon is under pressure to do more on climate change, especially after activist investor Engine No. 1’s success last year. Its recently announced ambition to eliminate emissions from its operations by 2050 is one step in that direction but the company will also have to allocate more cash to its low-carbon business over time, especially in areas like carbon capture and biofuels.
HOUSTON -Exxon Mobil Corp on Tuesday reported a fourth-quarter profit of $8.87 billion, its largest in seven years, as the top U.S. oil producer benefited from strong energy prices.
The company slashed spending after fuel demand cratered two years ago. Since then, earnings have topped pre-pandemic levels, helped by the rise in oil prices, with the global oil benchmark Brent also at a seven-year high.
The revamping will “position us to lead in cash flow and earnings growth, operating performance, and the energy transition,” Chief Executive Darren Woods said in a statement.
A continuation of high oil prices would “cause us to increase the pace of the share repurchase program,” Chief Financial Officer Kathryn Mikells said. Exxon restarted buybacks last month after a long suspension, with pledge to buy $10 billion by the end of 2023.
Shares in midday trading went up 5% to $80.02, near a three-year high.
“ExxonMobil closed a tumultuous year with results that can be described as solid,” Peter McNally, global sector lead at research firm Third Bridge.
Exxon reported an adjusted profit of $2.05 per share, 11 cents above analysts’ forecast as the bottom line benefited from soaring oil and gas prices, higher volumes and asset sales. In the same quarter a year ago, Exxon posted an adjusted profit of 3 cents a share.
Oil and gas production, Exxon’s largest business, posted a $6.1 billion operating profit, the highest in two years. Earnings benefited from an 80% increase in oil prices and doubling of natural gas prices compared to 2020.
It now plans to raise production in the top U.S. shale basin by 25% this year, in addition to a similar increase last year in the Permian, where output reached 460,000 bpd.
Even with a substantial spending increase into the end of the year to $17 billion, Exxon managed to use the extra proceeds from oil prices to reduce debt, said Biraj Borkhataria, Co-Head European Energy Research at RBC Capital Markets.
The company has eliminated the tab taken on during the 2020 downturn to keep paying dividends to shareholders. It has now returned to pre-pandemic debt levels, down $20 billion last year to $47.7 billion.
“We have been cautious on the Exxon investment case through the pandemic,” said Borkhataria. “But we believe the overall sector tailwinds are likely to outweigh company-specific factors in 2022.”
The company had flagged gains from asset sales and a $752 million, or 17 cents a share, hit to upstream results from impairment charges.
Its refining business posted fourth-quarter operating net of $1.4 billion, up sequentially and a big swing from a year ago when results were hurt by pandemic-related demand declines.
Chemical operating earnings were more than twice the profit a year ago when the business was hurt by the pandemic. Exxon said on Monday it would combine its refining and chemicals businesses.
Feb 1 – Canada’s Imperial Oil Ltd IMO.TO on Tuesday posted a quarterly profit that narrowly missed estimates, as extreme cold weather hit the company’s production.
Oil sands mining, which accounts for the bulk of Canada’s crude output, was hit by icy temperatures in December and January that slowed production.
The company, majority-owned by Exxon Mobil Corp XOM.N , said fourth-quarter production fell 3.3% to 445,000 barrels of oil equivalent per day.
However, the fall in production was offset by higher commodity prices and increased demand for motor fuels.
Brent crude prices nearly doubled to an average of $80 per barrel in the last three months of the year, as fuel demand remained strong with the Omicron variant of the coronavirus being milder than expected and as energy supplies remained tight around the world.
Imperial said prices for bitumen rose by C$31.34 per barrel in the fourth quarter, while synthetic oil prices rose by C$41.26 per barrel from a year earlier.
Throughput at its refineries averaged 416,000 barrels per day (bpd), compared with 359,000 bpd a year earlier.
Imperial also hiked its first-quarter dividend by 26% to 34 Canadian cents per share.
Net income, excluding items, rose to C$813 million ($640.46 million) in the quarter ended Dec. 31, from C$25 million a year earlier.
On a per share basis, the company earned C$1.35, excluding items, below the average estimate of C$1.37 per share, according to Refinitiv IBES data.
LONDON (Reuters) – Past changes in oil prices are closely associated with U.S. consumers’ and investors’ expectations for overall inflation in future, which helps explain why they are sensitive for central banks and other policymakers.
In the last three decades, the rise and fall in oil prices has correlated with expectations about future inflation measured by the University of Michigan’s monthly consumer survey and breakeven rates derived from U.S. Treasury Inflation Protected Securities (TIPS).
Cyclical changes in Brent prices over the previous 12 months have a pronounced association with changes in the expected rate of all-items inflation over the next 12 months in the University of Michigan survey.
