US oil producers get $200bn in windfall from Ukraine war price spike

US oil producers have made more than $200 billion in profits since Russia’s invasion of Ukraine as they cash in on a period of geopolitical turmoil that has shaken global energy markets and sent prices soaring.

Aggregate net income for publicly listed oil and gas companies operating in the US reached $200.24bn for the second and third quarters of the year, according to an analysis of earnings reports and estimates made by S&P Global Commodity Insights for the Financial Times.

The figures – which include supermajors, midsized integrated groups and smaller independent shale operators – mark the sector’s most profitable six months and put it on course for an unprecedented year.

“Operating cash flow is likely to be record breaking – or at least very close – by the end of the year,” said Hassan Eltorie, executive director for upstream equity research at S&P.

The cash bonanza has rattled the White House as high gasoline prices drag on Democrats’ poll numbers ahead of next week’s critical showdown midterm elections.

Column chart of net income by quarter ($bn) shows US oil producers' profit bonanza

President Joe Biden this week cited the extraordinary income “war windfall” and accused the companies of “profiteering” from the invasion of Moscow. Unless they invested the cash haul to pump more oil to bring down the price at the pump, he said he would ask Congress to hit them with higher taxes.

Windfall tax legislation remains unlikely to pass in Washington. But it has become a reality across the Atlantic: Brussels has introduced a 33 percent “solidarity contribution” in excess profits, while London has enacted an additional 25 percent “energy profit Levy” which has taken the tax on profits to 65 percent. until the end of 2025. Rishi Sunak, the new British prime minister, is considering increasing the levy to 30 percent and extending it to 2028.

Bumper profits have been underpinned by strong free cash flow, a key industry metric defined as cash flow from operations minus capital expenditures. elevated commodity prices have pushed up the former; Insistence of investors on frugality has slashed the latter.

Brent crude, the international oil benchmark, averaged more than $105 a barrel in the second and third quarters – well above the average of around $70/b over the past five years. It hit a high of almost $140/b in early March after Russian tanks were rolled into Ukraine.

Meanwhile, Wall Street, still reeling from a decade of profligacy and persistent losses have demanded companies enter a new era of capital discipline – prioritizing shareholder returns over expensive drilling campaigns in pursuit of ever-greater output growth. Investment bank Raymond James estimates capital spending by the world’s 50 biggest producers will be around $300bn this year, about half of that in 2013, the last of which was priced at a comparable level.

“During the past five years, the industry has shifted from ‘drill, baby, drill’ to focus on what shareholders really want, which is return on capital,” said Pavel Molchanov, analyst at Raymond James. “Dividends and share buybacks have never been as generous as they are now.”

Big Oil’s new discipline is in contrast to Big Tech, which has frustrated Wall Street through assumptions. failure to rein in investment. Tech stocks have pummeled in recent weeks after companies including Google and Meta reported lackluster earnings.

Responding to the prospect of a tax windfall, Darren Woods, chief executive of ExxonMobil, which had its most profitable quarter ever, said his company’s chunky dividend should be seen as a way of “returning some of our profits directly to the American people”.

“We prioritized the creation of shared value over the pursuit of volumes,” said Rick Muncrief, chief executive of Devon Energy, a large shale driller. “And we have rewarded shareholders with market-leading cash returns.”

Additional reporting by Alice Hancock in Brussels and David Sheppard in London

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