In 2023, as climate records were broken, extreme weather events caused destruction and displacement, and international conflict raged on, fossil fuel companies raked in sky-high profits with record payouts for shareholders.
This year, while we’re witnessing further expansion and the fossil fuel industry continues to boom, a number of companies have seen a decline in year-on-year profits, and in some places, sales are down, as evidenced by their Q1 financial reports.
ESG Mena takes a deeper look at fossil fuel’s financial landscape, the impact of the energy transition, and the industry’s action – or, more accurately, inaction – on climate change.
The Financial Landscape
While 2022 saw all-time-high fossil fuel profits, driven by the COVID-19 pandemic and Russia’s invasion of Ukraine, profits have fallen back in the last two years. Indeed, although the “super-majors” have raked in $281bn (£223bn) since February 2022, Q1 of 2024 saw losses across the industry—some were in line with market expectations, others weren’t.
In the first quarter of this year, Saudi Aramco reported that its net income was down 14.4 per cent, at $27.27 billion. Meanwhile, BP, one of the big five, saw a bigger fall in Q1 earnings, down 45 per cent from 2023, despite an increase in oil and gas production.
Likewise, Shell’s earnings were $7.7 billion, down from $9.6 billion in 2023, while Exxon Mobil’s profits also declined in Q1.
These Q1 losses have been attributed to everything from weaker sales volumes to a drop in oil and gas prices.
Despite this drop-off, profits remain eye-wateringly high, and firms continue to prioritise shareholder value.
In fact, for Saudi Arabia’s state-owned oil giant Aramco, $31 billion in dividends is heading straight to the Saudi government and its shareholders. BP’s shareholder returns also remain high. Since 2022, the oil major has paid $27.4 billion to shareholders, with $1.75 billion in share buybacks in Q1.
Last year, Exxon and Chevron both paid record sums to shareholders. This year, in Q1, shareholder distributions of $6.8 billion included $3.8 billion of dividends and $3.0 billion of share repurchase. In comparison, Chevron awarded $6 billion to shareholders.
This plays out in the shadow of 2023, when, according to Reclam Finance, 12 of the largest publicly listed integrated oil and gas companies in Europe and the United States, and national oil and gas companies (NOC), all favoured distributions to shareholders over investments in sustainable energy.
Energy Transition Incoming
However, with global momentum increasing around the energy transition and the likes of IEA head Fatih Birol calling it “unstoppable,” we have seen a shift in narrative among some oil majors.
For example, despite Aramco CEO Amin Nasser recently declaring that the energy transition is failing and calling the phaseout a “fantasy”, the oil company’s output cuts, which contributed to its steep decline in profits, have been put down to its transition to an “energy company,” according to the Kingdom’s Energy Minister.
This claim of diversification comes against a backdrop of IEA predictions that demand for oil, gas, and coal will all peak by the end of this decade; meanwhile, Carbon Tracker forecasts that, even under a moderate-paced energy transition, the majority of petrostates would see over 50 per cent of expected oil and gas revenue lost.
Indeed, renewable energy grew at a record pace last year, and clean energy costs are falling. In 2023, the IEA found that 96 per cent of newly installed, utility-scale solar PV and onshore wind capacity had lower generation costs than new coal and natural gas plants.
In addition to that, three-quarters of new wind and solar PV plants provided cheaper power than existing fossil fuel facilities. This is only set to improve in the coming years.
The burgeoning EV market is also set to drive a shift in the landscape, with some forecasts seeing global oil consumption in the transport sector potentially dropping by up to 50 per cent by 2050.
Yet, recent IEA reports show both promise and serious challenges in the space. While global spending on clean energy technologies and infrastructure is set to hit $2 trillion in 2024, twice as much as the investment funnelled into fossil fuels, it’s unevenly distributed. Likewise, the IEA found that the world is falling short of the COP28 goal to triple renewable energy by 2030 and called for the pace of deployment to accelerate.
Pressure Mounting for Industry Change
Indeed, the pressure is mounting for fossil fuel companies to change, including internally, with a wave of shareholder activism.
At Shell’s annual general meeting last month, activist shareholder Follow This led a shareholder resolution backed by 27 of its investors, who hold around $4 trillion under management.
The group called for the fossil fuel heavyweight, which weakened its 2030 carbon reduction target in March, to align its medium-term carbon emissions reduction targets with the Paris Climate Agreement, including its Scope 3 emissions.
That said, the resolution received 18.6 per cent support from shareholders in preliminary results – down from 20 per cent in 2023.
However, other attempts have been more successful, including the significant blow made to ExxonMobil by Engine No. 1 in 2021, that resulted in a board shake-up.
A similar uprising has been taken up against ExxonMobil more recently regarding its lawsuit against a climate resolution by Arjuna Capital and Follow This.
In fact, CalPERS, the US’ biggest public pension fund, opposed the entire ExxonMobil board of directors at the annual meeting at the end of last month due to this. It is worth noting that CalPERS cited the main driver as the failure of the company’s leaders to “stand up for shareholders.” New York State Common Retirement Fund, on the other hand, said it would vote against ten board members over climate inaction, and others followed.
