banked historic profit last year as the pandemic receded and the war in Ukraine pushed oil prices to multiyear highs, with its shares climbing 53% for the year while other sectors tumbled.
The U.S. oil company in its quarterly earnings reported Friday that it collected $35.5 billion in its highest-ever annual profit in 2022, more than double the prior year and about one-third higher than its previous record in 2011. Almost $50 billion in cash streamed in from its oil-leveraged operations, another record that is underpinning plans to pay investors through a new $75 billion share-repurchase program over the next several years.
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That payout, announced Wednesday, is roughly equivalent to the stock-market value of companies such as the big-box retailer
Target Corp.
, the pharmaceutical firm
Moderna Inc.
and
Airbnb Inc.
Chevron, the second-largest U.S. oil company after
Exxon Mobil Corp.
, posted revenue of $246.3 billion, up from $162.5 billion the previous year. The San Ramon, Calif., company reported a fourth-quarter profit of $6.4 billion, up from $5.1 billion in the same period the prior year.
The fourth-quarter results came short of analyst expectations, and Chevron shares closed down more than 4% Friday.
For all of its recent winnings, though, Chevron and its rival oil-and-gas producers could face a rockier year in 2023, according to investors and analysts, if an anticipated slowdown in U.S. economic growth dents demand for oil, and if China’s reopening from strict Covid-19 restrictions unfolds slowly.
U.S. oil prices have held steady this year, but are off about 36% from last year’s peak. The industry is proceeding with caution, holding capital expenditures for 2023 below prepandemic levels and saying production will grow only modestly. Chevron has said it plans to spend about $17 billion in capital expenditures this year, up more than 25% from the prior year, but $3 billion less than it planned to spend in 2020 before Covid-19 took root.
Oil companies are still outperforming other sectors such as tech and finance, which have seen widespread job cuts in recent weeks. The energy segment of the S&P 500 index has climbed 43.7% over the past year, compared with a 6.7% drop for the broader index.
Chevron Chief Executive Mike Wirth said the company is unsure of what 2023 will bring after global energy supplies were squeezed because of geopolitical events last year, particularly in Europe following Russia’s invasion of Ukraine. He said markets appeared to be stabilizing.
“We certainly have seen a very unusual and volatile year in 2022,” Mr. Wirth said, noting the European energy crisis has proven less dire than anticipated thanks to milder winter weather, growing natural gas inventories in Europe. “China’s economy has been slow throughout the year, which looks to be turning around. It’s good that markets have calmed.”
Chevron projects its output in the Permian Basin of West Texas and New Mexico to grow at a slower pace this year.
Photo:
David Goldman/Associated Press
Chevron hit a record in U.S. oil-and-gas production in 2022, increasing 4% to about 1.2 million barrels of oil equivalent a day, stemming from its increased focus on capital investments in the Western Hemisphere, particularly in the Permian Basin of West Texas and New Mexico, where it boosted output 16% last year. Worldwide, Chevron’s oil-and-gas production was down 3.2% compared with the prior year, at 2.99 million barrels of oil-equivalent a day.
Its overall return on capital employed came in at 20%, it said.
“There aren’t many sectors generating the type of free cash flow that energy is right now,” said
Jeff Wyll,
an analyst at investment firm Neuberger Berman, which has invested in Chevron. “The sector really can’t be ignored. Given the supply-demand balance, you have to have some things go wrong here to see a pullback in oil prices.”
Even so, institutional investors have shown limited interest so far in returning to the energy sector, after years of poor returns and heightened concerns about their environmental impact prompted large financiers to sell off their stakes in oil-and-gas companies or stop investing in drillers outright.
Pete Bowden,
global head of industrial, energy and infrastructure banking at
Jefferies Financial Group Inc.,
said energy companies in the S&P 500 index are throwing off 12% of the group’s free-cash flow, but only account for about 5% of the index’s weighting—an indication their stock prices are lagging behind.
Investors’ concerns around environmental, social and governance-related issues are a constraint on the share prices of energy companies, “yet the earnings power of these businesses is superior to the earnings power of companies in other sectors,” he said.
Chevron and others have faced criticism from the Biden administration and others that they are giving priority to shareholder returns over pumping oil and gas at a time when global supplies are tight and Americans are feeling pain at the pump. On Thursday, the White House assailed Chevron’s $75 billion buyout program, saying the payout was proof the company could boost production but was choosing to reward investors instead.
Pierre Breber,
Chevron’s finance chief, said the company expects oil prices to be volatile but within a range needed to sustain its dividend and investments. There are some optimistic signs, he added, including that the U.S. economy grew faster than expected in the fourth quarter, at 2.9%.
“Supply is tight. Oil-field services are near capacity, and we continue to have sanctions on Russian production,” Mr. Breber said. “You’re seeing international flights out of China are way up, and low unemployment in the U.S.”
Mr. Breber said Chevron’s output in the Permian this year is expected to grow at a slower pace, around 10%, because it has exhausted much of its inventory of wells that it had drilled but hadn’t brought into production.
Exxon, which has typically posted quarterly earnings on the same day as Chevron, will report Tuesday. Analysts expect it will also post record profit for 2022, according to FactSet.
Both companies expect to slow their output growth this year in the Permian, considered their growth engine. The two U.S. oil majors, which had been growing output faster in the U.S. than most independent shale producers, are beginning to step up their focus on shareholder returns and allow output growth to ease, said Neal Dingmann, an analyst at Truist Securities.
“This has all been driven by investor requirements,” Mr. Dingmann said.
Only in the past two years has the U.S. fully grasped that semiconductors are now as central to modern economies as oil.
