Unprecedented profit for major oil drillers as prices soared
Oil companies swam in record profits over the last few months at a time when Americans struggled to pay for gasolene, food and other basic necessities.
On Friday, Exxon Mobil booked an unprecedented US$17.85 billion profit for the second quarter and Chevron made a record US$11.62 billion. The sky-high profits come one day after the United Kingdom’s Shell shattered its own profit record.
Soaring energy prices have rattled consumers and become a political flash point. Last month, President Joe Biden said that “Exxon made more money than God this year”.
Consumers are facing high fuel prices not just at the pump, but soaring energy prices are being baked into delivery costs, which is driving up the cost of everything from apples to toilet paper.
The record profits marked a stunning turnaround from the early days of the COVID-19 pandemic, when cities were locked down and demand for fuels plummeted. There were numerous bankruptcies and thousands of lay-offs.
The industry has long gone through boom-and-bust cycles. But due to the ongoing war Russia waged on Ukraine, which resulted in less oil and gas on the market from Russia, as well as other global supply constraints, high prices could linger for some time.
“It’s devastating,” said Mark Wolfe, executive director of the National Energy Assistance Directors Association, who added that high energy prices hit low-income families and frontline workers the hardest. “You live on a tight budget and this is an extra US$40 to US$50 per week.”
Wolfe wants the federal government to tax energy companies and “redistribute some of those profits back to the families who are struggling.”
Inflation is already changing where Americans go and what they eat. It’s also changing the way they consume energy.
Two-thirds of Americans changed their driving habits and lifestyle, with the vast majority choosing to drive less or combine errands, said AAA spokesman Andrew Gross. Among those surveyed by AAA, two per cent said they bought an electric vehicle since March, he said.
“They have really altered their lifestyles to cope with these high prices,” Gross said.
Exxon, based in Irving, Texas, increased its oil and gas production as crude prices hovered above US$100 a barrel. Revenue at Exxon skyrocketed to US$115.68 billion, up from US$67.74 billion during the same quarter last year.
Natural gas and liquefied natural gas or LNG prices are also elevated due to Russia’s invasion of Ukraine and ensuing sanctions against Russia, a major supplier of natural gas. Many European nations have been scrambling for alternatives to Russian natural gas, and have been competing for boatloads of LNG, driving up prices for natural gas both globally and in the United States. Inflation in Europe has also been surging, including soaring costs for energy.
Surging prices have been a boon for investors, including energy executives who receive a large share of compensation through company stock. Exxon earned US$4.21 per share, exceeding analyst expectations of US$4.02 per share, according to analysts polled by Factset. Chevron earned US$5.95 per share, exceeding analyst expectations of US$5.16 per share.
Exxon CEO Darren Woods attributed the company’s success to its investments in oil and gas fields in Guyana and the Permian Basin, as well as its investments in liquefied natural gas, which has been in high demand globally.
“Given the long investment cycle times, growing supply will not happen overnight,” said Woods in a conference call Friday.
Gasolene prices rose particularly quickly during the quarter, due to limited global supply, the high cost of oil and because there are fewer refineries operating in the US than before the pandemic.
Exxon plans to increase refining capacity by about 250,000 barrels per day in the first quarter of 2023 by expanding its Beaumont Refinery. That represents the industry’s largest single capacity addition in the US since 2012, the company said.
To alleviate Europe’s energy crisis, Exxon sees potential for fracking and unconventional gas in Germany, and “there’s an opportunity where certainly ExxonMobil could play a key role,” Woods said.
Exxon also plans to increase its exports of LNG to Europe. Golden Pass, its LNG export facility under construction in Port Arthur, Texas, will increase LNG exports from the Gulf Coast by 20 per cent when it starts up in 2024, he said.
“Bringing more LNG supplies to help offset some of the Russian gas going into Europe will be another really critical step forward in diversification of supplies for Europe,” Woods said.
Climate scientists and residents who live near Gulf Coast LNG export facilities warn that expanding fossil fuel infrastructure could exacerbate disasters caused by climate change.
Exxon expects to increase oil-equivalent production in the Permian Basin by 25 per cent this year compared to 2021 and to eliminate routine flaring in the Permian by the end of the year.