How a Potential Recession Could Impact Energy Stocks

Global Energy Demand Trends

Global energy demand is projected to rise by 15% by 2050, with oil demand remaining steady and significant growth in renewables and natural gas. Short-term oil demand is expected to increase by 1-2%. Policies supporting net-zero emissions could alter energy consumption patterns and the energy mix.

"Later this month, we'll publish our global outlook, which projects global energy demand 15% higher in 2050 than it is today. We see oil demand holding steady at around 100 million barrels per day in 2050, while demand for renewables and natural gas grows considerably." --- (XOM, earning call, 2024/Q2)

"Globally product demand is decent. Overall demand for oil is going to be up 1% to 2%." --- (CVX, earning call, 2024/Q2)

"We saw record demand in 2023 and expect another record this year. At the same time, we're constantly monitoring trends and signpost in the global markets and we're prepared to adjust and evolve just as we have for the past 140 years. As I said earlier, our core capabilities are critical to meeting society's needs at any point in energy transition, no matter how fast it proceeds or what form it takes." --- (XOM, event transcript, 2024/05/29)

"These policies and programs, some of which support the global net zero emissions ambitions of the Paris Agreement, can change the amount of energy consumed, the rate of energy-demand growth, the energy mix, and the relative economics of one fuel versus another." --- (CVX, sec filing, 2024/Q1)

"Energy demand models are forward-looking by nature and aim to replicate system dynamics of the global energy system, requiring simplifications." --- (XOM, sec filing, 2024/Q1)

Oil Price Volatility

Oil price volatility has been influenced by geopolitical events and OPEC+ production cuts, with WTI crude prices rising from $73.78 to $80.57 per barrel year-over-year. Companies like ExxonMobil and Occidental Petroleum are adapting by focusing on cash flow resilience and diversifying revenue streams to mitigate these fluctuations.

"WTI at Cushing crude oil prices averaged $80.57 per barrel in the second quarter of 2024, an increase of 9 percent compared with $73.78 per barrel in the second quarter of 2023." --- (COP, sec filing, 2024/Q2)

"Our overall market conditions were softer in the second quarter. Oil prices remained firm. As a reminder, at Brent between $60 and $80 a barrel real and 10-year average refinery and chemical margins, we expect to generate between $80 billion and $140 billion in cumulative surplus cash from 2024 to 2027." --- (XOM, earning call, 2024/Q2)

"In our low carbon ventures businesses, we expect to generate cash flow detached from oil and gas price volatility and further strengthen Oxy's cash flow resiliency." --- (OXY, earning call, 2024/Q1)

"Crude prices increased slightly during the second quarter despite volatility driven by geopolitical events and extension of voluntary OPEC+ production cuts." --- (CVX, sec filing, 2024/Q2)

"WTI at Cushing crude oil prices averaged $76.96 per barrel in the first quarter of 2024, an increase of 1 percent compared with $76.13 per barrel in the first quarter of 2023." --- (COP, sec filing, 2024/Q1)

Capital Expenditure Adjustments

Energy companies are maintaining or slightly increasing capital expenditures, focusing on efficiency and technological advancements, despite potential economic downturns. Halliburton aims to keep capital expenditures at 6% of revenue, while Chevron and ExxonMobil report increased spending. Schlumberger's investments remain steady, indicating resilience and strategic allocation adjustments.

"- Capital efficiency : Maintain our capital expenditures at approximately 6% of revenue while focusing on technological advancements and process changes that reduce our manufacturing and maintenance costs and improve how we move equipment and respond to market opportunities." --- (HAL, sec filing, 2024/Q2)

"Capital expenditures totaled $8.1 billion in the first six months of 2024, up $1.3 billion from the year-ago period largely due to higher investments in upstream, including post-acquisition spend on legacy PDC assets." --- (CVX, sec filing, 2024/Q2)

"Capital and exploration expenditures were $12.9 billion, up $0.3 billion from the first six months of 2023." --- (XOM, sec filing, 2024/Q2)

"• Capital investments (consisting of capital expenditures, APS investments and exploration data capitalized) were $1.2 billion during the first six months of 2024 compared to $1.2 billion during the first six months of 2023." --- (SLB, sec filing, 2024/Q2)

"In any event, no payment of any additional tax is currently required, nor do we anticipate that the proposed adjustment would materially and adversely impact our ability to meet our expected uses of cash, including future capital expenditures, working capital investments, and scheduled debt repayments, or our ability to return cash to shareholders, even if a final determination of the matter is reached that is adverse to us." --- (HAL, sec filing, 2024/Q1)

Regulatory and Policy Changes

Energy companies like Chevron and ExxonMobil are adapting to regulatory and policy changes by maintaining portfolio flexibility and responding to government mandates. The potential overturning of the Chevron doctrine and evolving government policies are also significant factors influencing the sector's infrastructure and market development.