In the digitizing world, power tools commonly come with Bluetooth chips that track their locations. Appliances have added chips to manage electricity use. In 2021, the average car contained about 1,200 chips worth $600, twice as many as in 2010.
The supply-chain crunch that created a chip shortage brought the lesson home. Auto makers lost $210 billion of sales last year because of missing chips, according to consulting firm AlixPartners. Competition with China has stoked concerns that it could dominate key chip sectors, for either civilian or military uses, or even block U.S. access to components.
Now the government and companies are spending billions on a frenetic effort to build up domestic manufacturing and safeguard the supply of chips. Since 2020, semiconductor companies have proposed more than 40 projects across the country worth nearly $200 billion that would create 40,000 jobs, according to the Semiconductor Industry Association.
It’s a big bet on an industry that is defining the contours of international economic competition and determining countries’ political, technological and military advantage.
“Where the oil reserves are located has defined geopolitics for the last five decades,”
Intel Corp.
INTC -0.59%
Chief Executive
Pat Gelsinger
declared at a Wall Street Journal conference in October. “Where the chip factories are for the next five decades is more important.”
President Biden at the groundbreaking ceremony for a new Intel semiconductor manufacturing facility in Ohio in September.
Photo:
James D. DeCamp/Zuma Press
As oil became a linchpin of industrial economies in the 1900s, the U.S. became one of the world’s largest producers. Securing the semiconductor supply is more complicated. While one barrel of oil is much like another, semiconductors come in a bewildering range of types, capabilities and costs and depend on a multilayered supply chain spanning thousands of inputs and numerous countries. Given the economies of scale, the U.S. can’t produce all of these itself.
“There’s zero leading-edge production in the U.S.,” said Mike Schmidt, who heads the Department of Commerce office overseeing the implementation of the Chips and Science Act, signed into law by President Biden in August, which directs $52 billion in subsidies to semiconductor manufacturing and research. “We are talking about making the U.S. a global leader in leading-edge production and creating self-sustaining dynamics going forward. There’s no doubt it’s a very ambitious set of objectives.”
The recent shortages that hurt the most didn’t necessarily involve the most expensive chips.
Jim Farley,
Ford Motor Co.
’s chief executive, told a gathering of chip executives in San Jose, Calif., in November that factory workers, meaning workers in North America, had worked a full week only three times since the beginning of that year because of chip shortages. A lack of simple chips, including 40-cent parts needed for windshield-wiper motors in F-150 pickup trucks, left it 40,000 vehicles short of production targets.
Until 2014, machines that treat sleep apnea made by San Diego-based
ResMed Inc.
each contained just one chip, to handle air pressure and humidity. Then ResMed started putting cellular chips into the devices that beamed nightly report cards on users’ sleep patterns to their smartphones and to their doctors.
As a result, regular usage by users climbed from just over half to about 87%. Because mortality is lower for sleep-apnea sufferers who consistently use their devices, a relatively simple chip could help save lives.
An employee assembled ResMed’s sleep apnea devices in Singapore on Dec. 27.Ore Huiying for The Wall Street Journal
ResMed redesigned its machines during the chip shortage.Ore Huiying for The Wall Street Journal
ResMed’s sleep apnea devices are assembled in Singapore.Ore Huiying for The Wall Street Journal
ResMed couldn’t get enough of the cellular chips during the chip shortage when demand for its machines went up, in part because a competitor’s devices were recalled. Some suppliers reneged on supply agreements. Patients faced monthslong waits.
Chief Executive
Mick Farrell
said he implored longstanding suppliers to give priority to his equipment, though his orders were relatively small. “I asked for more, more and more, and to please prioritize us,” he said. “This is a case of life and death—we’re not just asking for something that makes you feel better.”
The company redesigned its machines, which are assembled in Singapore and Sydney, to replace the chips in short supply with others more readily available. It sought out new chip suppliers. It even rolled back the clock and released a version of a device without the cellular chip.
Though the chip shortage has abated somewhat and the company’s newest breathing devices have the cellular chip back, Mr. Farrell worries chip supply could be a bottleneck.
In May, he was one of a group of medical-technology CEOs who pleaded with Commerce Secretary Gina Raimondo on a conference call for help. Ms. Raimondo’s staff asked other federal agencies to designate medical equipment as essential and helped connect buyers directly to manufacturers to bypass distributors.
Such pleas also lent urgency to the Biden administration’s efforts, led by Ms. Raimondo, to pass the Chips and Science Act. The U.S. has long been leery of industrial policy, under which the government rather than the market steers resources to particular industries. Many economists criticize industrial policy as picking winners. But many Republican and Democratic legislators argue that semiconductors should be an exception because, like oil, they have vital civilian and military uses.
Commerce Secretary Gina Raimondo in July.
Photo:
Anna Moneymaker/Getty Images
Soon after the act passed, Intel, which had pushed Congress to pass the legislation for two years, broke ground on a $20 billion project in Ohio. The Commerce Department will announce guidelines next month for how the law’s manufacturing subsidies will be awarded.
American scientists and engineers invented and commercialized semiconductors starting in the 1940s, and today U.S. companies still dominate the most lucrative links in the semiconductor supply chain: the design of chips, software tools that translate those designs into actual semiconductors, and, with competitors in Japan and the Netherlands, the multimillion-dollar machines that etch chip designs onto wafers inside fabrication plants, or fabs.
But the actual fabrication of semiconductors has been increasingly outsourced to Asia. The U.S. share of global chip manufacturing has eroded, from 37% in 1990 to 12% in 2020, while mainland China’s share has gone from around zero to about 15%, according to Boston Consulting Group and SIA. Taiwan and South Korea each accounted for a little over 20%.