Price changes also have a pronounced association with changes in the expected rate of all-items inflation over the next five and ten years evident in U.S. Treasury breakeven rates.
The price of oil and by extension gasoline and diesel is one of the most prominent and high-frequency prices experienced by most consumers and investors, which could explain why they correlate with expected inflation.
Consumers base their expectations of future inflation, in part, on their recent experience of actual price increases, with fuel prices playing a disproportionately prominent role.
But oil prices and expected inflation probably also both respond to common factors, most importantly the state of the business cycle.
In policymaking circles, there is an active debate about whether consumers’ and investors’ inflation expectations are relevant for setting interest rates and other elements of economic policy.
“Economists and economic policymakers believe that households’ and firms’ expectations of future inflation are a key determinant of actual inflation” Federal Reserve economist Jeremy Rudd wrote recently in a research paper.
But he concluded “a review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations” (“Why do we think that inflation expectations matter for inflation?”, Rudd, 2021).
Nonetheless, to the extent policymakers take inflation expectations into account, the association with oil prices ensures they are a matter of concern for senior officials.
In the last three months, front-month Brent futures prices have been roughly double what they were in the same period last year, with prices increasing at the fastest rate for two decades.
At the same time, U.S. consumers’ expectations for inflation over the year ahead have almost doubled to 4.8% compared with 2.6% this time last year.
And investors’ expectations for the average inflation rate over the next five years have increased to 2.9% compared with 1.6%.
Rising prices for oil and other forms of energy such as coal, gas and electricity are part of a broader pattern of price increases that is pushing up the cost of living for households and input prices for businesses.
The Fed has characterised these price rises as “transient”, a one-off adjustment to the price level, as the economy recovers from the pandemic-driven recession last year, rather than an ongoing inflationary increase in prices.
Nonetheless, the escalating price of oil has become an increasing source of concern for policymakers at the White House, the U.S. Treasury and the Fed itself.
Rising oil prices are also making real interest rates, based in part on expected inflation, increasingly negative, which is making monetary policy more stimulative, potentially worsening the instability in the business cycle.
Senior White House officials have begun to press their counterparts in Saudi Arabia for faster increases in production to help stabilise or reduce prices and indirectly to control inflation.
If oil prices stop climbing, or at least start rising more slowly, it will filter through into slower inflation and lower inflation expectations, which would comfort policymakers as well as investors, businesses and households.
If they do not, both realised and expected inflation are likely to accelerate further, increasing the probability that central banks will have to start boosting interest rates earlier and further than planned and increasing the probability of a mid-cycle slowdown if not a premature end to the current expansion.
(John Kemp is a Reuters market analyst. The views expressed are his own.)
Oilfield firm Baker Hughes Co reported quarterly profit that fell short of analyst expectations on Wednesday, in part due to global supply chain issues, sending its shares down sharply in early trading.
Oil service firms are expected to be supported by a rebound in oil prices to pre-pandemic levels as demand recovers and the Organization of the Petroleum Exporting Countries, Russia and their allies stick to their output-increase schedule instead of accelerating production.
But some companies are seeing earnings clipped by higher prices for materials and disruptions to global supply chains. Baker Hughes and rival Halliburton have also been negatively impacted by Hurricane Ida, which disrupted operations on the U.S. Gulf Coast and Gulf of Mexico in August and September.
Baker Hughes reported adjusted net income of $141 million, or 16 cents per share, in the third quarter, missing forecasts for 21 cents per share, according to Refinitiv IBES data. Revenues of $5.093 billion also fell short of expectations of $5.321 billion.
Shares slipped 4% to $25.79 in early trading. They are up about 29% year-to-date, lagging gains in global oil prices, which have risen about 62%.
“As we look ahead to the rest of 2021 and into 2022, we see continued signs of global economic recovery that should drive further demand growth for oil and natural gas,” Baker Hughes Chief Executive Officer Lorenzo Simonelli said.
On a call with investors, Simonelli acknowledged Baker Hughes experienced “some mixed results across our product companies.”
Its oilfield services unit was negatively impacted by Hurricane Ida and supply chain problems, which costs the company roughly $30 million to $40 million during the quarter.
Higher costs for chemicals, which have not yet been fully passed onto customers, also weighed on earnings.
Wall Street analysts were underwhelmed by the report, calling it neutral to negative.
“At the segment level, there were a number of different moving pieces which may drive some uneasiness today,” Tudor, Pickering, Holt & Co said in a note, pointing to disappointing results in oilfield services and digital solutions. Those units offset a margin beat in its Turbomachinery and Process Solutions unit.
Its digital solutions unit was also negatively impacted by supply chain problems related to semiconductors, boards and displays, executives said on the call.
