Big Oil had a monster year in 2022. In the US, ExxonMobil and Chevron combined earned more than $91 billion in net income. The record profits — which come out to a staggering $173,135 per minute — have led to higher dividends and lofty share buyback plans.
Investors should enjoy this moment. Profit growth started to slow already in the fourth quarter. Profits are expected to fall this year and next. The challenge of decarbonisation is increasingly urgent.
Exxon and Chevron generated nearly $100 billion in free cash flow last year. Only a small portion of that went to projects to help them transition away from fossil fuels.
Payouts to shareholders will outweigh capital expenditures in the near term. Exxon, for example, plans to spend more than $30 billion a year on dividends and share buybacks through 2024. That compares with the $20 billion to $25 billion a year it has on investments. Of that, about $3.4 billion will go to projects with lower emissions.
Oil companies are looking to reward investors after shares were hammered during the pandemic. But energy stocks enjoyed a massive rally. Exxon shares hit a new high last week after climbing about 160 percent in two years. Chevron, whose shares more than doubled during the period, is also trading near record highs set in November.
The insistence of major oil companies on buybacks at such increased prices is short-sighted.
Exxon has the opposite reason for staying in its oil and gas business. He believes that the world will consume coarser in 2050 than today. This contrasts with the BP projection a decrease of 25 percent demand by 2050.
Despite the big rally in stock prices, the energy sector still makes up just 5 percent of the S&P 500. It was up from 11 percent a decade ago. This share is to decrease further.
The oil majors are not the real culprits: blame governments for failing to agree a detailed transition plan. Even so, there is a real danger that Exxon’s 2022 results will be remembered as the height of collective delusion.
Lex is the FT’s daily investment brief. Expert authors in four global financial centers provide informed and up-to-date views on capital trends and major businesses. Click to explore