The most cutting-edge manufacturers of advanced logic chips, the brains of computers, smartphones and servers, are
Taiwan Semiconductor Manufacturing Co.
—a foundry that makes chips designed by others—and South Korea-based
Samsung
Electronics Co. Intel comes in third. Memory chips are primarily made in Asia by U.S.- and Asian-headquartered companies. Lower-end analog chips, which often perform just a few tasks in consumer and industrial products, are produced around the world.
Region’s Share of activity
Circuit designs
and software
CPUs and other
digital chips
Activity’s Share of total
Data storage and
computer memory
Equipment used
to make chips
Chip-manufacturing
materials
Chip assembly
and testing
Chip makers are spending billions on new factories that could boost the country’s share of manufacturing…
…but significant obstacles remain, including slow growth in the number of U.S. engineering students.
U.S. semiconductor investments in the next 10 years
Citizenship of graduate students and postdoctoral appointees in U.S. engineering programs
Materials/
suppliers
$9 billion
U.S. citizens
and permanent
residents
Chip-making
factories
$186.6 billion
Region’s Share of activity
Circuit designs
and software
CPUs and other
digital chips
Activity’s Share of total
Data storage and
computer memory
Equipment used
to make chips
Chip-manufacturing
materials
Chip assembly
and testing
Chip makers are spending billions on new factories that could boost the country’s share of manufacturing…
…but significant obstacles remain, including slow growth in the number of U.S. engineering students.
Citizenship of graduate students and postdoctoral appointees in U.S. engineering programs
U.S. semiconductor investments in the next 10 years
Materials/
suppliers
$9 billion
U.S. citizens
and permanent
residents
Chip-making
factories
$186.6 billion
Region’s Share of activity
Circuit designs
and software
CPUs and other
digital chips
Activity’s Share of total
Data storage and
computer memory
Equipment used
to make chips
Chip-manufacturing
materials
Chip assembly
and testing
Chip makers are spending billions on new factories that could boost the country’s share of manufacturing…
…but significant obstacles remain, including slow growth in the number of U.S. engineering students.
Citizenship of graduate students and postdoctoral appointees in U.S. engineering programs
U.S. semiconductor investments in the next 10 years
Materials/
suppliers
$9 billion
U.S. citizens and
permanent residents
Chip-making
factories
$186.6 billion
Region’s Share
of activity
Circuit designs
and software
CPUs and other
digital chips
Activity’s Share of total
Data storage
and computer
memory
Equipment used
to make chips
Chip-manufacturing
materials
Chip assembly
and testing
Chip makers are spending billions on new factories that could boost the country’s share of manufacturing…
U.S. semiconductor investments in the next 10 years
Materials/
suppliers
$9 billion
Chip-making
factories
$186.6 billion
…but significant obstacles remain, including slow growth in the number of U.S. engineering students.
Citizenship of graduate students and postdoctoral appointees in U.S. engineering programs
U.S. citizens
and permanent
residents
Region’s Share
of activity
Circuit designs
and software
CPUs and other
digital chips
Activity’s Share of total
Data storage
and computer
memory
Equipment used
to make chips
Chip-manufacturing
materials
Chip assembly
and testing
Chip makers are spending billions on new factories that could boost the country’s share of manufacturing…
U.S. semiconductor investments in the next 10 years
Materials/
suppliers
$9 billion
Chip-making
factories
$186.6 billion
…but significant obstacles remain, including slow growth in the number of U.S. engineering students.
Citizenship of graduate students and postdoctoral appointees in U.S. engineering programs
U.S. citizens
and permanent
residents
The concentration of so much chip production in three hot spots—China, Taiwan and South Korea—unsettles U.S. military and political leaders. They worry that if China achieved dominance in leading-edge semiconductors, on its own or by invading Taiwan, it would threaten the U.S. economy and national security in a way Japan, an ally, didn’t when it briefly dominated semiconductor manufacturing in the 1980s.
Starting around 2016, U.S. officials began blocking Chinese efforts to procure front-line chip companies and technology. Many in Washington were blindsided last July when a Canadian research firm reported that China’s largest chip maker,
Semiconductor Manufacturing International Corp.
, had begun to manufacture 7-nanometer chips—a level of sophistication thought beyond its ability.
With little warning, on Oct. 7, the U.S. government installed the broadest-ever restrictions on chip-related exports to China. The U.S. had long been willing to let Chinese semiconductor capabilities advance, as long as the U.S. maintained a lead. The new controls go much further, seeking to hold China in place while the U.S. and its allies race ahead.
A ceremony marked the beginning of bulk production of 3-nanometer chips at a Taiwan Semiconductor Manufacturing Co. facility in Taiwan on Dec. 29.Lam Yik Fei/Bloomberg News
A circuit board on display at Macronix International Co. in Taiwan.Annabelle Chih/Getty Images
A ceremony marked the beginning of bulk production of 3-nanometer chips at a Taiwan Semiconductor Manufacturing Co. facility in Taiwan on Dec. 29, left. A circuit board on display at Macronix International Co. in Taiwan, right.Lam Yik Fei/Bloomberg News; Annabelle Chih/Getty Images
Meanwhile, U.S. officials hope federal subsidies will lead to factories that are sufficiently large and advanced to remain competitive and profitable long into the future. “We have got to figure out a way through every piece of leverage we have…to push these companies to go bigger,” Ms. Raimondo said in an interview. “I need Intel to think about taking that $20 billion facility in Ohio and making it a $100 billion facility. We’ve got to convince TSMC or Samsung that they can go from 20,000 wafers a month to 100,000 and be successful and profitable in the United States. That’s the whole game here.”
