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The oil and gas industry ended 2021 with high
hopes. Crude oil prices had returned to pre-
pandemic levels, and the expectation of sustainable
returns to LNG investments seemed realistic. By the
end of the first quarter of 2022, the industry found
itself dealing with a war that had the potential to
disrupt the global supply-demand balance, capital
allocation and trade flows for a decade or more and
fundamentally change the return equation. The
number of countries officially banning the import of
Russian products is growing, but the potential for
reputational damage affected many company’s
willingness to accept Russian products very quickly
as the situation unfolded.
During the first quarter, Brent crude prices
increased from US$77 on 31 December 2021 to
US$107 on 31 March 2022, an increase of 38%.
Crude prices haven’t been above US$100/bbl since
right before the 2014 downturn, and there is no end
in sight to structural tightness in the supply-demand
balance. In gas markets, low storage levels and an
uncertain supply outlook drove up prices
everywhere. The market in northern Europe priced
as high as US$68/MMBtu in the immediate
aftermath of the war’s beginning, ending the quarter
in the US$40/MMBtu range. This time last year,
prices hovered in the mid single-digit range. Henry
Hub prices increased by 34% between the beginning
and end of the quarter. Since then, the prospect of
higher LNG exports, expectations of higher power
sector demand, upstream underinvestment and low
storage balances have combined to bring prices to
levels that haven’t been seen since before the 2008
financial crisis.
Oil majors’ earnings were down relative to Q4 2021,
and the earnings impact of Russian asset
impairments was fully expected but substantial;
however, operating income was up 11% to a
whopping US$72.5 billion. The majors reported
combined free cash flows of US$53.5 billion — 24%
higher than the previous quarter and more than
double where they were during the first quarter of
2021 when the COVID-19 recovery was in its early
stages.
Given the abundance of available cash and the
increasing sense that this trend will continue, it was
inevitable financial questions would dominate
earnings calls, as they usually do. Nearly half of the
total number of questions asked by analysts
addressed this topic. Of course, shareholder
distribution emerged as the most important theme,
accounting for 7% of the total. Analysts were looking
for affirmation of previously announced share
buyback programs and hints companies would
return additional cash windfalls to shareholders
through additional buybacks or dividend increases.
Cost inflation continues to be on the minds of
analysts trying to understand how much of the run-
up in commodity prices will flow through to the
bottom line and how much will be absorbed in the
form of service pricing, which has been depressed
for some time now.
Of particular interest was the performance of
refining businesses and companies’ views on
refining margins and refinery utilization. Seven
percent of all the questions asked were on this
subject. The war in Ukraine and the sanctions that
followed put particular stress on the supply of
petroleum products and crack spreads spiked from
around US$30/bbl to more than US$50/bbl.
High crude oil and LNG prices and increasing
tightness in refined product markets, strong cash
flows and the potential for additional upside led to
many questions about capital allocation. A rethink of
capital budgets would be a natural response to the
current economic environment, and there was
predictable interest by analysts in whether that
might be the case. Also interesting to analysts was
the impact of cost inflation on capital budgets. They
wanted to know if higher costs were the reason or if
they reflected more drilling activity and the
potential for higher production and returns.
More so than usual, the shifting geopolitical
environment and the resulting macro-outlook
emerged as a key theme during first quarter
earnings calls. Geopolitical risks have not had as
high a profile since the late 1970s, and analysts
wanted to hear companies’ points of view on how
the current crisis will impact industry economics.
Notwithstanding the reversal of fortunes of the
majors’ legacy businesses, analysts continue to
focus on strategies, prospects, and the performance
of alternative energy businesses and other
decarbonization initiatives. Of the questions asked,
9% were on this topic. The balance between cost
inflation and power prices that have surged along
with natural gas prices and the effect on project
returns were of particular interest, as was the effect
of the war in Ukraine and the short-term supply
crunch on alternative energy strategies.
