Big Oil Sees 30% Drop in Profits from Record 2022 Levels

Supermajors had a record-shattering financial year in 2022. To the invariable chagrin of their governments, all of the big international oil companies made the most money in their history thanks to the oil and gas price rally sparked by the war in Ukraine. Then, prices fell.For 2023, the supermajors booked smaller profits, although in absolute terms, the figures were yet again quite impressive, even as predictions of peak oil demand intensified and multiplied. The combined profits of Big Oil came in at around $107.5 billion last year, down by about a third from their stellar 2022. Yet the figures remained rather strong.

Some of the companies beat analyst expectations for 2023 profits, and one of them, TotalEnergies, actually did better in 2023 than it did in 2022, bucking the overall trend of normalizing profits following normalizing prices.BP, for instance, booked a profit of $13.83 billion for 203, which was substantially lower than the $27.65 billion it made but still more than analysts expected the company to make. BP then said it would buy back even more shares to reward shareholders.Another European supermajor, Shell, reported 2023 profits of $28.25 billion, which was a substantial drop from its 2022 net income of $39.9 billion but also beat analyst expectations, which appear to have been on the pessimistic side.

We see the same story with Exxon and Chevron in the United States, as international oil and gas prices slide from their record highs as supply security improved over the course of the year. Exxon, for instance, reported its second-highest profit on record for 2023, at $36 billion. Chevron posted a profit of $21.37 billion for the year, down from $35.46 billion for 2022 but still high enough to allow the company to buy Hess Corp. in one of the largest M&A deals for the year.

Then there was TotalEnergies, which somehow did the impossible and booked an even higher profit for 2023 than it did for 2022. The company reported profits of $21.4 billion for last year, which was 4% higher than its net result for the previous year.The reason behind the rise was the strong performance of its LNG business and its electricity business. Also, it lacked the kind of charges it had to book in 2022 following its pullout from Russia. Those came in at $15 billion, hurting the record 2022 performance.

The decline in profits was hardly a surprise. Oil and gas being the cyclical industry they are, these declines after a peak year in the cycle are simply business as usual. The difference this time lies elsewhere. All of the supermajors seem to have been reminded by the 2022 crisis that their core business is as strong as ever, and it might be a good idea to put some more effort into growing it instead of diversifying away from it.

All of the Big Five gave indications last year that this is exactly what they were going to do. Some of their chief executives even said it out loud, despite continuing and intensifying pressure from activists to stop being oil and gas companies.In that respect, the realignment of business strategies with actual physical reality in 2023 was even more important than 2022 precisely because this alignment gathered pace despite lower oil and gas prices. Exxon and Chevron closed two massive acquisitions in their core business area.

Shell and BP announced revisions to their transition-related budgets and those revisions were not upward. TotalEnergies again bucked the trend, planning to invest more in transition business than in new oil and gas this year at least. At the same time, however, it pushed ahead with controversial projects such as the East Africa Crude Oil Pipeline project and exploration in Namibia.If 2023 is any indication, Big Oil will use its massive 2022 profits to remain Big Oil, quietly, or not so quietly, dispensing with plans to become Big Energy, at least in the near term.