That ambition comes at a delicate time for chip makers, many of whom have seen a sharp drop in demand for electronics that were hot during the early days of the pandemic. Intel is paring capital spending amid the slump, and TSMC said this week that weak demand could lead it to cut capital expenditures this year.
To defray the chip companies’ investment needs, Ms. Raimondo has approached private infrastructure investors about participating in chip projects, modeled on
Brookfield Asset Management Inc.’s
co-investment in Intel’s Arizona fabs. Last November she pitched the idea to 700 money managers at an investment conference in Singapore organized by Barclays Bank.
She also approached chip customers including
Apple Inc.
about buying chips these fabs produce. “We will need big customers to give commitments to purchase [the fabs’ output], which will help de-risk deals and show there is a market for these chips,” she said.
Those efforts appeared to pay off in December when TSMC announced it would up its investment to $40 billion in leading-edge chips at a facility already being built on a vast scrubby area north of Phoenix. Formerly home to wild burros and coyotes, it now teems with construction cranes and takes delivery of some of the most advanced manufacturing equipment in the world.
At a ceremony that month attended by Mr. Biden and top administration officials, including Ms. Raimondo, Apple Chief Executive
Tim Cook
and
Advanced Micro Devices Inc.
chief
Lisa Su
pledged to buy some of the facility’s output.
Workers at TSMC’s manufacturing facility in Phoenix in December.
Still, TSMC told the Commerce Department in a public letter that despite excitement about its plans and local, state and potentially federal subsidies, costs were higher than if a similar operation were built at home.
Morris Chang,
TSMC’s founder, said in November that the differential could be 50%. TSMC said it sent more than 600 American engineers to Taiwan for training.
Outside the U.S., Europe has its own plans to double its share of global production over about 10 years, while authorities in Taiwan, China and other Asian nations are pouring money into the sector. TSMC, in addition to its Arizona project, is building a chip plant in Japan and is looking at potential investments in Europe.
The high cost and scarcity of qualified labor in the U.S. has hampered previous efforts to reshore electronics manufacturing. Mung Chiang, president of Purdue University in Indiana, said computer and engineering students are drawn to chip design or software, areas where American companies are leaders, rather than manufacturing.
“Even if they say, ‘Yes, semiconductor manufacturing sounds really good, I want to do it,’ well, where can they learn the real, live experience?”
In response, Purdue has created a dedicated semiconductor program it hopes will award more than 1,000 certificates and degrees annually by 2030 in person and online. In July,
SkyWater Technology,
a Bloomington, Minn.-based foundry, said it would build a $1.8 billion fab on Purdue’s campus, prospectively supported by Chips funding.
Developing a domestic supply of talent is only half the battle. The U.S. also depends on foreign countries for many key inputs to semiconductors.
The lasers that imprint tiny circuit blueprints on silicon wafers use purified neon gas, made from raw neon typically harvested from large air-separation units attached to steel plants. Those facilities produce the neon when they separate oxygen from the air for use in steel furnaces.
There Aren’t Enough Chips—Why Are They So Hard to Make?
Since the steel industry largely moved out of the U.S. over the past half-century, there is currently very little neon gas being produced domestically. Most has come from Ukraine, Russia and China, but Russia’s invasion of Ukraine has left China as the world’s main source.
“Is this a risk for the U.S.? Absolutely,” said Matthew Adams, an executive vice president at Electronic Fluorocarbons LLC, a Massachusetts-based company that imports, purifies and sells neon and other gases. “A prolonged ban of neon exports from China to the U.S. would shut down a significant portion of semiconductor production after inventories are exhausted.”
A handful of other raw materials used in chip making, such as tungsten, which is transformed into tungsten hexafluoride and used to build parts of transistors on chips, are similarly sourced primarily from China. To truly untie the U.S. chip industry from China would entail undoing several decades of globalization, something industry leaders say isn’t practical.
After working for years to catch up on U.S. technology, China has developed a chip that can rival Nvidia’s powerful A100. WSJ unpacks the processors’ design and capability as the two superpowers race for dominance in artificial intelligence. Illustration: Sharon Shi
Even if the U.S. doesn’t succeed in securing the entire semiconductor supply chain, it does have a chance to reverse the recent historical pattern of losing leadership in one manufacturing sector after another, including passenger cars, railroad equipment, machine tools, consumer electronics and solar panels.
“I don’t think we’ve ever done this before: Try in a conscious, targeted way to regain market share in an industry where we were once the leader, but then lost it,” said
Rob Atkinson,
president of the Information Technology and Innovation Foundation, which advocates government support of manufacturing.
—Liza Lin contributed to this article.
Write to Asa Fitch at asa.fitch@wsj.com and Greg Ip at greg.ip@wsj.com
A sudden thaw across the Northern Hemisphere has melted down natural-gas prices, upending dire forecasts of energy shortages and sinking Vladimir Putin’s plan to squeeze Europe this winter.
It isn’t expected to remain as balmy as it was on Wednesday, when temperatures hit 66-degrees Fahrenheit in New York, but the forecasts that energy traders monitor call for abnormally warm weather extending into February, sapping demand for the heating fuel.
U.S. natural-gas futures for February delivery ended Wednesday at $4.172 per million British thermal units. That is down 57% from the summer highs notwithstanding a 4.6% gain on Wednesday that snapped a four-session losing streak, including an 11% drop on Tuesday.
The price is now about the same as it was a year ago, when temperatures were also warmer than normal and before Russia’s invasion of Ukraine jolted energy markets.
