Big Oil's new normal and its discontents

Big Oil's tame second quarter earnings and related plans were something of a new normal after a wild few years.

Catch up fast: Giants like Exxon and Shell saw lower Q2 profits, as commodity prices eased from the shock of the Ukraine crisis.

• But as a new HSBC research note argues, they're still billions of dollars in the black — and still devoting lots of cash to dividends and buybacks.

The big picture: "From an energy macro perspective, they were the first (more or less) normal quarter since 2021, before the start of the war in Ukraine," the bank's analysts write.

• "The new normal looks solid, with aggregate 2Q23 earnings and cashflow respectively 24% and 8% above mid-2018 levels, when the environment was fairly similar."
• They suspect the Q2 numbers may be a "floor" at a time when oil prices are trending back upwards, along with prices at the pump.

The intrigue: For investors, this all looks pretty, pretty good for now (though your mileage may vary).

• But from an environmental perspective, a prominent analyst this week argued that Big Oil isn't doing nearly enough, especially as extreme worldwide heat argues for more decisive action on climate.

Jason Bordoff, the founding director of Columbia University's energy think tank, penned a New York Times op-ed arguing supermajors should lean more aggressively into energy transition. He noted these business lines remain a very small share of spending.

What they're saying: "Industry leaders face a stark choice: Either match their rhetoric with actions demonstrating convincingly that they are prepared to invest at scale in clean energy or acknowledge that their plan is to be among the last producers and bet on a slower transition," he writes.

Quick take: The former Obama-era energy and climate specialist is a policy realist. While he's weighed in before on the need for scaled up clean energy investments and specifically chided Big Oil, his forceful NYT critique still resonates as record-breaking heat swamps the globe.

State of play: Oil giants, while staying committed to their core fossil lines, are boosting their investments in "clean" sources.

• The HSBC note name-checks moves like BP and TotalEnergies' recent multi-billion dollar push into Germany's offshore wind market, and Exxon's $4.9B purchase of Denbury, which Exxon coveted for its CO2 pipeline network.

The bottom line: Bordoff's essay may signal that criticism of Big Oil's climate pace and posture will increasingly come from outside the green movement.