Oil supermajors are projected to report third-quarter profits between $5.6 billion and $16.2 billion, driven by Middle East supply squeezes. Despite these windfalls, companies like Exxon and Chevron are prioritizing debt repayment over major new spending sprees to maintain strict financial discipline.
The energy sector is riding a massive wave of profitability. Following a second quarter where the sector saw annual growth of 128.2%, the third quarter is expected to be equally robust. Refining subsectors have seen triple-digit earnings growth, while upstream players are capitalizing on a war premium caused by squeezed supplies in the Middle East.
Supermajors have been raking in profits since the war in the Middle East began. However, as they prepare to report these results, some jurisdictions where these companies operate are planning to implement windfall taxes.
Third-Quarter Profit Projections by Company
Data from LSEG indicates a massive surge in year-on-year earnings across the board, with projections ranging from 84% to 158%. While every major player is seeing a spike, the scale varies significantly between the lowest and highest projected results.
| Company | Projected Q3 Profit | Estimated Year-on-Year Increase |
|---|---|---|
| Exxon | $16.2 billion | 101% |
| Shell | $10 billion | 84% |
| Chevron | $9.3 billion | 158% |
| TotalEnergies | $8.4 billion | 111% |
| BP | $5.6 billion | 155% |
Debt Repayment and the $3.5 Billion Shell Buyback
The industry has abandoned the spend big when you earn big mentality of previous decades. This shift follows the 2014 bust and the 2020 pandemic, coupled with decarbonization policies that made investors skeptical of the industry’s long-term future. Now, financial discipline is the priority.
Exxon and Chevron are focusing heavily on debt repayment. Chevron has already made a significant dent in its balance sheet, cutting its debt-to-operating cash ratio from x1 to x0.4 this quarter. BP is pursuing a similar path, aiming to lower its net debt-to-operating cash ratio from 1.7x at the end of last year to 0.8x.
Shell is taking a different approach to returning value. The company plans to absorb another $3.5 billion in share buybacks during the final quarter of the year.
The Return to Frontier Exploration
While the spending sprees are over, the industry is not ignoring the future. A slowdown in the energy transition has revealed that oil and gas demand persists, and many existing fields are facing natural depletion. This has forced a return to reserve replacement, a topic that had been largely ignored during the height of the net-zero push.
This strategic pivot is most evident at BP, which has reversed its previous net-zero pivot under prior leadership to reaffirm its focus on oil and gas. Investment is now flowing toward frontier basins in Africa and South America. Claudio Descalzi, chief executive of Eni, noted earlier this year that war-related disruptions have specifically shifted more investment toward South America and Southeast Asia. Other targeted regions for capital include parts of the Middle East.
Despite these selective investments in production replacement, most investors are still cautious. The industry is expected to keep spending tightly controlled, using profits primarily to strengthen balance sheets.