The plunge is a bad omen for drillers, whose shares were among the stock market’s few winners last year. Cheaper gas is good news for households and manufacturers whose budgets have been busted and profit margins pinched by high fuel prices. Though shocks of cold and problems with pipelines could still push up regional prices, less expensive natural gas should help to cool inflation in the months ahead.
There are also major geopolitical implications. Mild weather is driving gas prices lower in Europe, too, spelling relief for the region that coming into the winter faced the possibility of rolling blackouts and factory shutdowns. The war threw energy markets into chaos, but benchmark European natural-gas prices are now less than half of what they were a month ago and lower than any point since the February invasion.
The drop is a welcome surprise for European governments that committed hundreds of billions of dollars to shield consumers and companies from high energy prices. Moscow cut supplies of gas to Europe last year in what European officials described as an attempt to undermine military and financial support for Kyiv.
So far, Russia’s strategy isn’t working. Warm weather is limiting demand, as is a European Union-led effort to curb consumption. But analysts say prices in Europe could shoot up again when the continent tries to refill stores for the 2023-24 winter without much Russian gas.
PHOTOS: How a 102-Year-Old Maritime Law Affects Today’s Home-Heating Prices
Besides being burned to heat roughly half of American homes, natural gas is used for cooking, along with making electricity, plastic, fertilizer, steel and glass. Last year’s high prices were a big driver of the steepest inflation in four decades.
When prices peaked in August, the question was whether there would be enough gas to get through the winter, given record consumption by domestic power producers with few alternatives, as well as demand in Europe, where the race is on to replace Russian gas.
Now the question in the market is how low prices will go.
They were already falling when the late-December storm brought snow to northern cities and stranded travelers. Frigid temperatures prompted a big draw from U.S. natural-gas stockpiles and froze wells in North Dakota and Oklahoma. At its peak, the storm took nearly 21% of U.S. gas supply offline, according to East Daley Analytics, a gas consulting firm.
The demand surge and the supply disruptions were fleeting and failed to counteract forecasts for balmy January weather. Prices were also pushed lower by another delay in the restart of a Texas export facility. It has been offline since a June fire left a lot of gas in the domestic market that would have otherwise been shipped overseas.
Temperatures above 60 degrees Fahrenheit are forecast this week around the Great Lakes and along the Ohio Valley, while highs in the Southeast might reach into the 80s.
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As measured in heating-degree days, a population-weighted measure of temperatures below 65 degrees Fahrenheit, this week will be twice as warm relative to normal as the last week of December was cold, said Eli Rubin, senior energy analyst at the gas-trading firm EBW AnalyticsGroup.
The firm estimates that warmer weather over the first half of January will reduce gas demand by about 100 billion cubic feet over that stretch. That is about the volume of gas that the U.S. produces each day. The Energy Information Administration estimates that daily American output hit a record in 2022.
Analysts anticipate similarly strong production in 2023. They expect the year to pass without new LNG export capacity coming online for the first time since 2016, when the U.S. began to ship liquefied natural gas abroad from the Lower 48 States.
“The market is moving from a mind-set of winter scarcity to looking ahead to exiting winter with more in storage, adding production and not adding any new LNG exports,” Mr. Rubin said. “If anything, the market looks oversupplied.”
Analysts have been reducing their gas-price assumptions as well as their outlooks for producers as the first weeks of winter pass without sustained periods of cold weather.
Gabriele Sorbara, an analyst at Siebert Williams Shank, told clients this week that he expected natural gas to average $4.25 in 2023, down from a forecast of $5.50 before the warm spell. As a result, he downgraded shares of
EQT Corp.
, the biggest U.S. producer and one of the top-performing stocks in the S&P 500 last year, from buy to hold.
“EQT will be dead money until estimates recalibrate and there is visibility of a rebound in natural-gas prices,” he wrote in a note to clients.
SHARE YOUR THOUGHTS
What price changes are you seeing in your natural-gas bill this winter? Join the conversation below.
Hedge funds and other speculators have, on balance, been bearish on natural-gas prices since the summer, maintaining more wagers on falling prices than on gains, according to Commodity Futures Trading Commission data. Analysts said that is probably the safe bet.
“We continue to caution against any attempts to time a price bottom,” the trading firm Ritterbusch & Associates told clients this week.
Income-seeking investors are looking at an opportunity to scoop up shares of real estate investment trusts. Stocks in that asset class have become more attractive as prices have fallen and cash flow is improving.
Below is a broad screen of REITs that have high dividend yields and are also expected to generate enough excess cash in 2023 to enable increases in dividend payouts.
REIT prices may turn a corner in 2023
REITs distribute most of their income to shareholders to maintain their tax-advantaged status. But the group is cyclical, with pressure on share prices when interest rates rise, as they have this year at an unprecedented scale. A slowing growth rate for the group may have also placed a drag on the stocks.
And now, with talk that the Federal Reserve may begin to temper its cycle of interest-rate increases, we may be nearing the time when REIT prices rise in anticipation of an eventual decline in interest rates. The market always looks ahead, which means long-term investors who have been waiting on the sidelines to buy higher-yielding income-oriented investments may have to make a move soon.
During an interview on Nov 28, James Bullard, president of the Federal Reserve Bank of St. Louis and a member of the Federal Open Market Committee, discussed the central bank’s cycle of interest-rate increases meant to reduce inflation.
When asked about the potential timing of the Fed’s “terminal rate” (the peak federal funds rate for this cycle), Bullard said: “Generally speaking, I have advocated that sooner is better, that you do want to get to the right level of the policy rate for the current data and the current situation.”
