Big Oil Is Seeing Big Earnings Again

MARY LOUISE KELLY, HOST:

Well, also on a run, Big Oil is making big money again. Companies like Exxon and Shell have just reported their first profits for 2021, and it's like the pandemic is already a distant memory. They are rolling in cash. NPR's Camila Domonoske is here to talk about what's going on. Hey, Camila.

CAMILA DOMONOSKE, BYLINE: Hi, Mary Louise.

KELLY: OK. So when we say they're rolling in cash, how do these earnings compare to what they were bringing in last year?

DOMONOSKE: Well, last year was a catastrophic year for the oil and gas industry. To just look at one company as an example, you can take Exxon Mobil. In 2020, they had their first annual loss in decades. They lost $22 billion. That doesn't happen to one of the world's biggest oil companies. And then this quarter, Exxon just reported almost $3 billion in profit. It's a similar story for other giant oil companies. Last year was absolutely brutal, and you might have expected that the recovery from that would take some time. But instead, this year just started off with a bang.

KELLY: And why? What's changed?

DOMONOSKE: Well, some of it is the same forces that we heard David talking about - the widespread economic recovery. Prices - oil prices have recovered. They're worth than double what they were at their lowest points last year. They also saw in the oil and gas industry this specific phenomenon. They cut costs because of the pandemic in order to survive. You had companies that dropped projects that weren't performing very well. A ton of people were laid off at oil and gas companies. This means that now the companies are lean. They have low costs. They're positioned to bring in high profits. And I should also note OPEC pulled a lot of supply off of oil markets to prop prices up, which was very effective and has also been a big boost to these companies.

KELLY: OK, but I'm trying to square this with all these existential questions we keep considering about the future of oil - climate change. The Biden administration is talking about transitioning away from oil, away from gas. How do we square that with these big profits?

DOMONOSKE: Yeah. It's a huge question, and it's an interesting one for investors because it's not just the Biden administration. You have major investors in oil and gas who are thinking about what happens to how we get energy in the future. And in Europe, you have oil companies that are promising to cut their reliance on oil and gas, their core products, and transition to green energy. So it's fair to wonder, is that going to be harder to do? Is it more difficult to walk away from oil when it's super-profitable like it is? I spoke to Tore Guldbrandsoy. He's with Rystad Energy in Norway. And he said there is a way that this could actually speed up that transition.

TORE GULDBRANDSOY: So, of course, now a key question will be, what are they going to use and spend all this money on that they're making?

DOMONOSKE: What do you think?

GULDBRANDSOY: Well, I think it's going to be a mixture.

DOMONOSKE: So he says some companies will spend this money on paying down debt, paying dividends to their shareholders, sticking with the current business model that made them this money. But other companies could use this cash infusion to bankroll their pivot to renewables, like Shell and BP have promised. So does it make the transition slower or faster? It'll probably actually be both depending on what company you look at.

KELLY: And how about you? What are you watching for next?

DOMONOSKE: Well, there's a lot of key things to keep an eye on in the months ahead. We've got, one, the question of whether producers are going to boost their output of oil and gas. They've actually been pretty restrained, which is not a word that's always associated particularly with the U.S. oil and gas industry. They've been making less than they could. Will they keep doing that, watching what shareholders think of these plans when there are big meetings next month? And, of course, keeping an eye on policy, we mentioned the Biden administration. Will they make moves that will affect what companies decide to do here?

KELLY: Thanks, Camila.

DOMONOSKE: Thank you.

KELLY: NPR's Camila Domonoske.

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