As is almost always the case, major project updates
were the most important operational theme,
accounting for more than 10% of the questions
asked of management. The current economic
environment has analysts focused on when they can
expect new LNG projects to have an impact on
companies’ bottom lines. Supply chain issues
continue to raise the risk of delays and higher costs.
Production outlooks are always interesting to
analysts trying to predict future financial results but
have taken on new urgency given the immediate
need for new supplies in Europe and the opportunity
to take advantage of favorable economics that may
or may not be sustained.
Overview
EY | Building a better working world
EY exists to build a better working world, helping create long-term value for
clients, people and society and build trust in the capital markets
Enabled by data and technology, diverse EY teams in over 150 countries
provide trust through assurance and help clients grow, transform and
operate.
Working across assurance, consulting, law, strategy, tax and transactions,
EY teams ask better questions to find new answers for the complex issues
facing our world today.
EY refers to the global organization, and may refer to one or more, of the
member firms of Ernst & Young Global Limited, each of which is a separate
legal entity. Ernst & Young Global Limited, a UK company limited by
guarantee, does not provide services to clients. Information about how EY
collects and uses personal data and a description of the rights individuals
have under data protection legislation are available via ey.com/privacy.
EY member firms do not practice law where prohibited by local laws. For
more information about our organization, please visit ey.com.
3
Shareholder
distributions
Top 3 themes | Q1 2022
2
Refining
performance
Major project
updates
Percentage of analyst questions pertaining to financial,
operational and strategic themes
Financial questions continued to attract the most attention of the analyst community, with major focus on how
companies will respond to the war in Ukraine, elevated commodity prices and improved cash flows. Strategic questions
focused on how the changing geopolitical environment will affect capital allocation in the short and long term.
Operationally, all eyes were on the capacity of companies to step up asset utilization and bring new projects to market
quickly.
Quarterly analyst
themes of oil and
gas earnings
Q1 2022
ey.com/oilandgas
The purpose of this review is to examine the key themes arising from the questions asked by analysts during the Q1
2022 earnings reporting season among 10 global oil and gas companies. The identification of the top three themes is
based solely on an examination of the transcripts of the earnings conference calls. For this analysis, the following
companies were included:
Scope, limitations and methodology
bp plc
Chevron Corporation
ConocoPhillips
Eni SpA
Royal Dutch Shell plc
Suncor Energy Inc
TotalEnergies SE
Looking forward: Oil, gas and LNG prices are likely to remain elevated in the face
of ongoing geopolitical uncertainty. Earnings and cash flows will almost certainly
inspire even more questions about share buybacks, dividends and capital
investment plans. Market opportunities will put operational performance, the
speed with which companies can approve and execute on capital projects, in the
spotlight. Shifts in investor attitudes toward the balance between legacy and
alternative energy remain a possibility.
Derek Leith
EY Global Oil & Gas
Tax Leader
+44 12 2465 3246
dleith@uk.ey.com
Andy Brogan
EY Global Oil & Gas
Leader
+44 20 7951 7009
abrogan@uk.ey.com
Gary Donald
EY Global Oil & Gas
Assurance Leader
+44 20 7951 7518
gdonald@uk.ey.com
David Johnston
EY Americas Strategy &
Transactions Energy Leader
+1 713 750 1527
david.johnston@ey.com
0%
10%
20%
30%
40%
50%
60%
70%
Q2 2021 Q3 2021 Q4 2021 Q1 2022
Financial
Operational
Strategic
How the EY Global Oil & Gas team can help you
As changing demand and pricing volatility transform the oil and gas
industry, companies must reshape to thrive in this new energy world. But
how do you balance the immediate cost and regulatory pressures of “now”
with investment in what comes “next”? EY’s Global Oil & Gas team brings
together the breadth of experience and talent needed to approach the
entire transformation process. By considering four key pillars of change —
structure and culture, customers, technology, and skills and capabilities —
we can help you adapt for today and reap the opportunities of tomorrow.
