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Oil Supermajors Continue to Hold Back on Investment

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Oil supermajors continue to hold back on investment as mid-year guidance remains mostly firm, a new report from Fitch Solutions Country Risk & Industry Research has noted.

Overall, the group will raise annual capital expenditure by 19 percent in 2022 versus earlier guidance growth of 17 percent, the report, which was sent to Rigzone recently, revealed.  

“The mild rise in investment is coming from Shell, the sole exception in the group, who have boosted 2022 capital expenditure guidance by 17 percent since our previous report,” analysts at Fitch Solutions stated in the report.

“Brent crude prices have averaged $105 per barrel for the first half of 2022, a gain of 48 percent over 2021’s annual average price. However, the sharp gains in Brent have failed to spur similar increased investment across the supermajors peer group,” the analysts added in the report.

“On the downstream side record refining margins have helped boost the profits significantly as the global contraction in refining capacity during pandemic supercharged fuel prices as post lockdown economies boomed,” the analysts continued.

In the report, the analysts noted that the record earnings should be the catalyst for increased long-term investment but added that the current guidance from the supermajors “leaves little hint of capital expenditure excess”.

“The difficulty in making multi-billion-dollar investments over the long-term term continues to be dogged by uncertainty raised by the energy transition and most majors have chosen to exercise caution and remain balanced in guidance for capital expenditure in 2022,” the analysts added.

The lack of increased investment is another strong indicator for tight supply in the coming years, according to the Fitch Solutions analysts.

“After years of low investment and threats to Russia’s access to global trade, markets remain on edge in fear of supply shortages helping to keep the price outlook elevated,” the analysts stated in the report.

“Although higher interest rates from hawkish central banks have raised near-term concerns for oil demand the outlook for supply remains muted supporting the case for high oil prices,” the analysts added.

Fitch Solutions’ report examined BP, Chevron, ExxonMobil, Shell, and TotalEnergies. In its second quarter results, BP reported an underlying replacement cost profit of $8.5 billion, compared to $2.8 billion during the same period last year, while Chevron reported a net income of $11.6 billion, compared to $3 billion during the same period last year.

Exxon Mobil Corporation announced estimated second-quarter 2022 earnings of $17.9 billion, compared to $4.69 billion in 2Q 2021, Shell posted adjusted earnings of $11.4 billion in 2Q, compared to adjusted earnings of $5.5 billion in 2Q 2021, and TotalEnergies reported adjusted net income of $9.8 billion in 2Q, which was 2.8 times higher than the same period last year.

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