# Oil giants drill deep as profits trump climate concerns Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-07-03 Category: Uncategorized Category URL: https://financedigest.com/category/uncategorized Meta Title: Offshore Oil Giants Drive Profits Amid Climate Debate Meta Description: Oil companies drill deeper for new deposits and profits amidst pressure to prioritise oil and gas over renewables, defying climate change activists. URL: https://financedigest.com/oil-giants-drill-deep-as-profits-trump-climate-concernshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-07-03t062250z3lynxmpej6204yrtroptp4oil-exploration-1736813808245-compressed.jpg) # Oil giants drill deep as profits trump climate concerns By Ron Bousso and Nerijus Adomaitis LONDON (Reuters) -Oil and gas companies have intensified the hunt for new deposits in a long-term bet on demand, as they reinvest some of the record profits from the fossil fuel price surge driven by the Ukraine war, according to data and industry executives. The exploration revival – on the part of European majors in particular – reflects a renewed commitment to oil and gas after Shell and BP slowed down plans to shift away from their legacy business and invest in renewables as part of the energy transition. It responds to pressure from a majority of investors to maximise their oil and [gas profits rather than invest in lower margin renewable energy](https://www.financedigest.com/naturgys-profit-rises-on-lng-gains-soothing-shareholders-by-pietro-lombardi-madrid-reuters-spanish-power-utility-naturgy-reported-on-monday-an-88-jump-in-profit-for-the-first-six-months-of.html "Naturgy’s profit rises on LNG gains, soothing shareholders By Pietro Lombardi MADRID (Reuters) – Spanish power utility Naturgy reported on Monday an 88% jump in profit for the first six months of the year, boosted by strong earnings at its liquefied natural gas (LNG) business, which could help it to win over restive investors. Earlier this month, the company said it would increase its dividend floor through 2025 while trimming expected investment, as it sought to make rewarding shareholders a priority. Pleasing them has become a focus as Naturgy considers changes that could reshape the company and after arguments over the potential appointment of a chief executive. Naturgy’s first-half net profit jumped to 1.05 billion euros (.16 billion), boosted by its liquefied natural gas (LNG) business. Shares were down 0.2% in mid-morning trading, bucking deeper declines, in particular for Spain’s blue-chip banks and utilities after a general election on Sunday produced no clear winner. Renta 4 Banco analyst Angel Perez Llamazares said Naturgy performed better than expected, adding “cash flows also beat our expectation,” and debt fell more than expected. After natural gas prices hit record levels last year, Naturgy said a fall in procurement costs this year and hedging gains had boosed profits. In the first half of the year, the company “exceeded the objectives of operating efficiency, cash generation, investment materialisation and debt reduction,” Executive Chairman and CEO Francisco Reynes said. After rival Iberdrola named a separate CEO last year, Naturgy is the only large energy company in Spain to combine the roles of executive chairman and CEO. Earlier this month, the company raised the dividend floor to 1.40 euros a share, from 1.20 euros. Operating profit (earnings before interest, tax, depreciation and amortisation) is expected to reach 5.1 billion euros, compared with a previous guidance of 4.8 billion euros. It said it was targeting net profit of 1.8 billion euros in 2025. Naturgy also relaunched its plan to split regulated infrastructure operations and liberalised energy businesses into two listed companies. The project had been suspended after the Ukraine war disrupted energy markets and analysts are still sceptical. “We believe it is unlikely that Naturgy will be able to implement its asset split in the short term and it is also unlikely that a big change in the shareholding of the company would occur,” said RBC analyst Fernando Garcia. ( = 0.8986 euros) (Reporting by Pietro Lombardi, editing by Inti Landauro and Barbara Lewis)") businesses. It also defies protests from a minority of activist investors who want oil companies to be more closely aligned with global efforts to mitigate [climate](https://www.financedigest.com/cycling-mens-world-championships-race-interrupted-by-climate-protesters.html "Cycling-Men’s world championships race interrupted by climate protesters") change. The renewed appetite for [oil and gas reserves and production is an especially big](https://www.financedigest.com/big-oil-doubles-profits-in-blockbuster-2022.html "Big Oil doubles profits in blockbuster 2022") turnaround for BP, which got rid of most staff from its exploration unit three years ago. Exploration is a long-term, high-risk business. Big-ticket offshore projects typically take five [years to develop from discovery and at least another 10 years to return](https://www.financedigest.com/diamond-miner-de-beers-returns-to-angola-after-ten-year-absence.html "Diamond miner De Beers returns to Angola after ten-year absence") the initial investment. But as a source of profit, it has proved more reliable for the energy majors than the very different business model of producing [renewable](https://www.financedigest.com/renewable-energy-monitoring-and-control-system-market-to-witness-an-outstanding-growth-by-2030.html "Renewable Energy Monitoring and Control System Market to Witness an Outstanding Growth by 2030") energy. Upstream [oil and gas](https://www.financedigest.com/switch-from-gas-boosts-oil-demand-but-economic-headwinds-loom-iea.html "Switch from gas boosts oil demand, but economic headwinds loom – IEA") have historically had returns of around 15%-to-20%, while most renewables projects have delivered up to 8%. An [oil and gas price](https://www.financedigest.com/oil-prices-wobble-on-worries-over-china-economy-us-rate-path.html "Oil prices wobble on worries over China economy, US rate path") rally driven by energy producer Russia’s invasion of Ukraine translated into record profits for the energy majors. That has increased confidence