The oil giants are practically printing money.
With crude prices soaring, companies reported earning dizzying profits during the first three months of the year. Not even costly write-downs for those with business ventures in Russia were enough to dent their balance sheets.
The gusher of cash comes at a time of transition for the industry. European companies like BP PLC, Equinor ASA, Royal Dutch Shell PLC and TotalEnergies SE have all committed to achieving net-zero emissions by midcentury, and they have started investing in low-carbon initiatives focused on renewables, hydrogen and electric vehicle charging. Their American counterparts have largely declined to follow suit.
Analysts said first-quarter earnings showed that the oil industry’s transformation to clean energy will be slow, if it happens at all, despite their soaring profits. Most companies refrained from sanctioning a wave of new oil and gas drilling projects, but they also held back from pumping more money into their emerging low-carbon businesses. Instead, they elected to plow profits back to shareholders in the form of share buybacks and higher dividends.
Some analysts argue that high oil prices can benefit the transition by underwriting green investments, while buybacks can placate restive shareholders who are worried about abandoning hydrocarbons. But others are skeptical, noting that oil giants’ green spending has risen slowly even as their profits have soared.
“I have yet to see any quarter where higher profitability flows through to higher capital expenditures on energy alternatives,” said Charlie Donovan, a finance professor at the University of Washington and a member of the team that helped launch BP’s initial renewable energy business in 2005. That business was scrapped after the Great Recession, and then resurrected in 2020.
“If they were employing that balance sheet at a higher degree, maybe I would have a different opinion,” he said, adding, “For me, it’s Groundhog Day.”
Europe’s oil majors are raking in cash as oil and gas prices soar.
Equinor, the Norwegian giant, reported a pretax profit of $18 billion in the first three months of the year, four times more than what it made in the first quarter of 2021. Paris-based TotalEnergies reported a core profit of $17.4 billion. Shell tripled its first-quarter earnings compared to last year with a profit of $9.13 billion. And BP earned $6.2 billion. All four companies reported write-downs associated with their business segments in Russia.
How they spend the cash is an increasingly pressing question. In the immediate term, global oil demand has risen faster than supply. Russia’s war in Ukraine has increased worries of further supply shortages, and that has prompted calls for companies to increase production.
European companies are under mounting pressure from their investors and …….