Fed’s Bullard says in MarketWatch interview that markets are underpricing the chance of still-higher rates
In August we published this guide to investing in REITs for income. Since the data for that article was pulled on Aug. 24, the S&P 500
SPX,
-0.50%
has declined 4% (despite a 10% rally from its 2022 closing low on Oct. 12), but the benchmark index’s real estate sector has declined 13%.
REITs can be placed broadly into two categories. Mortgage REITs lend money to commercial or residential borrowers and/or invest in mortgage-backed securities, while equity REITs own property and lease it out.
The pressure on share prices can be greater for mortgage REITs, because the mortgage-lending business slows as interest rates rise. In this article we are focusing on equity REITs.
Industry numbers
The National Association of Real Estate Investment Trusts (Nareit) reported that third-quarter funds from operations (FFO) for U.S.-listed equity REITs were up 14% from a year earlier. To put that number in context, the year-over-year growth rate of quarterly FFO has been slowing — it was 35% a year ago. And the third-quarter FFO increase compares to a 23% increase in earnings per share for the S&P 500 from a year earlier, according to FactSet.
The NAREIT report breaks out numbers for 12 categories of equity REITs, and there is great variance in the growth numbers, as you can see here.
FFO is a non-GAAP measure that is commonly used to gauge REITs’ capacity for paying dividends. It adds amortization and depreciation (noncash items) back to earnings, while excluding gains on the sale of property. Adjusted funds from operations (AFFO) goes further, netting out expected capital expenditures to maintain the quality of property investments.
The slowing FFO growth numbers point to the importance of looking at REITs individually, to see if expected cash flow is sufficient to cover dividend payments.
Screen of high-yielding equity REITs
For 2022 through Nov. 28, the S&P 500 has declined 17%, while the real estate sector has fallen 27%, excluding dividends.
Over the very long term, through interest-rate cycles and the liquidity-driven bull market that ended this year, equity REITs have fared well, with an average annual return of 9.3% for 20 years, compared to an average return of 9.6% for the S&P 500, both with dividends reinvested, according to FactSet.
This performance might surprise some investors, when considering the REITs’ income focus and the S&P 500’s heavy weighting for rapidly growing technology companies.
For a broad screen of equity REITs, we began with the Russell 3000 Index
RUA,
-0.18%,
which represents 98% of U.S. companies by market capitalization.
We then narrowed the list to 119 equity REITs that are followed by at least five analysts covered by FactSet for which AFFO estimates are available.
If we divide the expected 2023 AFFO by the current share price, we have an estimated AFFO yield, which can be compared with the current dividend yield to see if there is expected “headroom” for dividend increases.
For example, if we look at Vornado Realty Trust
VNO,
+1.01%,
the current dividend yield is 8.56%. Based on the consensus 2023 AFFO estimate among analysts polled by FactSet, the expected AFFO yield is only 7.25%. This doesn’t mean that Vornado will cut its dividend and it doesn’t even mean the company won’t raise its payout next year. But it might make it less likely to do so.
Among the 119 equity REITs, 104 have expected 2023 AFFO headroom of at least 1.00%.
Here are the 20 equity REITs from our screen with the highest current dividend yields that have at least 1% expected AFFO headroom:
Company
Ticker
Dividend yield
Estimated 2023 AFFO yield
Estimated “headroom”
Market cap. ($mil)
Main concentration
Brandywine Realty Trust
BDN,
+1.82%
11.52%
12.82%
1.30%
$1,132
Offices
Sabra Health Care REIT Inc.
SBRA,
+2.02%
9.70%
12.04%
2.34%
$2,857
Health care
Medical Properties Trust Inc.
MPW,
+1.90%
9.18%
11.46%
2.29%
$7,559
Health care
SL Green Realty Corp.
SLG,
+2.18%
9.16%
10.43%
1.28%
$2,619
Offices
Hudson Pacific Properties Inc.
HPP,
+1.55%
9.12%
12.69%
3.57%
$1,546
Offices
Omega Healthcare Investors Inc.
OHI,
+1.30%
9.05%
10.13%
1.08%
$6,936
Health care
Global Medical REIT Inc.
GMRE,
+2.03%
8.75%
10.59%
1.84%
$629
Health care
Uniti Group Inc.
UNIT,
+0.28%
8.30%
25.00%
16.70%
$1,715
Communications infrastructure
EPR Properties
EPR,
+0.62%
8.19%
12.24%
4.05%
$3,023
Leisure properties
CTO Realty Growth Inc.
CTO,
+1.58%
7.51%
9.34%
1.83%
$381
Retail
Highwoods Properties Inc.
HIW,
+0.76%
6.95%
8.82%
1.86%
$3,025
Offices
National Health Investors Inc.
NHI,
+1.90%
6.75%
8.32%
1.57%
$2,313
Senior housing
Douglas Emmett Inc.
DEI,
+0.33%
6.74%
10.30%
3.55%
$2,920
Offices
Outfront Media Inc.
OUT,
+0.70%
6.68%
11.74%
5.06%
$2,950
Billboards
Spirit Realty Capital Inc.
SRC,
+0.72%
6.62%
9.07%
2.45%
$5,595
Retail
Broadstone Net Lease Inc.
BNL,
-0.93%
6.61%
8.70%
2.08%
$2,879
Industial
Armada Hoffler Properties Inc.
AHH,
-0.08%
6.38%
7.78%
1.41%
$807
Offices
Innovative Industrial Properties Inc.
IIPR,
+1.09%
6.24%
7.53%
1.29%
$3,226
Health care
Simon Property Group Inc.
