In a new report sent to Rigzone, Moody’s Investors Service noted that it expects “continued strong performance” from TotalEnergies, BP, Shell, ExxonMobil, and Chevron in 2023 “thanks to continued high, although volatile, oil and gas prices this year” but added that “performance will be down from last year’s peak”.
“Last year’s strong performance was mainly driven by very strong upstream results given high oil and gas prices and mostly strong downstream performance thanks to high refining margins,” Moody’s stated in the report.
“However, some downstream segments, such as chemicals and some marketing operations, had weaker year-on-year results as a result of weaker margins or market environments,” the company added.
“During the past two years the companies have significantly strengthened balance sheets by reducing debt and increasing cash balances from the weak point during the pandemic in 2020 … Aggregate debt levels are now also below 2019 levels and have not been this low since 2015 and before,” the company continued.
In the report, Moody’s highlighted that the five majors have a combined “cash pile” of around $150 billion, which it pointed out was up 44 percent on 2020. The company also stated that combined reported debt stands at $265 billion, which it said was down 30 percent from the pandemic peak in 2020.
“If hydrocarbon prices remain high this year we expect some further, gradual improvement in balance sheets but the bulk of this has probably been done. Instead, companies increasingly focused on accelerating shareholder remuneration in 2022 and especially share buybacks,” Moody’s stated in the report.
“We expect this to continue in 2023. At the same time, companies have focused on continued significant oil and gas investments and increased lower carbon investments, but investment growth has been at a slower pace than shareholder remuneration,” Moody’s added.
Conflicting Pressures
The Moody’s report outlined that the five companies will “remain at the center of conflicting energy transition pressures this year and beyond, including balancing energy security, energy transition and investment discipline through a mix of traditional oil and gas operations and investment in lower carbon and future energy solutions”.
“While the companies’ strategies are very different, and they will probably continue to refine them, stronger balance sheets provide more capacity to maintain strong credit metrics while navigating these challenges,” the report stated.
In the report, Moody’s noted that it expects continued and potential increasing acquisition activity “with mostly small to moderately sized transactions, which are unlikely to have a significant credit impact”.
“Divestments, for example of noncore assets, will also continue to supplement cash flow as they have done in the past,” the report added.
The Moody’s report also noted that additional taxes such as the UK’s energy profit levy and the EU’s levy started to eat into cash flows in 2022 and said they will continue to do so this year.
“However, given we expect continued strong cash flow generation the companies will be able to manage these additional taxes,” the report stated.
“Most companies also reported multibillion impairments and charges related to Russian operations in 2022, which reduced profit. However, the credit impact was manageable, given their strong balance sheets and results,” the report added.
Oil Price
The U.S. Energy Information Administration’s (EIA) latest short term energy outlook (STEO), which was released in February, highlights that the Brent spot price averaged $100.94 per barrel in 2022.
The EIA sees the Brent spot average coming in at $83.63 per barrel in 2023, according to the latest STEO. In its previous STEO, which was released in January, the EIA projected that the Brent spot price would average $83.10 per barrel in 2023.
A Standard Chartered commodity roadmap report sent to Rigzone on February 14 showed that the company projected Brent would hit $91 per barrel in 2023. The report outlined that the company saw Brent hitting $90 per barrel in the second quarter of this year, $88 per barrel in the third quarter, and $93 per barrel in the fourth quarter.
In a separate report sent to Rigzone recently, Fitch Solutions Country Risk & Industry Research projected that Brent crude oil would average $95 per barrel in 2023.
At the time of writing, the price of Brent is trading at $85.38 per barrel. The commodity’s highest 2023 close, so far, came on January 23, at $88.19 per barrel.
To contact the author, email andreas.exarheas@rigzone.com
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February 17, 2023 at 01:01AM
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Strong Performance Expected from Majors in 2023 - Rigzone News
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