Jul 07, 2022

The Oil Industry’s Investments in 2022 after its Recovery from the Crisis

  • By Samatha Drake,
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Oil and gas businesses rebounded from the 2020 crisis with strong financial flows, and are now looking ahead to 2022 with more cash on hand to boost shareholder distributions and start preparing for the energy transition.

The oil and gas business is already in for a transformative year in 2022, both in terms of planning to continue the decarbonization program and in terms of rewarding the sector’s shareholders, who have experienced low returns since the previous crisis in 2015-2016.

The significant choices for all kinds of oil and gas businesses will be strategic investments in clean energy solutions adapting to the urge to decarbonize, and portfolio repositioning.

According to WoodMac’s vice president, corporate analysis, David Clark, huge cash flows will likely be utilized for both boosting shareholder payouts and repositioning for the energy transition.

Oil businesses can no longer ignore the investor and societal pressure to reduce emissions and actively engage in the decarbonization of their own operations and other energy-intensive enterprises.

“It’s clear that sitting on the decarbonization sidelines isn’t an option. As stakeholder pressure intensifies, it’s time for big strategic decisions. These choices will set trajectories for the energy transition that will only gather momentum. Wood Mackenzie expects an exciting 12 months,” Ellacott said.

ExxonMobil, Chevron, Shell, BP, and TotalEnergies are projected to increase their capital budgets for 2022, but capital discipline and increased investment in low-carbon energy solutions remain cornerstones of their action plan.

  • Big Oil is expected to contribute a greater portion of total capital expenditures to renewable energy solutions.
  • Exxon and Chevron decide to concentrate on renewable fuels and carbon capture and storage (CCS) in order to minimize their personal carbon footprints, and collaborate to establish regional CCS centers in highly industrialized areas in collaboration.

Prominent international oil companies continue to be conservative with capital allocation as shareholders demand returns and ESG investors demand accountability.

“2022 could see cash-rich companies ‘do it all’ if today’s prices hold. Indeed, increasing shareholder distributions while decarbonizing and repositioning for the energy transition will be key to rebuilding the investment story,” WoodMac’s Clark said last week.

Mergers and acquisitions (M&As) are expected hasten up next year, led once again by the US shale patch. “Companies will also capitalize on a window of opportunity to rationalize their portfolios in 2022, wary of longer-term price and regulatory risk. Many more players will be in a position to buy and will see an opportunity in sweeping up cash-generative assets for implied valuations as low as US$50/bbl,” said Greig Aitken, director, corporate analysis, at WoodMac.

According to industry professionals who spoke to the Houston Chronicle earlier this month, the current increase in price volatility in the United States may encourage more corporations to integrate.

Wrapping Up

The oil and gas industry will be striving to balance increasing shareholder distributions with emissions reductions in 2022. Lower emissions, increased investments in alternative energy, and asset portfolio repositioning will persist to be important considerations in the oil and gas business in the upcoming year.

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