A War Windfall, Prudent Management

When crude prices climb, oil companies no longer automatically open the investment taps. The current cycle illustrates this behavioral shift. Prices are driven by a very tangible supply risk, yet the majors are not using it as a lever for wholesale expansion.

The Risk Premium, Engine of Margins

Brent traded at $110.11 a barrel, up $1.29 (+1.2%), and WTI at $98.12, following new Houthi attacks in Saudi Arabia. Washington ordered some of its diplomats and their families to leave its missions in the Kingdom. At least 18 attacks on ships have been recorded in two weeks, and analysts warn that tankers are being targeted well beyond the Strait of Hormuz, as far as the Gulf of Oman, threatening Gulf crude shipments.

On the physical side, U.S. crude inventories fell by 3.06 million barrels to 412.5 million, a draw well above the 820,000 barrels expected. These elements sustain the war premium that feeds margins in both upstream and refining. In the second quarter, the S&P 500 energy sector posted annual earnings growth of 128.2%, with triple-digit growth in refining.

Profits Expected to Be Very High

The third quarter should extend the trend. Exxon is expected to report $16.2 billion in profit, Shell $10 billion, Chevron $9.3 billion, TotalEnergies $8.4 billion and BP $5.6 billion, the lowest of the group. Year on year, forecasts range from +84% for Shell to +101% for Exxon, +111% for TotalEnergies, +155% for BP and +158% for Chevron, which would post the strongest gain.

The Mechanism: Discipline as the New Doctrine

The link between these profits and investment budgets is no longer what it was. Once, the majors spent in proportion to what they earned. The 2014 crash, then the 2020 pandemic, broke that logic. Add to that the pressure of decarbonization policies, which has fueled doubt among many investors about the sector's future. Dividends and share buybacks have become the benchmark of value, while high-cost exploration has remained suspect.

The announced trade-offs follow this doctrine. BP, whose net debt to operating cash flow ratio stood at 1.7 times at the end of last year, is targeting 0.8 times, a goal that this year's profits make achievable. Chevron has already cut that ratio from 1 to 0.4 times in the current quarter. Exxon is following the same deleveraging path. Shell, for its part, plans to absorb $3.5 billion in share buybacks in the final quarter of the year. The chain is coherent: risk premium, then cash flow, then debt reduction and shareholder returns, and only then the remainder for growth.

Caution Does Not Mean Standing Still

Replacing Depleting Barrels

The slowdown in the energy transition has reminded the world that it will not do without oil and gas anytime soon, and many producing fields are declining naturally. An exploration and production executive at Repsol summed it up at CERAWeek in March: replacing production was no longer mentioned five years ago, but now it must be addressed. Frontier exploration therefore remains on the agenda, in Africa, South America and even the Middle East despite the conflict. Eni CEO Claudio Descalzi notes, however, that the disruptions have shifted investment flows toward South America and Southeast Asia.

Gas, the Long-Term Safe Haven

Recent announcements fit this selective vein. ADNOC Gas signed a five-year LNG supply agreement with TotalEnergies. The French group also committed to deliver 900,000 tonnes of LNG per year to China's Jiangsu Guoxin for fifteen years and will acquire a stake in two offshore gas fields in Malaysia. Chevron and Iraqi authorities, for their part, agreed on the terms of the West Qurna-2 field contract. These are long-horizon commitments backed by contracts, rather than speculative bets on current price levels.

What European Gas Flows Say (and Do Not Say)

Physical indicators for European gas and power complete the picture without settling it. On October 30, the Norpipe entry at Emden showed 402,523,892 kWh/d and the Tarvisio point (Austria-Italy) 144,419,248 kWh/d on entry. The Dutch hub VIP TTF-THE-H recorded 482,913,625 kWh/d on entry and 180,760,435 kWh/d on exit. The next day, Emden showed only 77,580,880 kWh/d and VIP Oberkappel (Austria-Germany) 22,581,292 kWh/d on exit, versus 112,542,136 kWh/d the day before. Many border points (Waidhaus, Mallnow, Baumgarten TAG) remain at zero, and Zevenaar on entry returns no value.

On the power side, day-ahead prices for October 30 range from 77.51 EUR/MWh in Finland to 211.19 in Portugal, and approach 250 to 254 EUR/MWh in the Czech Republic, Denmark (DK-1) and Switzerland. These spreads reflect a tense and highly fragmented European market. But nothing in these series allows these levels to be attributed to the behavior of the majors, nor to the war as such.

The Limits of the Demonstration

Several caveats are in order. Third-quarter profits are market estimates, not published results. No capital expenditure figures are available: discipline is established by stated priorities and declarations, not by a capex series. Jurisdictions where the majors operate are considering windfall taxes, without their scale being quantified, and the diplomatic context remains fluid, with a possible resumption of talks on Ukraine and firm Iranian statements. Finally, the gap between October 30 and 31 at several gas points may reflect incomplete daily data as much as a real change in flows: consolidated series would be needed to conclude.

A Proportionate Conclusion

The available facts sketch a sector that is collecting a war windfall without squandering it. Expected profits are considerable, but the hierarchy of uses is clear: reduce debt, reward shareholders, then finance targeted exploration and long-term gas contracts. The break in behavior compared with pre-2014 cycles therefore appears real. It remains to be confirmed by the capital expenditure actually published in upcoming results.

This article was written with the assistance of artificial intelligence and verified by our editorial team.