(Bloomberg) – Big Oil is moving away from Russia’s estimated $ 10 billion assets, but the $ 100 crude oil is easing.
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The invasion of Ukraine has forced world supermassers to cut ties with Moscow, and oil and gas prices have risen. The result is a complete reversal in the first quarter of the fiscal year – a huge operating profit on the one hand, and a huge financial loss on the other.
Five of the world’s largest oil companies are set to record gross domestic product (GDP), excluding the one-time hit of $ 34 billion. This will be the highest since 2011, but Exxon Mobil Corporation and Shell PLC could be offset by the combined results of the suspension of their Sakhalin oil and gas projects and the merger of BP Plc with the Kremlin-controlled Rosneft PJSC.
Not as bad as it sounds. Bankruptcy does not mean that money is going out today and that the most important figure for investors – free cash flow – is in the process of reaching its 14-year high. The outlook for the rest of the year is also strong.
“Leaving Russia should not throw away the revenue of the oil industry from afar,” said Laura Ho, a justice analyst at Hargreves Lansda. “Oil prices are expected to rise sharply in the near future.
The Total Energy SE reporting season begins on Thursday, with BP and Shell, based in Exxon and Chevron Corporation London, the following day. That, unlike its Russian counterparts, does not publish its first quarter results as a gas producer Novatek PJSC.
For the oil majors, the first quarter of 2022 is financing the cholera epidemic. After Russia invaded Ukraine, crude oil in London temporarily rose to $ 140 and broke European natural gas records. Prices have eased in recent weeks, but they are still high when Europe debates how to limit Russia’s energy supply.
This puts envy on the major oil companies. No longer will you have to deal with low prices, declining demand, and criticism of climate change. Instead, governments around the world are suddenly desperate to attract and retain energy.
In anticipation of better times ahead, Shell, Exxon and Chevron jumped by 30% this year. But the war in Ukraine still hangs on the industry, and BP and TotalEnergies – Russia’s most vulnerable companies – have not done as well.
Total Energy is the only major oil company that refuses to leave Russia. Patrick Poyyan, CEO of the company, said that leaving the country would return valuable assets “free of charge” to Mr Putin, but that the company’s continued vulnerability was significant.
BP was the first to announce its withdrawal from Russia, but the level of vulnerability extends to all others. Leaving a 20% stake in Rosneft could result in up to $ 25 billion in writing. The London-based company has been in talks with government agencies in Asia and the Middle East to find a buyer.
Shell is in talks with Chinese buyers who own 27.5% of the Sakhalin-2 liquid natural gas project. Exxon says it is working to exit the Sakhalin-1 oil project. Chevron’s only threat is the Caspian-produced crude oil pipeline to the Black Sea coast of Russia.
The risk of leaving Russia could be as low as $ 10 billion in the first quarter.
“They may have been able to generate more assets than the current zero value on the market,” said Oswald Clint, a Bernstein analyst. “The amazing thing about Russia is that it doesn’t have to be ugly.”
Finding buyers can also be a far cry. Russian lawmakers have been considering a draft law on foreign assets held by companies from “friendly countries” since early March.
When we look at Russia’s one-time payments, the Big Oil vault is swollen. Analysts predict that the five superstars will generate $ 36 billion in cash flow in the first three months of the year, the highest level since 2008. This figure is expected to increase further in the second quarter.
So the big question for CEOs is that the war in Ukraine may not be affected, but what do they do with all that money?
Politicians and consumers want to see new fast oil and gas investments to fill the gap created by easing supply shortages or by imposing additional sanctions on Russia. But those companies are breaking their promise to give their free money to shareholders.
“Part of the problem is to keep investors disciplined and to provide returns in the form of purchases and dividends,” said Matt Murphy, a Calgary analyst at Tudor Pickering Holt & Co.
The United States is one of the fastest growing industries in the United States, but the producers there are suffering from high inflation and a shortage of manpower and equipment, especially in the Permian Basin. “It will be challenging for big operators to increase their productivity beyond their current plans,” Murphy said.
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