in the most costly, high-risk offshore exploration that can also deliver the highest rewards. Offshore is experiencing a renaissance,” oilfield services [company SLB Chief Executive Olivier Le Peuch said on June](https://www.financedigest.com/royal-mails-largest-union-to-resume-vote-on-deal-with-postal-company-on-june-22.html "Royal Mail’s largest union to resume vote on deal with postal company on June 22") 21. [Leading industry](https://www.financedigest.com/virtual-cards-will-help-lead-the-travel-industry-into-a-post-pandemic-boom.html "Virtual cards will help lead the travel industry into a post-pandemic boom") data providers and consultancies endorse the view. The number of offshore drilling vessels used to explore and produce oil and gas recovered in May to pre-pandemic levels, rising by 45% from October 2020 lows, an analysis of data from oil [services firm](https://www.financedigest.com/why-financial-services-firms-are-banking-on-behavioural-biometrics-to-beat-fraud.html "Why financial services firms are banking on behavioural biometrics to beat fraud") Baker Hughes showed. Wood Mackenzie analysts predict a continued increase in activity, [forecasting offshore exploration and drilling activity to grow by 20%](https://www.financedigest.com/uks-berkeley-forecasts-20-drop-in-house-sales-as-interest-rates-rises-weigh.html "UK’s Berkeley forecasts 20% drop in house sales as interest rates rises weigh") by 2025. Already, the rise in [drilling](https://www.financedigest.com/feasibility-of-interoperability-to-drive-the-disinfection-robots-market.html "Feasibility of interoperability to drive the Disinfection Robots Market") has helped to drive daily rates for leasing drilling rigs to the highest levels since a 2014 downturn when commodity markets crashed. Higher [oil prices](https://www.financedigest.com/exclusive-indias-bpcl-in-talks-with-rosneft-to-buy-oil-priced-on-dubai-benchmark-sources.html "Exclusive-India’s BPCL in talks with Rosneft to buy oil priced on Dubai benchmark -sources"), the focus on energy security and deep water’s emissions advantages have supported deep water development and, to some extent, boosted exploration,” Wood Mackenzie analyst Leslie Cook said. The [potential size of offshore](https://www.financedigest.com/factbox-potential-bidders-in-norways-first-offshore-wind-tender.html "Factbox-Potential bidders in Norway’s first offshore wind tender") deposits can ensure economies of scale, meaning less energy is used to extract each barrel, limiting emissions. The International Energy Agency [forecasts global](https://www.financedigest.com/bacillus-coagulans-market-research-report-2022-global-forecast-till-2028.html "Bacillus Coagulans Market Research Report 2022 – Global Forecast till 2028") upstream oil and gas investments are set to increase by around 11% to $528 billion in 2023, the highest level since 2015. Barclays expects the number of offshore [projects to get approval this year will reach](https://www.financedigest.com/automotive-hardware-market-is-projected-to-reach-a-market-value-in-excess-of-us-100-bn-by-2029-end.html "Automotive Hardware Market is projected to reach a market value in excess of US$ 100 Bn by 2029 end") a 10-year high. Wood Mackenzie meanwhile predicts the commitment of up to $185 billion to develop 27 billion barrels of [oil reserves, with international oil companies](https://www.financedigest.com/hackers-hit-italian-oil-company-enis-computer-networks.html "Hackers hit Italian oil company Eni’s computer networks") focused on the higher-cost, higher-return deepwater developments. It also anticipated the so-called Golden Triangle – U.S. Gulf of Mexico, South America and West Africa – as well as part of the Mediterranean will account for 75% of [global floating rig demand](https://www.financedigest.com/signal-transformer-market-one-the-most-booming-industry-in-upcoming-years-due-to-global-demand-in-industry-by-2027.html "Signal Transformer Market| One the Most Booming Industry in Upcoming Years Due to Global Demand in Industry by 2027") through 2027. ## FROM NAMIBIA TO FAR OFF EASTERN CANADA Activity extends beyond that core exploration territory. Nambia, which has yet to produce any oil and gas, has attracted strong interest after Shell and TotalEnergies made discoveries off the coast of the southern African country. Shell’s head of upstream Zoë Yujnovich said on June 14 that results from drilling tests so far were encouraging. Together with its partners QatarEnergy and Namibia’s national oil company, Shell plans to drill two further wells in Namibia by the [third quarter](https://www.financedigest.com/food-group-danone-raises-2022-outlook-as-third-quarter-sales-beat-expectations.html "Food group Danone raises 2022 outlook as third-quarter sales beat expectations") of this year, a document seen by Reuters shows. Shell has also applied for a licence to drill another 10 exploration and appraisal wells there, the document shows. TotalEnergies made an oil discovery in February 2022 in the Venus well in Nambia’s Petroleum Exploration Licence (PEL) 56, which analysts at Barclays estimate [holds 3 billion barrels of oil](https://www.financedigest.com/oil-holds-steady-near-four-month-high-on-opec-cuts.html "Oil holds steady near four-month high on OPEC+ cuts") equivalent (boe). Shell reported discoveries in the Graff, La Rona and Jonker wells in PEL 39, which together are [estimated to hold 1.7 billion](https://www.financedigest.com/western-europe-medical-recruitment-market-is-estimated-to-be-valued-at-us-21-22-billion-by-the-end-of-2028.html "Western Europe Medical Recruitment Market is estimated to be valued at US$ 21.22 Billion by the end of 2028") boe, according to Barclays. As it tries to reverse a decline in oil and [gas output](https://www.financedigest.com/exclusive-norway-eyes-high-gas-output-until-2030-says-energy-minister.html "Exclusive-Norway eyes high gas output until 2030, says energy minister") after it shifted to renewables, BP has turned to the Gulf of Mexico and far off the eastern coast of Canada, where it is ramping up oil exploration activity in frontier prospects. (Reporting by Ron Bousso; editing by Barbara Lewis) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---