Was 2022 Big Oil’s last hurrah?

After years on the defensive as a fading industry that could no longer deliver for shareholders, oil and gas companies are again flush with cash, and Big Oil CEOs are expected to report record annual profits in the coming days.

It's another quick turn of fortune for an industry used to boom and bust cycles. As the oil and gas sector suffered through the shale bust last decade and then the pandemic downturn — which from 2015 through 2021 resulted in the bankruptcy of more than 600 energy companies carrying more than $320 billion in debt, according to Dallas-based law firm Haynes and Boone — it started changing its tune away from the previous “growth at all costs” mentality.

Big Oil companies “started preaching discipline in 2015 and 2016,” University of Houston Energy Fellow Ed Hirs said. “And, you know, maybe by now, the survivors have got it.”

But while the surviving companies such as Exxon Mobil, ConocoPhillips, Shell and BP are expected to report their best earnings yet — Chevron reported Friday — when they release full year 2022 results, analysts don't expect the blockbuster profits to continue. Instead, after the rush of high oil prices, mostly driven by Russia's invasion of Ukraine, wear off, the industry still will face the challenge of staying relevant in a world transitioning to an energy mix with fewer fossil fuels.

“Unless we expect these kinds of geopolitical manipulations to continue — whether

it's a war or something else after it that makes for artificially high prices — I don't know that they have anything but a short-term gain here,” Tom Sanzillo, director of the Cleveland-based nonprofit Institute for Energy Economics and Financial Analysis, said in November after the industry's eye-popping thirdquarter results.

The oil industry started 2022 on a good note. Demand was surging as the world continued to recover from the COVID-19 pandemic, and oil prices were high as supply couldn't keep up with demand.

The Kremlin's invasion of Ukraine in February exacerbated the supply-and-demand imbalance as countries sanctioned Russian oil as punishment for the war, pushing prices above $120 per barrel at one point.

The global squeeze was quickly felt in the wallets of consumers paying more at the gasoline pump, leading President Joe Biden to call on the U.S. oil and gas industry to produce more fuel. But instead of quickly ramping up production in the face of high oil prices, which would eat

into profits, companies chose to stick to planned output increases and opted to return a good chunk of the profits to shareholders burned in past years by overspending.

Profits narrow, hiring lags

While oil and gas companies' profits may ease in 2023, analysts at consulting firm Wood Mackenzie said investors could be in store for a year of record share buybacks — especially since companies have already used 2022 earnings to pay down debt and shore up balance sheets.

“With less capital going into debt reduction,” Tom Ellacott, senior vice president of corporate oil and gas at Wood Mackenzie, said in the firm's outlook for 2023, “buybacks could surpass 2022's record of around $110 billion.”

But strong earnings are unlikely to translate into an increase in jobs, thanks partly to a focus on capital discipline and returning money to shareholders, said Hirs at the University of Houston. Furthermore, he said the health of the industry this year is partially dependent on Russia's war against Ukraine.

“If peace were to break out,” Hirs said, “that would certainly put a damper on oil and natural gas.”

Andy Lipow, president of Lipow Oil Associates, a Houston-based consulting firm, said that as oil and gas companies start reporting full-year 2022 earnings, he'll not only be watching for how they plan to spend their capital in 2023 but where the money is going.

“In other words, are they going to be spending their money on domestic drilling, say, in the Permian Basin?” Lipow said. “Or are they going to spend their money overseas somewhere? Or are they just going to maintain or reduce their capital spending and return it in the form of dividends and stock buybacks?”

Among the companies headquartered in the U.S., Chevron kicked off Big Oil's earnings season on Friday, to be followed by Exxon Mobil on Tuesday. ConocoPhillips reports on Thursday. Occidental Petroleum, a smaller player based in Houston, is to report on Feb. 28.

Irwin Thompson / Associated Press Las year’s period of expensive gas is expected to be reflected in huge earnings as Big Oil companies report their year-end financial performance in the coming days.