U.S. Oil Majors Post Record Output While European Giants Struggle

The latest financial reports from major oil companies reveal a stark contrast between U.S. and European firms. While American companies like Exxon and Chemron have reported record production, European giants BP and Shell are facing declines in both output and profits.

In the second quarter of 2023, Exxon achieved an impressive daily average of 4.6 million barrels of oil equivalent, largely due to strong growth in Guyana and its acquisition of Pioneer Natural Resources. Chevron also reported robust figures, with 3.4 million barrels per day, buoyed by increased production from Kazakhstan, the Gulf of Mexico, and the Permian Basin. Notably, Chevron surpassed a production milestone of 1 million barrels per day in the Permian, despite signs of slowing growth in this key region.

Despite these production successes, both companies experienced declines in profitability. Exxon’s net income was $7.1 billion, representing an 8% drop from the previous quarter and a 15% decrease compared to the same period last year. Chevron’s earnings fell to $2.5 billion, down from $4.4 billion a year earlier. Nevertheless, both firms view this downturn as a natural part of the business cycle, believing that prices will eventually recover, particularly as European competitors lag behind.

In contrast, BP and Shell reported declines in production for the same quarter. BP’s output averaged 2.3 million barrels per day, a decline of 3.3% year-on-year. Shell’s production was 2.65 million barrels daily, marking a 4.2% decrease and the lowest output in two decades. Both companies also posted lower profits compared to last year, although they exceeded analyst expectations, indicating some resilience despite their struggles.

According to Ron Bousso from Reuters, the declines in production and profits for BP and Shell stem from reduced investments in recent years. This raises questions about their energy transition strategies, as both companies appear to be shifting focus back to their core oil and gas operations. Bousso notes that without significant changes, European supermajors may find it challenging to catch up with their U.S. counterparts in operational success and market valuation.

Looking ahead, there are concerns regarding the sustainability of production growth in the face of anticipated peaks in oil and gas demand before the end of this decade. This uncertainty complicates any plans for ramping up production. Bousso suggests that the ongoing production lag behind U.S. majors, coupled with falling profits over the past three years, indicates that BP and Shell need to reevaluate their strategies.

The outlook may improve if production outside of OPEC flattens, potentially stabilizing prices and enhancing financial performance even without substantial output increases. In the meantime, both BP and Shell appear committed to cost-cutting measures and returning cash to shareholders, a strategy that may help recoup losses from unsuccessful ventures.

As the second quarter wraps up, the contrasting fortunes of U.S. and European oil majors highlight the challenges faced by the latter in an evolving energy landscape. The path forward may require a fundamental reassessment of strategies to foster growth and ensure competitiveness in an increasingly complex market.