August 7, 2023 [Oil Price]- These past two weeks saw yet another strong quarterly showing for Big Oil despite substantial declines in earnings, following the trajectory of oil pieces since last year.

Once again, the supermajors and the large independents were betting on shareholder returns over production growth, sticking to their new, post-pandemic, mid-transition approach.

Until now, this approach has been largely praised by the media and analysts. Now, it seems the restraint has started to brew some concern. And maybe it’s time it did.

Bloomberg’s Kevin Crowley reported this week that Exxon, Chevron, BP, Shell, and TotalEnergies together produced 11.6 million barrels of oil equivalent daily during the second quarter. That, he said, was the lowest production rate for the big five in at least 15 years and a fifth lower than their 2010 production rate. It was time to change this.

The conclusion in the above report might seem confusing given Bloomberg’s copious reporting on climate change and the success of the energy transition. Yet facts are that oil and gas are still consumed on a massive scale globally. And if less oil and gas is being produced, that’s bad news for pretty much everyone.

In fairness, BP and Shell have both made a sort of a U-turn on their net-zero commitments this year. Both companies had previously set extremely ambitious targets— including sizeable cuts in oil and gas production—but now, both have signaled a pullback from net zero and a greater focus on oil and gas.

“It is critical that we avoid dismantling the current energy system faster than we are able to build the clean energy system of the future,” Shell’s new chief executive Wael Sawan said, as quoted by the Financial Times, earlier this year. The statement accompanies a pledge to continue investing in oil and gas, maintain oil production, and boost gas output.

BP’s Bernard Looney made a similar statement in February when the company reported record profits for 2022, boosted by the oil and gas price shocks. At the presentation of these results Looney said that BP had revised down its oil and gas production cut targets for 2030 from 40% to 25%.

Given Looney’s previous exclusive focus on growing in areas like wind, solar, and EV charging and scaling back BP’s core business to embrace the energy transition, the revised target marks a significant departure from previous priorities.

Yet neither of these two supermajors is planning on boosting their oil production. That should worry investors and regular energy consumers. Because Chevron’s and Exxon’s production growth plans are modest, and they focus almost entirely on the Permian. They can’t, in other words, offset BP’s production cutbacks and Shell’s stagnation. If these two remain on the agenda, that is.

Last year’s price rally in hydrocarbons showed that it takes a record profit or two to convince supermajors that perhaps they don’t need to go all in the transition. This year’s still strong prices may strengthen that conviction. And, of course, there’s TotalEnergies signing a multibillion-dollar deal with Iraq for the development of new oil fields.

Big Oil is not giving up on oil and gas. Yet it is being a lot more cautious about production growth and likely to remain cautious amid all the activist investor, government, and activist pressure. This means supply from the supermajors may well tighten in the next few years, especially after their exit from Russia and an overall shortage of new discovery opportunities.

Bloomberg’s Crowley noted that the decline in production was, indeed, partially a result of this exit and asset sales. The problem is that, as he put it, “companies cannot discover another Guyana every year.” The bigger problem, however, is that they seem reluctant even to try to discover another Guyana. Because of all that talk about peak oil demand and the triumph of the transition.

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