Looking beyond headlines related to profitability and shareholder returns, the latest round of quarterly results tells us that the supermajors will continue a strategy of growing near-term oil and gas production whilst maintaining flexibility in their levels of low carbon spending, as they look to assess the speed of the energy transition.

Total oil and gas production from Chevron, ConocoPhillips, ExxonMobil, BP, Shell and TotalEnergies was broadly flat in 2023, based on Evaluate Energy data. The EU firms tended to lower production slightly on 2022 levels, while the U.S. operators slightly increased output.

None plan to cut production levels before 2025 and all plan to grow upstream by at least two per cent per annum until then. Most speak openly about a strategy based on continued high fossil fuel demand, while BP and Shell last year rolled back targets on production cuts.

All six firms have targets to reach net-zero for Scope 1 and 2 emissions by 2050. Only BP, Shell and TotalEnergies have 2050 Scope 3 emission reduction targets. And only BP has a 2030 Scope 3 emissions reduction target — aiming for a 20-30 per cent cut by 2030 against a 2019 baseline, a target which it downgraded from a 35-40 per cent cut last February.

In 2022, BP’s Scope 3 emissions fell by 15 per cent from the 2019 baseline. Further cuts — almost certainly in the form of asset sales — would still be required after 2025 if the firm was to meet its 2030 target.

CEO Murray Auchincloss stood behind BP’s direction from “integrated oil company” to “integrated energy company” on the firm’s full year results call, although he insisted that the firm had to remain “pragmatic’’ about the transition.

Some equity analysts believe BP could still choose to back out of its 2030 Scope 3 reduction target in the years ahead.

“We note an emphasis in BP’s presentation on 2025 targets rather than 2030, possibly leaving the company some wiggle room to ‘pragmatically’ adapt to future trends,” said HSBC’s oil and gas team in a research note. “The much-feared decline in oil and gas volumes by 2030 may not materialize if BP decides not to sell assets, but it is too early for such a move to be advertised.”

Strategy spectrum

Non-profit Carbon Tracker outlined a spectrum of responses that firms are taking as they approach the energy transition.

For now, the European firms — BP, Shell and TotalEnergies — are pursuing a ‘managed investment’ strategy, with limited new developments focusing on short cycle, cost effective oil and gas projects.

“Having a more managed approach to investment and the flexibility of a short cycle increases firms’ ability to respond to the energy transition,” said Mike Coffin, head of the oil, gas and mining research team at Carbon Tracker.

Meanwhile Chevron and ExxonMobil are pursuing a plan of business-as-usual replacement, with new development and exploration still moving ahead, even at higher break-even prices.

ConocoPhillips has a yet more aggressive strategy, aiming to be the lowest cost “last producer standing,” said Coffin.

Despite the plans of U.S. firms, IEA data shows that there has been a noticeable trend of reduced oil and gas capex globally on new projects since 2015.

Reinvestment alternatives

Those firms that are not reinvesting in new exploration projects face the dilemma of what to do with cash flow that historically would have been reinvested.

The first option is to return value to shareholders through increased dividends or via share buybacks. The second is to diversify into new, low carbon, energy projects.

In the latest round of results, all six supermajors announced continued share buyback programs. At the same time, all claim they are investing in low carbon technologies that will ensure their place in the energy system post-transition. But, as Evaluate Energy data demonstrates, figures for 2023 show that these investments are a fraction of dividend payments and share buybacks.

“Some firms are talking about investing into new technologies and business areas, whilst in reality increasing the value distributed to shareholders,” added Coffin.

Of the US$1.7 trillion spent globally on clean energy technologies in 2023, only one per cent was invested by oil and gas companies, IEA data shows.

Low-carbon options

Those low carbon investments that are being made by supermajors fall into four clear categories — renewable energy, sustainable fuels such as hydrogen and biofuels, petrochemicals, and CCS-as-a-service.

European companies have tended to focus on the first of these, renewable energy. But these units have arguably so far delivered returns below shareholders’ typical expectations. BP anticipates a return of six-eight per cent from its move into European offshore wind, while Shell sold its home energy retail businesses in the U.K., the Netherlands and Germany.

TotalEnergies will be hoping its efforts are successful. Last year it invested US$5 billion in building its Integrated Power division, largely through M&A, and says it hopes the division will be positive for net cash flow by 2028, with returns of 12 per cent or higher.

U.S. firms are more focused on hydrogen and CCUS. But these units are still nascent and represent only a fraction of profits. Neither Chevron, ConocoPhillips nor ExxonMobil report separately on the results of their low carbon divisions.

The business model for hydrogen supply is still unclear, and it will be years before the sector is fully commercialized. Meanwhile, CCUS is unlikely to be profitable without subsidy, even if offered as a service.

Supermajors are still hoping that these low-carbon sectors will develop in a way that allows them to deliver the returns that shareholders expect, whilst still decarbonizing. But this is far from guaranteed, according to Carbon Tracker.

“There is no single pathway for the industry to follow. Adopting a strategy of depletion and cash-out may be in investors’ interests,” said its Navigating Peak Demand report.