Net income attributable to the company was $8 million, marking Baker Hughes’ first quarterly profit since the fourth quarter of 2020.
Crude prices climbed 4.5% in the quarter ended Sept. 30. and are currently trading just above $84 a barrel.
Calgary, Alberta and Houston, Texas–(Newsfile Corp. – October 13, 2021) – PetroTal Corp. (TSX…
US oil and gas producer EOG Resources Inc (EOG.N) surpassed analysts’ first-quarter profit forecast and announced a special dividend of $ 1 per share on Thursday due to the launch of COVID-19 vaccines and increased travel demand driving crude oil prices.
U.S. crude oil prices rose 23% in the first quarter after the 2020 pandemic affected fuel demand, sparking optimism among shale producers.
EOG’s average crude oil prices have increased by nearly 39% in the quarter from the last three months of 2020 to $ 58.02 per barrel.
However, total production fell from 801,500 boepd of the previous quarter to 778,900 barrels of oil equivalent (boepd) per day, hit by the Winter Storm URI that swept the central and southern states of the United States in mid-February.
A group of US oil and gas producers has recently increased their dividends. U.S. oil producer Chevron Corp (CVX.N) increased its quarterly payment by 5 cents to $ 1.34, while Marathon Oil (MRO.N) increased from 3 cents to 4 cents per share. Continental Resources Inc (CLR.N) refunded the dividend payment. Read more
EOG’s adjusted net income for the March quarter rose from $ 411 million, or 71 cents per share, to $ 946 million, or $ 1.62 per share, in fourth place.
Analysts expected a profit of $ 1.48 per share, according to Refinitiv IBES.
Analysts expected a profit of $ 1.48 per share, according to Refinitiv IBES.
On Wednesday, competitors Marathon Oil and APA Corp (APA.O) also beat their first quarter profit forecast.
Editor’s Note: Range Resources gave the keynote lunch address at EnerCom Dallas – The Energy Investment & ESG Conference earlier this month. Dennis Degner, Sr. Vice President, Chief Operating Officer for Range discussed the company’s ESG goals and accomplishments. A replay of the discussion and a download of the presentation can be found on the conference website – Range Resources – EnerCom Dallas.
FORT WORTH, Texas, April 26, 2021 (GLOBE NEWSWIRE) — RANGE RESOURCES CORPORATION (NYSE: RRC) today announced its first quarter 2021 financial results.
Commenting on the quarter, Jeff Ventura, the Company’s CEO said, “Range continues to make progress on key near-term objectives: improving margins with a focus on cost structure, generating free cash flow, enhancing liquidity, and operating safely while maintaining peer-leading capital efficiency. There were sizable improvements in pricing quarter-over-quarter leading to Range’s $193 million in cash flow from operations before changes in working capital. The corresponding capital spending of $105 million generated solid free cash flow for the quarter.
Range remains committed to disciplined capital spending and generating sustainable free cash flow. Over time, we believe Range will be differentiated as a result of our low sustaining capital, competitive cost structure, marketing strategies, environmental leadership and importantly, our multi-decade core inventory life, which will be an increasing competitive advantage in the years to come.”
Except for generally accepted accounting principles (GAAP) reported amounts, specific expense categories exclude non-cash impairments, unrealized mark-to-market adjustment on derivatives, stock-based compensation and other items shown separately on the attached tables. “Unit costs” as used in this release are composed of direct operating, transportation, gathering, processing and compression, production and ad valorem taxes, general and administrative, interest and depletion, depreciation and amortization costs divided by production. See “Non-GAAP Financial Measures” for a definition of each of the non-GAAP financial measures and the tables that reconcile each of the non-GAAP measures to their most directly comparable GAAP financial measure.
GAAP revenues for first quarter 2021 totaled $626 million, GAAP net cash provided from operating activities (including changes in working capital) was $109 million, and GAAP net income was $27 million ($0.11 per diluted share). First quarter earnings results include a $58 million derivative fair value loss due to increases in commodity prices.
Non-GAAP revenues for first quarter 2021 totaled $645 million, and cash flow from operations before changes in working capital, a non-GAAP measure, was $193 million. Adjusted net income comparable to analysts’ estimates, a non-GAAP measure, was $73 million ($0.30 per diluted share) in first quarter 2021.
The following table details Range’s average production and realized pricing for first quarter 2021(a):
Total production for first quarter 2021 averaged approximately 2,081 net Mmcfe per day. By area, southwest Marcellus production averaged 2.0 Bcfe per day while the northeast Marcellus assets averaged 77 net Mmcf per day during the quarter.
First quarter 2021 natural gas, NGLs and oil price realizations (including the impact of cash-settled hedges and derivative settlements which correspond to analysts’ estimates) averaged $3.01 per mcfe.
