High energy prices could almost double oil producers’ free cash from operations this year to $1.4 trillion, money that can be used to finance a shift to renewable fuels, pay down debt or reward investors, according to a study.

The price trend should continue and the global energy business should generate another $1.5 trillion in surplus cash by 2030, consultants Deloitte said. That cash could potentially kick-start the low-carbon economy, raising the industry’s share of green capex from its current 5% to as much as 30%.

Or it could be used to completely erase the debt of an industry that has been constrained by losses during the COVID-19 pandemic.

“Some will invest more, others will invest less depending on who they intend to be in the future and what they want their portfolio to look like,” said Noemie Tilghman, Deloitte’s head of U.S. oil, gas and chemicals consulting.

Hart Energy August 2022 - Oil Producers to See Record Surplus Cash from High Prices - Reuters Record Free Cash Flow Graph
Note: Brent assumption at $106/barrel. Includes all upstream companies producing more than 5,000 bbl/d
(Source: Deloitte analysis based on data accessed from Rystad Energy Ucube, and US Energy Information Administration)

The next couple of years are key for strategy decisions as producers should generate most of that added surplus cash—or $1 trillion—by 2024, Deloitte says. That is an unprecedented amount of money generated after investments, debt payments and shareholder distributions.

“Who you want to be, and where you want to make investment decisions have to come relatively quickly,” Tilghman said.

The U.S. shale industry can potentially become debt-free by early 2024 if prices stay strong and discipline prevails, Deloitte says. This would overcome the decade-long loss of $300 billion racked up by overspending on new production that left many burdened with debt.

Hart Energy August 2022 - Oil Producers to See Record Surplus Cash from High Prices - Reuters Big Oil cash machines Graph
Note: in millions of $ (BP reports on Aug. 2, figure is analysts’ estimates)
(Source: Company results, Refinitiv analyst estimates for 2Q 2022)

Disruptions of the past two years in the oil and gas industry—including shifts in consumer behavior and supply chain challenges—combined with years of underinvestment and financial discipline, have helped drive oil prices, to past highs and cash flows to record levels, Deloitte said.

"We are also seeing a shift of who is creating and getting free cash flows," Tilghman said.

Hart Energy August 2022 - Oil Producers to See Record Surplus Cash from High Prices - Reuters Exxon Mobil Results Graph
In millions of $
(Source: Exxon Mobil, REFINITIV)

The regional share is shifting toward North American producers, with Middle East and Africa falling to a 30% stake of cash flows in 2021-2022, from more than 50% in 2010-2020, Deloitte said.

The top five Western oil and gas companies posted combined record profits of nearly $60 billion in the second quarter, with the U.S. largest oil producer Exxon Mobil Corp. leading the way.