The Truth About the Energy Boom
Amanda Heckman|February 4, 2023
The energy sector had a banner year in 2022, posting an annual gain of close to 60%.
And with each earnings report that comes in, we get an even clearer picture of just how big of a year it was.
The industry raked in some $190 billion in profits.
Exxon accounted for a monster share of those profits, earning $56 billion. That shattered its previous annual record of $45 billion, set in 2008.
Chevron pulled in $37 billion…
And Shell made $40 billion, the most the company has ever made in a year and twice what it made in 2021.
While the White House is wagging its finger at the sector, saying those profits came thanks to a refusal to open up supply that kept prices high…
There are several factors at play here… and as the industry deals with them, it will generate even bigger profits.
The oil and gas industry – like most industries – was hit hard by the pandemic. Consumption tanked. Many smaller oil and gas companies went bankrupt. Some small stripper wells – which account for a decent amount of our oil production – were permanently capped. Folks left the industry.
Now the industry is dealing with a worker shortage… and supply chain issues. Sand used in the fracking process is in short supply, for example.
But for those pointing to a lack of production… 2022 saw the second-highest level of oil production in U.S. history. The number of rigs drilling for oil and gas rose 60% last year.
But that won’t erase supply issues overnight.
As we’ve pointed out before, while we may have a treasure trove of oil and gas under our feet… it must be refined before it can be consumed.
A major issue in the oil and gas industry is a lack of refineries.
And that sends our finger pointing right back at the White House. As Andy wrote in November…
A war has been waged on crude and the economy-fueling products it is refined into. For years, ever-meandering regulations and rules have tightened the noose around the industry’s neck.
Refineries shut down because profit margins disappeared. Because of the reams of rules that must be followed, it was cheaper to shut down old facilities than it was to upgrade them.
And good luck building a new refinery…
Not only are firms unwilling to spend billions on units that may be regulated out of business in a decade… but the “not in my backyard” crowd has also made it nearly impossible to build refineries where they are needed most.
For years, Washington has been pushing hard for a transition to cleaner, greener energy. It’s thrown roadblock after roadblock the oil and gas sector’s way… stiffer regulations, fewer leases and permits, and less land for exploration, to name just a few.
The companies that are strong enough – and innovative enough – to overcome these obstacles will lead the way.
More on how to find them next week.
Amanda Heckman is the editorial director of Manward Press. With unrivaled meticulousness, she has spent the past dozen or so years – give or take a few sabbaticals – sharpening Andy’s already razorlike wit. A classically trained musician and a skilled writer in her own right, Amanda takes an artistic approach to the complex world of investing. Her skill has led her to work with numerous bestselling authors, award-winning financial gurus and – lucky for us – the fine folks at Manward Press.