The following table details Range’s unit costs per mcfe(a):
First quarter 2021 drilling and completion expenditures were $97.1 million. In addition, during the quarter, $6.4 million was invested on acreage leasehold and $1.9 million on gathering systems and other. First quarter investments represent approximately 25% of Range’s total capital budget of $425 million in 2021.
In January 2021, Range issued $600.0 million aggregate principal amount of 8.25% senior notes due 2029 and used net proceeds to repay borrowings under its bank credit facility. In April 2021, Range redeemed outstanding principal amounts of senior notes due in 2021 and 2022 totaling approximately $26.0 million and senior subordinated notes due in 2021, 2022 and 2023 totaling approximately $37.3 million. Proforma the April redemptions, Range has approximately $218 million in notes that mature through 2022, which are expected to be redeemed via free cash flow at current strip pricing.
Range’s $3.0 billion borrowing base and $2.4 billion commitment amount were reaffirmed during first quarter 2021 with no changes to financial covenants. The credit facility matures on April 13, 2023 and is subject to semi-annual redeterminations. As of March 31, 2021, Range had total debt outstanding of $3.1 billion, consisting of $124 million in bank debt, $3.0 billion in senior notes and $37 million in senior subordinated notes. The Company had over $1.9 billion of borrowing capacity under the current commitment amount at the end of the first quarter.
The table below summarizes estimated activity for 2021 regarding the number of wells to sales for each area.
Range’s liquids marketing continued to expand premiums relative to Mont Belvieu pricing, with first quarter NGL realizations averaging a $1.52 premium per barrel, a best in Company history. The portfolio of domestic and international ethane contracts performed very well during the quarter and generated a significant uplift relative to Mont Belvieu while propane and butane markets benefited from an increase in Marcus Hook export premiums and a supportive macro environment.
Starting April 2021, Range will have an additional 5,000 barrels per day of Mariner East capacity, which is expected to be fully utilized with existing production. In addition, Range has secured new and diverse LPG export-related contracts. These contracts add flexibility, reduce costs, and further enhance realized propane and butane prices, and continue the momentum of achieving strong export premiums. Range expects near-term and long-term benefits of NGL exports out of the Northeast as international demand for NGL products continues to grow. NGL exports out of Marcus Hook provide Range a unique supply option for that demand. In 2021, Range expects to export over 80% of its propane and butane, the highest percentage of propane and butane exported by any U.S. independent, leading to strong year-over-year improvements in NGL pricing and margins. Higher realized NGL prices for Range in 2021 will lead to a slight increase in processing costs as Range’s processing costs are based on the NGL revenue received, providing a partial hedge against NGL price fluctuations.
Including the impact of basis hedging, Range had a natural gas differential of ($0.14) per mcf during the first quarter. The Company’s transportation portfolio provides access to natural gas markets in the Gulf Coast, Midwest, and Northeast, with each region benefiting from strong daily sales prices in February. This revenue uplift was partially offset by higher natural gas fuel cost during the quarter which is reflected in transportation, gathering, processing and compression expense. Range remains on track with its natural gas differential to NYMEX guidance of ($0.30) – ($0.40) for the year.
Range’s 2021 all-in capital budget is $425 million. Production for full-year 2021 is expected to average approximately 2.15 Bcfe per day, with ~30% attributed to liquids production.
Based on current market indications, Range expects to average the following price differentials for its production in 2021.
(1) Including basis hedging (2) Weighting based on 53% ethane, 27% propane, 7% normal butane, 4% iso-butane and 9% natural gasoline.
Range hedges portions of its expected future production volumes to increase the predictability of cash flow and to help maintain a strong, flexible financial position. As of April 16, 2021, Range had approximately 70% of its remaining expected 2021 natural gas production hedged at an average ceiling price of $2.79 per Mmbtu and an average floor price of $2.60 per Mmbtu. Similarly, Range hedged approximately 70% of its remaining estimated 2021 crude oil production at an average floor price of $52.00 per barrel and approximately 20% of its remaining expected 2021 NGL revenue. Please see the detailed hedging schedule posted on the Range website under Investor Relations – Financial Information.
Range has also hedged Marcellus and other basis for natural gas and NGL exports to limit volatility between benchmarks and regional prices. The combined fair value of the natural gas basis, NGL freight and spread hedges as of March 31, 2021 was a net gain of $10 million.
A conference call to review the financial results is scheduled on Tuesday, April 27 at 9:00 a.m. ET. To participate in the call, please dial (877) 928-8777 and provide conference code 3782655 about 10 minutes prior to the scheduled start time.
A simultaneous webcast of the call may be accessed at www.rangeresources.com. The webcast will be archived for replay on the Company’s website until May 27.
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