In a new report sent to Rigzone, Moody’s Investors Service noted that it expects TotalEnergies, BP, Shell, ExxonMobil and Chevron to “continue to perform well” in 2023 “thanks to continued, albeit volatile, oil and gas prices this year,” but added that “performance will be lower than last year’s peak.”
“Last year’s strong performance was driven primarily by very strong upstream results due to high oil and gas prices and, above all, strong downstream performance due to high refining margins,” Moody’s said. in the report.
“However, some downstream segments, such as chemicals and some marketing operations, had weaker year-over-year results as a result of weaker margins or market environments,” the company added.
“Over the past two years, 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 also below 2019 levels and they haven’t been this low since 2015 and before,” the company continued.
In the report, Moody’s highlighted that the top five have a combined “cash pile” of about $150 billion, which it noted was up 44 percent from 2020. The company also stated that the combined debt reported is $265 billion, which he said was 30% less than the peak of the pandemic in 2020.
“If hydrocarbon prices remain high this year, we expect a gradual and progressive improvement in balance sheets, but most of it has probably been done. Instead, companies increasingly focused on accelerating shareholder remuneration in 2022 and especially on share buybacks,” Moody’s said in the report.
“We expect this to continue into 2023. At the same time, companies have focused on major investments in oil and gas and increasing lower carbon investments, but investment growth has been at a slower pace than shareholder remuneration,” Moody’s added.
Conflicting pressures
The Moody’s report stressed that the five companies “will remain at the center of the conflicting pressures of the energy transition this year and beyond, including balancing energy security, energy transition and investment discipline through a combination of traditional oil and gas operations and investment in lower carbon and future energy solutions”.
“While firms’ strategies vary widely and will likely continue to refine them, stronger balance sheets provide greater ability to maintain strong credit metrics while addressing these challenges,” the report states.
In the report, Moody’s noted that it expects continued and potentially increasing acquisition activity “with transactions mostly of small to moderate size, which are unlikely to have a significant credit impact.”
“Divestments, for example from non-core 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 Energy Benefit Levy and the EU levy, started eating into cash flows in 2022 and said they would continue to do so this year .
“However, given that we expect continued strong cash flow generation, companies will be able to manage these additional taxes,” the report said.
“Most companies also reported multibillion-dollar impairments and charges related to Russian operations in 2022, which reduced profits. However, the credit impact was manageable given their strong balance sheets and results.” add the report.
Oil price
The US Energy Information Administration’s (EIA) latest Short-Term Energy Outlook (STEO), which was released in February, notes that the Brent spot price averaged $100.94 per barrel in 2022.
According to the latest STEO, the EIA sees Brent averaging $83.63 per barrel in 2023. In its previous STEO, which was released in January, the EIA projected that the spot price of Brent would average $83.10 per barrel in 2023.
A Standard Chartered commodities roadmap report sent to Rigzone on February 14 showed the company projected Brent to hit $91 a barrel in 2023. The report described the company seeing Brent it reached $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 recently sent to Rigzone, Fitch Solutions Country Risk & Industry Research projected that Brent crude would average $95 per barrel in 2023.
At the time of writing, Brent is trading at $85.38 a barrel. The highest close for the 2023 commodity so far came on Jan. 23 at $88.19 a barrel.
To contact the author, please send an email andreas.exarcheas@rigzone.com