"The company will continue to maintain flexibility in its portfolio to be responsive to changes in policy, technology, and customer and consumer preferences." --- (CVX, sec filing, 2024/Q1)

"Government Mandates are changes to ExxonMobil's sustainable production levels as a result of production limits or sanctions imposed by governments." --- (XOM, sec filing, 2024/Q2)

"compliance. And in the interim, we've got a presidential election. The overturning of the Chevron doctrine, which gave deference to regulatory agencies when the law is not clear is also a positive." --- (KMI, earning call, 2024/Q2)

"I've read all the documents, but just to get your sort of view. We've got a shareholder vote in May that we go in limbo pending regulatory issues, but obviously, importantly, the arbitration." --- (CVX, earning call, 2024/Q1)

"Government policy is forming, while at the same time, you are trying to build the infrastructure to support that market, the logistics, the supply and then at the same time, develop a customer base." --- (XOM, earning call, 2024/Q2)

Operational Strategies During Recession

Energy companies are focusing on operational optimization, disciplined growth, and leveraging scale and logistics advantages to navigate potential recessions. Strategies include improving efficiency, reducing costs, and ensuring consistent supply chains to maintain value and shareholder returns.

"I think while we build these projects and bring them on, in record time under budget, the value that the organization then drives from them through the operational optimization and look into the bottleneck brings a significant additional value." --- (XOM, earning call, 2024/Q1)

"In closing, our team's simple strategy of pursuing excellence in operation return-driven discipline on growth projects and a demonstrated commitment to shareholder returns has underpinned our success and positions us well for the future. So with that, Homer, I'll hand the call back to you." --- (VLO, earning call, 2024/Q2)

"And so we're well positioned on the West Coast to deliver those renewable fuels all the way out to the retail end-user and we'll also be producing renewable jets that we can feed into sustainable aviation fuel. So, the commercial team works globally to secure consistent supplies of a wide range of feedstocks to ensure that we can optimize on the most economic feedslate possible and we've got the pull through to our retail stations that we've built-out in our last-mile strategy around this asset. So we believe that we're well-positioned with a very large-scale facility, has scale advantages, logistics advantages, and market access advantages, and we're going to exploit all those going forward." --- (PSX, earning call, 2024/Q2)

"Development activity continues to get more efficient. We’re one of the first operators to deploy triple-frac, delivering cost reductions of more than 10% and shortening completion times by 25% where applied." --- (CVX, earning call, 2024/Q2)

"You have another really strong operational quarter, and then you've now also taken FID on Whiptail, which is new since the last call, and gives us now a line of sight in all the plan development through the end of this 2027 guidance period." --- (XOM, earning call, 2024/Q1)

Renewable Energy Investment Impact

Renewable energy investments are showing resilience, with companies like NextEra Energy and Chevron emphasizing long-term growth and strategic commitment. Benefits such as energy independence and lower power bills continue to attract investments, even during economic downturns, as highlighted by NextEra and ExxonMobil. Tesla's strategies to drive demand further support this trend.

"Contributions from new investments increased $0.12 per share year-over-year, primarily driven by continued growth in our renewables portfolio. Our existing clean energy portfolio increased $0.06 per share, primarily reflecting an increase in wind resources during the quarter." --- (NEE, earning call, 2024/Q2)

"So, we’re in this business for the long haul. We think drop in renewable fuels are going to be part of creating a lower carbon energy system in the future." --- (CVX, earning call, 2024/Q2)

"The renewable energy sector has rapidly gained traction and momentum in these countries as the global focus has shifted to Green Energy and Electric Vehicles (EV) rather than carbon consuming transportation. SAFE HARBOR ACT: Forward-looking statements are included within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended." --- (XOM, press release, 2024/05/02)

"We believe that our awareness activities, paired with attractive financing, will go a long way in expanding our reach and driving demand for our products. Our Energy business continues to make" --- (TSLA, earning call, 2024/Q1)

"Renewables are energy independence, it's electricity generated from the sun and the wind, it's not subject to fuel price volatility. Low cost renewables are also bringing power bills down which attract new investment from data centers, semiconductor chip manufacturers and other sectors that are looking to invest in the U.S., and low power bills can really dictate which states they select to make those investments in." --- (NEE, earning call, 2024/Q2)

Long-term Outlook for Energy Stocks

Energy companies like Chevron, Kinder Morgan, and ExxonMobil emphasize their long-term strategies, strong balance sheets, and stable cash flows, which are crucial for resilience during economic downturns. They highlight continuous improvement, strategic capital allocation, and flexibility in financial planning to ensure sustained performance and shareholder returns.

"I think the thing you can pull up from that and look this is a big long-term asset that’s got a lot of life ahead of us and we should be continually improving in it, so that over time we can deliver even stronger returns, stronger performance and we should be learning as we develop it as the basin matures and it’s exceeding expectations for this year." --- (CVX, earning call, 2024/Q2)

"This is consistent with how we have operated over the past several years. We believe this target range is appropriate over the long term given our significant scale and high-quality energy infrastructure assets which produce stable, fee-based cash flows backed by multi-year contracts." --- (KMI, press release, 2024/04/17)

"So we feel really good about where our balance sheet is at and our consistent capital allocation strategy and that that will drive long-term returns for shareholders." --- (XOM, earning call, 2024/Q1)

"During extended periods of low prices for crude oil and natural gas and narrow margins for refined products and commodity chemicals, the company has the flexibility to modify capital spending plans, discontinue or curtail the stock repurchase program, sell assets, and increase borrowings to continue paying the common stock dividend. The company remains committed to retaining high-quality debt ratings." --- (CVX, sec filing, 2024/Q2)

"We feel very good about the long-term earnings expectation and valuation multiple for the acquisition." --- (KMI, earning call, 2024/Q1)