And together we can build a better working world.
© 2022 EYGM Limited.
All Rights Reserved.
EYG no. 005117-22Gbl
ED none
This material has been prepared for general informational purposes only
and is not intended to be relied upon as accounting, tax, legal or other
professional advice. Please refer to your advisors for specific advice.
ey.com/oilandgas
Equinor ASA
Exxon Mobil Corporation
Repsol SA

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Quarterly analyst themes of oil and gas earnings, Q1 2022

  • 1. 1 The oil and gas industry ended 2021 with high hopes. Crude oil prices had returned to pre- pandemic levels, and the expectation of sustainable returns to LNG investments seemed realistic. By the end of the first quarter of 2022, the industry found itself dealing with a war that had the potential to disrupt the global supply-demand balance, capital allocation and trade flows for a decade or more and fundamentally change the return equation. The number of countries officially banning the import of Russian products is growing, but the potential for reputational damage affected many company’s willingness to accept Russian products very quickly as the situation unfolded. During the first quarter, Brent crude prices increased from US$77 on 31 December 2021 to US$107 on 31 March 2022, an increase of 38%. Crude prices haven’t been above US$100/bbl since right before the 2014 downturn, and there is no end in sight to structural tightness in the supply-demand balance. In gas markets, low storage levels and an uncertain supply outlook drove up prices everywhere. The market in northern Europe priced as high as US$68/MMBtu in the immediate aftermath of the war’s beginning, ending the quarter in the US$40/MMBtu range. This time last year, prices hovered in the mid single-digit range. Henry Hub prices increased by 34% between the beginning and end of the quarter. Since then, the prospect of higher LNG exports, expectations of higher power sector demand, upstream underinvestment and low storage balances have combined to bring prices to levels that haven’t been seen since before the 2008 financial crisis. Oil majors’ earnings were down relative to Q4 2021, and the earnings impact of Russian asset impairments was fully expected but substantial; however, operating income was up 11% to a whopping US$72.5 billion. The majors reported combined free cash flows of US$53.5 billion — 24% higher than the previous quarter and more than double where they were during the first quarter of 2021 when the COVID-19 recovery was in its early stages. Given the abundance of available cash and the increasing sense that this trend will continue, it was inevitable financial questions would dominate earnings calls, as they usually do. Nearly half of the total number of questions asked by analysts addressed this topic. Of course, shareholder distribution emerged as the most important theme, accounting for 7% of the total. Analysts were looking for affirmation of previously announced share buyback programs and hints companies would return additional cash windfalls to shareholders through additional buybacks or dividend increases. Cost inflation continues to be on the minds of analysts trying to understand how much of the run- up in commodity prices will flow through to the bottom line and how much will be absorbed in the form of service pricing, which has been depressed for some time now. Of particular interest was the performance of refining businesses and companies’ views on refining margins and refinery utilization. Seven percent of all the questions asked were on this subject. The war in Ukraine and the sanctions that followed put particular stress on the supply of petroleum products and crack spreads spiked from around US$30/bbl to more than US$50/bbl. High crude oil and LNG prices and increasing tightness in refined product markets, strong cash flows and the potential for additional upside led to many questions about capital allocation. A rethink of capital budgets would be a natural response to the current economic environment, and there was predictable interest by analysts in whether that might be the case. Also interesting to analysts was the impact of cost inflation on capital budgets. They wanted to know if higher costs were the reason or if they reflected more drilling activity and the potential for higher production and returns. More so than usual, the shifting geopolitical environment and the resulting macro-outlook emerged as a key theme during first quarter earnings calls. Geopolitical risks have not had as high a profile since the late 1970s, and analysts wanted to hear companies’ points of view on how the current crisis will impact industry economics. Notwithstanding the reversal of fortunes of the majors’ legacy businesses, analysts continue to focus on