(Bloomberg) - Big Oil has strong allies in the White House, but the first quarter of Donald Trump's presidency is a real test of the company's plans. The rest of the time may be more difficult.
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The U.S. leader’s desire for lower crude oil prices and his disruption to the global economy are underscoring the financial situation of the industry, questioning shareholder returns and drilling plans.
Among the five global oil majors that report revenue this week, BP PLC ranked first, with the highest volatility recently. Even before Trump's trade war, the company's debt rose, which told investors that quarterly stock buybacks would drop by as much as $1 billion.
The struggling British company is not entirely outlier. Chevron Corp.'s investor spending is under pressure, and analysts expect oil professional data to reduce its buyback by 6% after a barrel of crude fell to $60. As long as Trump is in the mobile market, all majors including ExxonMobil, Shell and Totalenergies SE may reduce spending on new projects.
"Currently, for the trade war, this could make any investment decisions more difficult," said Jason Gabelman, managing director of energy equity research at TD Cowen. "If you see the decisions for some of these projects have been postponed, it won't be shocking."
Last week in Oklahoma City, Big Oil’s uneasiness was explicitly exhibited in Oklahoma City, when Oklahoma CEO Vicki Hollub told the room that full energy, technology and administration officials despite enthusiasm for oil and gas, the Trump administration lacks overall energy plans.
Hollub believes that the president and his team will work together to develop plans. Meanwhile, the company is already changing its investment plan for 2025 to strengthen its balance sheet. To maintain its share buybacks while cash flows are falling, Italy's ENI SPA says it has taken action to reduce spending. Norway's third largest oil and gas company, Var Energi ASA, said it could slow down some projects.
Analysts want other companies to prioritize their share buybacks and dividends over capital expenditures.
Generous spending is crucial to the attractiveness of big oil to investors. Commodity rally following the common 19-19 pandemic and Russian invasion of Ukraine led to record profits and bumper returns, an opportunity to lure shareholders who fled the industry. Between 2022 and 2024, four of the five major oil stocks reached record highs.
At the end of 2024, the major faces a reality check when crude oil falls and shakes fuels and chemicals. Things worsened this year, when initial optimism about Trump’s “drilling baby, drilling” agenda, dropped prices to four-year lows as his trade war (his trade war) – coupled with unexpected supply rate hikes from oil exporters and their allies.
Five super magazines compiled by Bloomberg - ExxonMobil, Chevron, Shell, Full Energy and BP - are expected to report first-quarter profit of $22.5 billion, 11% higher than the previous three months, but is about half of the 2022 level due to slightly higher oil prices.
After guiding oil production is higher than planned and crude oil trading guidance, Shell has a strong quarter compared to its peers. Chevron’s buybacks and dividends are expected to exceed $4 billion in free cash flow, suggesting it will need to increase debt, reduce spending or reduce cash reserves to fund its spending.
A key industry leader – the US shale producer – has indicated the direction of travel for the Grand Slam. Operators in the oil-rich Permian Basin are known for responding to market dynamics quickly, with Chevron and ExxonMobil holding significant positions, which are cutting spending to make up for a decline in cash flows.
Shale operator Matador Resources said it will abandon one of its rigs to cut $100 million from planned annual capital expenditures due to falling crude oil prices. Permian player Diamondback Energy Inc. is actively reviewing its operational plans for the year. According to energy data provider Enverus, BP's Denver-based shale unit operated nine drilling rigs in the U.S. onshore basin from January to March.
Lower crude oil is not the only challenge. Fernando Valle, managing director of Hedgeye Risk Management, LLC, said intercontinental supply chains across the global oil giants could be vulnerable to Trump’s tariffs in unexpected ways. The impact on each company will depend on its balance sheet, asset inventory and the strength of most business operations, he said.
For example, BP's U.S. onshore oil and gas business comes from steel and aluminum within the country, so it will not see any impact from tariffs.
“Our team in Washington is very busy with all the changes that have happened,” Auchincloss said. “The impact on the business so far is not important.”
Ultimately, decisions will depend on the length and severity of the oil downturn and Trump’s tariffs, with operations changing much longer than a quarter.
"Big oil doesn't usually open a dime," said Kim Fustier, head of European oil and gas research at HSBC.
(Updated with comments from the Western CEO in paragraph 7. A previous version of the story corrected the timing of revenue in paragraph 3.)
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