SPG,
+0.95%
6.22%
9.55%
3.33%
$37,847
Retail
LTC Properties Inc.
LTC,
+1.09%
5.99%
7.60%
1.60%
$1,541
Senior housing
Source: FactSet
Click on the tickers for more about each company. You should read Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.
The list includes each REIT’s main property investment type. However, many REITs are highly diversified. The simplified categories on the table may not cover all of their investment properties.
Knowing what a REIT invests in is part of the research you should do on your own before buying any individual stock. For arbitrary examples, some investors may wish to steer clear of exposure to certain areas of retail or hotels, or they may favor health-care properties.
Largest REITs
Several of the REITs that passed the screen have relatively small market capitalizations. You might be curious to see how the most widely held REITs fared in the screen. So here’s another list of the 20 largest U.S. REITs among the 119 that passed the first cut, sorted by market cap as of Nov. 28:
Company
Ticker
Dividend yield
Estimated 2023 AFFO yield
Estimated “headroom”
Market cap. ($mil)
Main concentration
Prologis Inc.
PLD,
+1.29%
2.84%
4.36%
1.52%
$102,886
Warehouses and logistics
American Tower Corp.
AMT,
+0.68%
2.66%
4.82%
2.16%
$99,593
Communications infrastructure
Equinix Inc.
EQIX,
+0.62%
1.87%
4.79%
2.91%
$61,317
Data centers
Crown Castle Inc.
CCI,
+1.03%
4.55%
5.42%
0.86%
$59,553
Wireless Infrastructure
Public Storage
PSA,
+0.11%
2.77%
5.35%
2.57%
$50,680
Self-storage
Realty Income Corp.
O,
+0.26%
4.82%
6.46%
1.64%
$38,720
Retail
Simon Property Group Inc.
SPG,
+0.95%
6.22%
9.55%
3.33%
$37,847
Retail
VICI Properties Inc.
VICI,
+0.41%
4.69%
6.21%
1.52%
$32,013
Leisure properties
SBA Communications Corp. Class A
SBAC,
+0.59%
0.97%
4.33%
3.36%
$31,662
Communications infrastructure
Welltower Inc.
WELL,
+2.37%
3.66%
4.76%
1.10%
$31,489
Health care
Digital Realty Trust Inc.
DLR,
+0.69%
4.54%
6.18%
1.64%
$30,903
Data centers
Alexandria Real Estate Equities Inc.
ARE,
+1.38%
3.17%
4.87%
1.70%
$24,451
Offices
AvalonBay Communities Inc.
AVB,
+0.89%
3.78%
5.69%
1.90%
$23,513
Multifamily residential
Equity Residential
EQR,
+1.10%
4.02%
5.36%
1.34%
$23,503
Multifamily residential
Extra Space Storage Inc.
EXR,
+0.29%
3.93%
5.83%
1.90%
$20,430
Self-storage
Invitation Homes Inc.
INVH,
+1.58%
2.84%
5.12%
2.28%
$18,948
Single-family residental
Mid-America Apartment Communities Inc.
MAA,
+1.46%
3.16%
5.18%
2.02%
$18,260
Multifamily residential
Ventas Inc.
VTR,
+1.63%
4.07%
5.95%
1.88%
$17,660
Senior housing
Sun Communities Inc.
SUI,
+2.09%
2.51%
4.81%
2.30%
$17,346
Multifamily residential
Source: FactSet
Simon Property Group Inc.
SPG,
+0.95%
is the only REIT to make both lists.
to resume pumping oil from its Venezuelan oil fields after President Nicolás Maduro’s government and an opposition coalition agreed to implement an estimated $3 billion humanitarian relief program and continue dialogue in Mexico City on efforts to hold free and fair elections.
Following the Norwegian-brokered agreement signed in Mexico City, the Biden administration granted a license to Chevron that allows the California-based oil company to return to its oil fields in joint ventures with the Venezuela national oil company, Petróleos de Venezuela SA. The new license, granted by the Treasury Department, permits Chevron to pump Venezuelan oil for the first time in years.
Biden administration officials said the license prohibits PdVSA from receiving profits from Chevron’s oil sales. The officials said the U.S. is prepared to revoke or amend the license, which will be in effect for six months, at any time if Venezuela doesn’t negotiate in good faith.
Venezuela produces some 700,000 barrels of oil a day, compared with more than 3 million in the 1990s.
Photo:
Isaac Urrutia/Reuters
“If Maduro again tries to use these negotiations to buy time to further consolidate his criminal dictatorship, the United States and our international partners must snap back the full force of our sanctions,” said Sen.
Robert Menendez
(D., N.J.), the chairman of the Senate Foreign Relations Committee.
The U.S. policy shift could signal an opening for other oil companies to resume their business in Venezuela two years after the Trump administration clamped down on Chevron and other companies’ activities there as part of a maximum-pressure campaign meant to oust the government led by Mr. Maduro. The Treasury Department action didn’t say how non-U.S. oil companies might re-engage with Venezuela.
Venezuela produces some 700,000 barrels of oil a day, compared with more than 3 million barrels a day in the 1990s. Some analysts said Venezuela could hit 1 million barrels a day in the medium term, a modest increment reflecting the dilapidated state of the country’s state-led oil industry.
Some Republican lawmakers criticized the Biden administration’s decision to clear the way for Chevron to pump more oil in Venezuela. “The Biden administration should allow American energy producers to unleash DOMESTIC production instead of begging dictators for oil,” Rep. Claudia Tenney (R., N.Y.) wrote on Twitter.