Ultimately, the full board was reinstated by a large margin.
And while shareholder activism is attempting to dent Big Oil and Gas’s seemingly impenetrable armour, alongside lawsuits, fossil fuel companies are also fine-tuning their fight back.
Indeed, recent research shows that in their proxy statements, fossil fuel companies’ communication strategies include everything from advocating for hydrocarbons’ role in “encouraging development and alleviating poverty” to downplaying their responsibility in the energy transition and claiming to prioritise technological advancements.
Fossil Fuel Companies’ “Green Plans”
Of course, fossil fuel companies have, in recent years, beefed up claims that they’re aiding the energy transition and have invested the big bucks in climate-friendly marketing.
And it’s true that fossil fuel companies have upped funding in climate tech and renewable energy investment. In 2022, this was largely led by Equinor, TotalEnergies, Shell and BP, accounting for 60 per cent of clean energy investment. However, at the same time, their investment in renewables remains negligible.
According to the IEA, despite recent years bringing record profits, in 2022, oil and gas companies spent just 2.5 per cent of their investment on clean energy, accounting for 1 per cent of the global clean-energy spend. The most recent IEA report found that clean energy investment reached just 4 per cent of the industry’s overall capital spending.
Indeed, in a recent speech on World Environment Day, António Guterres, Secretary-General of the United Nations, spotlighted this “measly” capital spending on clean energy and called for executives to use their “massive profits” to lead the energy transition.
This lack of clean energy spending also sits alongside a rollback on climate pledges, oil and gas expansion, and the incentivisation of production.
According to Global Witness, for example, while ADNOC has allocated $15 billion for decarbonisation projects by 2030, it also plans to spend $100 billion between now and 2030 on oil and gas production. Further, the international NGO found that in 2026 and 2027, its fossil fuel spending will outstrip low-carbon investments.
Similarly, a new report from research and advocacy group Oil Change International found that oil and gas companies Chevron, ExxonMobil, Shell, TotalEnergies, BP, Eni, Equinor, and ConocoPhillips fail against the ten criteria representing the bare minimum for aligning with the Paris Agreement to limit global heating below 1.5°C.
Further, six of the eight have explicit expansion plans, with their current extraction plans being “consistent with more than 2.4°C of global temperature rise.”
This is no surprise considering the findings of a recent analysis of twelve of the largest publicly listed integrated oil and gas companies in Europe, the United States, and NOCs.
The report found that all of these entities forecast a 2030 energy mix comprising between 78 per cent and more than 99 per cent fossil fuels.
Delayed Action and False Solutions
Indeed, instead of ramping up renewable energy solutions, Oil Change International found that all of the companies it analysed plan to rely on CCS, carbon capture offsets, and/or other methods – despite some of these companies previously believing CCS would have a “limited role” in fighting climate change.
Specifically, Eni plans to have the largest reliance on CCS and offsets by 2030, while TotalEnergies is planning for the largest reliance by 2050.
This emphasis on CCS is also being seen in the Gulf, led by national oil companies (NOC). For example, in the UAE, ADNOC plans to grow its carbon capture capacity to 10 MtCO2/p.a. by 2030, while in Saudi Arabia, the aim is to reach a carbon capture capacity of 44 MtCO2/p.a. by 2035. In Qatar, its NOC targets the capture and sequestration of 7 to 9 MtCO2/p.a. by 2030.
However, according to the World Resources Institute, CCS currently captures a mere 0.1 per cent of global greenhouse gas emissions. Further, if all current future projects in development were complete, it would capture around just 0.7 per cent.
Meanwhile, oil demand is measured at around 100 million barrels per day, while on the gas front, some forecasts from the the Rhodium Group see gas demand remaining either at today’s levels or rising as much as 126 per cent by 2100 without “sufficient policy drivers” and alternatives.
And while fossil fuel companies do less than the bare minimum, around three thousand investment treaties enable them to sue governments over climate policies.
As the climate crisis rages on, history shows that fossil fuel companies won’t change of their own accord.
Indeed, recently published evidence from the Democrats on the House Oversight Committee in the US found that fossil fuel companies internally “do not dispute” that they have understood since at least the 1960s that burning fossil fuels causes climate change” and have worked for decades to “undermine public understanding” of this and to “deny the underlying science.”
Considering this continuous and deliberate inaction, a tax levied on the extraction of fossil fuels in the world’s richest economies has been proposed.
According to the recent Climate Damages Tax report, backed by over 100 climate organisations, this could raise $720 billion by the end of the decade while increasing the cost of production to incentivise a shift to renewables.
Of course, finding the political will to action this, amid the current geopolitical landscape and pervasive climate scepticism in some regions is challenging, to say the least.
However, considering the vast majority of recently polled IPCC scientists foresee the world heading towards at least 2.5 degrees of warming, if not 3 degrees – further delay will result in what the world’s top climate scientists call a “semi-dystopian future” being fully realised.
By Madaline Dunn, Lead Journalist, ESG Mena