The four European oil and gas majors, BP plc (A/Stable), Eni SpA (A-/Stable), Shell plc (AA-/Stable) and TotalEnergies SE (AA-/Stable) should achieve very strong financial results in 2022, Fitch Ratings says in a new report. This will be driven by elevated hydrocarbons prices and abnormally high refining margins.
Capital allocation, cost inflation, and potential demand destruction due to high prices and lower economic growth, will be the key areas of focus for the companies in 2H22.
We expect the excess cash flows to be allocated across shareholder remuneration, continued balance sheet-strengthening and selective M&A, primarily within non-upstream segments, including low carbon and LNG.
We forecast costs to remain elevated in 2022 but to start falling in 2023 as cost-effective projects are commissioned by the majors. However, we expect cost inflation to have a limited impact on oil and gas companies’ EBITDA and margins in the environment of high oil and gas prices.
Signs of demand destruction were in focus already in 1Q22. The IEA forecasts that European natural gas demand will shrink by 9% yoy in 2022. We anticipate European gas markets to remain tight with elevated prices, at least in 2H22 and 2023-2024. Uncertainties related to oil demand later in 2022 are increasing due to the weaker macroeconomic backdrop. The strong dollar further increases local fuel prices in markets outside the US.
Source: Fitch Ratings