strategies, prospects, and the performance of alternative energy businesses and other decarbonization initiatives. Of the questions asked, 9% were on this topic. The balance between cost inflation and power prices that have surged along with natural gas prices and the effect on project returns were of particular interest, as was the effect of the war in Ukraine and the short-term supply crunch on alternative energy strategies. As is almost always the case, major project updates were the most important operational theme, accounting for more than 10% of the questions asked of management. The current economic environment has analysts focused on when they can expect new LNG projects to have an impact on companies’ bottom lines. Supply chain issues continue to raise the risk of delays and higher costs. Production outlooks are always interesting to analysts trying to predict future financial results but have taken on new urgency given the immediate need for new supplies in Europe and the opportunity to take advantage of favorable economics that may or may not be sustained. Overview EY | Building a better working world EY exists to build a better working world, helping create long-term value for clients, people and society and build trust in the capital markets Enabled by data and technology, diverse EY teams in over 150 countries provide trust through assurance and help clients grow, transform and operate. Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers for the complex issues facing our world today. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. EY member firms do not practice law where prohibited by local laws. For more information about our organization, please visit ey.com. 3 Shareholder distributions Top 3 themes | Q1 2022 2 Refining performance Major project updates Percentage of analyst questions pertaining to financial, operational and strategic themes Financial questions continued to attract the most attention of the analyst community, with major focus on how companies will respond to the war in Ukraine, elevated commodity prices and improved cash flows. Strategic questions focused on how the changing geopolitical environment will affect capital allocation in the short and long term. Operationally, all eyes were on the capacity of companies to step up asset utilization and bring new projects to market quickly. Quarterly analyst themes of oil and gas earnings Q1 2022 ey.com/oilandgas The purpose of this review is to examine the key themes arising from the questions asked by analysts during the Q1 2022 earnings reporting season among 10 global oil and gas companies. The identification of the top three themes is based solely on an examination of the transcripts of the earnings conference calls. For this analysis, the following companies were included: Scope, limitations and methodology bp plc Chevron Corporation ConocoPhillips Eni SpA Royal Dutch Shell plc Suncor Energy Inc TotalEnergies SE Looking forward: Oil, gas and LNG prices are likely to remain elevated in the face of ongoing geopolitical uncertainty. Earnings and cash flows will almost certainly inspire even more questions about share buybacks, dividends and capital investment plans. Market opportunities will put operational performance, the speed with which companies can approve and execute on capital projects, in the spotlight. Shifts in investor attitudes toward the balance between legacy and alternative energy remain a possibility. Derek Leith EY Global Oil & Gas Tax Leader +44 12 2465 3246 dleith@uk.ey.com Andy Brogan EY Global Oil & Gas Leader +44 20 7951 7009 abrogan@uk.ey.com Gary Donald EY Global Oil & Gas Assurance Leader +44 20 7951 7518 gdonald@uk.ey.com David Johnston EY Americas Strategy & Transactions Energy Leader +1 713 750 1527 david.johnston@ey.com 0% 10% 20% 30% 40% 50% 60% 70% Q2 2021 Q3 2021 Q4 2021 Q1 2022 Financial Operational Strategic How the EY Global Oil & Gas team can help you As changing demand and pricing volatility transform the oil and gas industry, companies must reshape to thrive in this new energy world. But how do you balance the immediate cost and regulatory pressures of “now” with investment in what comes “next”? EY’s Global Oil & Gas team brings together the breadth of experience and talent needed to approach the entire transformation process. By considering four key pillars of change — structure and culture, customers, technology, and skills and capabilities — we can help you adapt for today and reap the opportunities of tomorrow. And together we can build a better working world. © 2022 EYGM Limited. All Rights Reserved. EYG no. 005117-22Gbl ED none This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, legal or other professional advice. Please refer to your advisors for specific advice. ey.com/oilandgas Equinor ASA Exxon Mobil Corporation Repsol SA