Major domestic oil and natural gas companies have published their fourth quarter and full-year earnings results, and the reports show an industry committed to meeting global energy demand while reducing emissions during a tumultuous year.

The energy sector is a cyclical business, and companies’ record profits come on the heels of record losses incurred in 2019 and 2020, when the COVID-19 pandemic cratered economic activity and oil prices traded negative. During the pandemic, American oil and natural gas companies continued to invest in operations across the board, positioning these companies well to respond to a historic surge in fuel demand across the globe.

Throughout 2022, different business units contributed to companies’ record earnings to varying degrees. Earlier in the year, profits were driven mainly by the skyrocketing price of crude oil. As the consequences of Russia’s war in Ukraine and resultant sanctions on Russian natural gas settled in, demand for natural gas in Europe pushed revenues and profits upwards throughout the second half of the year. Refining margins were also a main driver of profits, as post-pandemic demand ticked up and the few operating refineries in the United States worked overtime to meet demand for gasoline, diesel, and other refined products.

Looking ahead to 2023 and beyond, the earnings reports show that American energy companies continue to invest in domestic oil and natural gas production and lower-emissions technologies while carefully controlling costs in an inflationary environment.

Permian Basin Drives Domestic Production:

Following White House instructions and strong demand signals, American oil and natural gas companies doubled down on domestic energy production to help ease the global energy crisis.

The Permian Basin region in Texas and New Mexico drove the bulk of new oil and natural gas production. Chevron’s U.S. production in 2022 was its “highest ever, led by double-digit growth in the Permian.” As reported by Chevron:

“Annual U.S. production increased to 1.2 million barrels of oil equivalent per day, led by 16 percent growth in Permian Basin unconventional production.”

ExxonMobil attributed much of its year-over-year production increases in the Permian to its use of “technology to improve resource recovery” and investments the company made during the pandemic:

“In the Permian, we grew our net production by ~90 Koebd in 2022 as we captured the benefits of the strong market by liquidating the large inventory of drilled, but uncompleted wells (DUCs) built during Covid.”

American energy companies see even greater growth on the horizon in the Permian. Exxon’s development plans for the basin, which include “improved capital efficiency, lower costs, higher resource recovery, and better environmental performance” are forecasted to drive the company’s production in the Permian to “about 1 million barrels a day by 2027.”

Oil and natural gas companies’ successful year in the Permian Basin extended beyond production increases and operational efficiencies. In 2022, Exxon reached a key milestone in its goal to reduce its Permian emissions:

“By the end of 2022, we eliminated routine flaring from all of our operated assets in the Permian. That’s a key step towards our goal of net zero in the Permian by 2030.” (emphasis added)

Refiners Wrap Up a Record Year and Look Towards Expansions:

Following several refinery closures during the pandemic years, operable U.S. refineries worked overtime in 2022 to match demand. Ohio-based Marathon Petroleum observed that throughout the year, the company operated its refining operations at 96 percent utilization – almost maximum throughput.

Similarly, in its 2022 full-year earnings report, Valero noted that this push did not come at the expense of safety or environmental standards. Valero’s Chairman and CEO said:

“Our refineries operated at a 97 percent capacity utilization rate in the fourth quarter, which is the highest utilization rate for our system since 2018 […] I am also proud to report that 2022 was Valero’s best year ever for combined employee and contractor safety, which is a testament to our long-standing commitment to safe, reliable and environmentally responsible operations.”

Domestic energy companies’ 2022 earnings releases also detailed plans to bring additional refinery capacity online in 2023 in order to bring more fuel to market efficiently. This past year, Chevron began a project to “increase light crude oil processing capacity by 15 percent” at the company’s Pasadena, Texas refinery.

Exxon also described its progress on another major Texas refinery project, scheduled to bring additional capacity online as early as the first quarter of 2023:

“We also progressed our Beaumont refinery expansion, reaching mechanical completion in 2022. This expansion will bring on 250Kbd of crude distillation capacity in the first quarter. It is the largest refinery addition in the U.S. in a decade.” (emphasis added)

Valero is also undertaking refinery optimization projects to reduce costs and improve throughput at its flagship refinery. The company’s Port Arthur Coker project is slated for completion in the second quarter of 2023, with significant upgrades to be completed in the first quarter.

Bottomline: Amid a global demand surge, supply chain challenges, short-sighted threats of windfall tax measures from leaders in Washington, American energy majors and refining companies closed out a volatile year with record earnings, strong balance sheets primed for investment in emerging technologies, and a steady outlook towards future investment in oil and natural gas. Over the last four years – from historic losses to historic profits – domestic companies have taken a long-term approach to new investment. The outcome of this strategy is a resilient American energy sector that can fill the vacuum left by Russian supply and help bring down household energy costs for families and businesses around the world.