Biden administration officials said the decision to issue the license wasn’t a response to oil prices, which have been a major concern for President Biden and his top advisers in recent months as they seek to tackle inflation. “This is about the regime taking the steps needed to support the restoration of democracy in Venezuela,” one of the officials said.
The Wall Street Journal reported in October that the Biden administration was preparing to scale down sanctions on Venezuela’s regime to allow Chevron to resume pumping oil there.
Jorge Rodriguez led the Venezuelan delegation to the talks in Mexico City, where an agreement was signed.
Photo:
Henry Romero/Reuters
Under the new license, profits from the sale of oil will go toward repaying hundreds of millions of dollars in debt owed to Chevron by PdVSA, administration officials said. The U.S. will require that Chevron report details of its financial operations to ensure transparency, they said.
Chevron spokesman Ray Fohr said the new license allows the company to commercialize the oil currently being produced at its joint-venture assets. He said the company will conduct its business in compliance within the current framework.
The license prohibits Chevron from paying taxes and royalties to the Venezuelan government, which surprised some experts. They had been expecting that direct revenue would encourage PdVSA to reroute oil cargoes away from obscure export channels, mostly to Chinese buyers at a steep discount, which Venezuela has relied on for years to skirt sanctions.
“If this is the case, Maduro doesn’t have significant incentives to allow that many cargoes of Chevron to go out,” said
Francisco Monaldi,
director of the Latin America Energy Program at Rice University’s Baker Institute for Public Policy. Sending oil to China, even at a heavy discount, would be better for Caracas than only paying debt to Chevron, he said.
The limited scope of the Chevron license is seen as a way to ensure that Mr. Maduro stays the course on negotiations. “Rather than fully opening the door for Venezuelan oil to flow to the U.S. market immediately, what the license proposes is a normalization path that is likely contingent on concessions from the Maduro regime on the political and human-rights front,” said
Luisa Palacios,
senior research scholar at the Columbia University Center on Global Energy Policy.
The license allows Venezuelan oil back into the U.S., historically its largest market, but only if the oil from the PdVSA-Chevron joint ventures is first sold to Chevron and doesn’t authorize exports from the ventures “to any jurisdiction other than the United States,” which appears to restrict PdVSA’s own share of the sales to the U.S. market, said Mr. Monaldi.
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The license prohibits transactions involving goods and services from Iran, a U.S.-sanctioned oil producer that has helped Venezuela overcome sanctions in recent years. It blocks dealings with Venezuelan entities owned or controlled by Western-sanctioned Russia, which has played a role in Venezuela’s oil industry.
Jorge Rodriguez,
the head of Venezuela’s Congress as well as the government’s delegation to the Mexico City talks, declined to comment on the issuance of the Chevron license.
Freddy Guevara,
a member of the opposition coalition’s delegation, said the estimated $3 billion in frozen funds intended for humanitarian relief and infrastructure projects in Venezuela would be administered by the United Nations. He cautioned that it would take time to implement the program fully. “It begins now, but the time period is up to three years,” he said.
The Venezuelan state funds frozen in overseas banks by sanctions are expected to be used to alleviate the country’s health, food and electric-power crises in part by building infrastructure for electricity and water-treatment needs. “Not one dollar will go to the vaults of the regime,” Mr. Guevara said.
Chevron plans to restore lost output as it performs maintenance and other essential work, but it won’t attempt major work that would require new investments in the country’s oil fields until debts of $4.2 billion are repaid. That could take about two to three years depending on oil-market conditions, according to people familiar with the matter.
PdVSA owes Chevron and other joint-venture partners their shares of more than two years of revenue from oil sales, after the 2020 U.S. sanctions barred the Venezuelan company from paying its partners, one of the people said. The license would allow Chevron to collect its share of dividends from its joint ventures such as Petropiar, in which Chevron is a 30% partner.
Analysts said the new agreement raises expectations that will take time and work to fulfill. “Ensuring the success of talks won’t be easy, but it’s clear that offering gradual sanctions relief like this in order to incentivize agreements is the only way forward. It’s a Champagne-popping moment for the negotiators, but much more work remains to be done,” said Geoff Ramsey, Venezuela director at the Washington Office on Latin America.
—José de Córdoba and Ginette Gonzalez contributed to this article.
Write to Collin Eaton at collin.eaton@wsj.com and Andrew Restuccia at andrew.restuccia@wsj.com
Saudi Arabia and other OPEC oil producers are discussing an output increase, the group’s delegates said, a move that could help heal a rift with the Biden administration and keep energy flowing amid new attempts to blunt Russia’s oil industry over the Ukraine war.
A production increase of up to 500,000 barrels a day is now under discussion for OPEC+’s Dec. 4 meeting, delegates said. The move would come a day before the European Union is set to impose an embargo on Russian oil and the Group of Seven wealthy nations’ plans to launch a price cap on Russian crude sales, potentially taking Moscow’s petroleum supplies off the market.
After The Wall Street Journal and other news organizations reported on the discussions Monday, Saudi energy minister Prince
Abdulaziz bin Salman
denied the reports and said a production cut was possible instead.
Any output increase would mark a partial reversal of a controversial decision last month to cut production by 2 million barrels a day at the most recent meeting of the Organization of the Petroleum Exporting Countries and their Russia-led allies, a group known collectively as OPEC+.
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The White House said the production cut undermined global efforts to blunt Russia’s war in Ukraine. It was also viewed as a political slap in the face to President Biden, coming before the congressional midterm elections at a time of high inflation. Saudi-U.S. relations have hit a low point over oil-production disagreements this year, though U.S. officials had said they were looking to the Dec. 4 OPEC+ meeting with some hope.
Talk of a production increase has emerged after the Biden administration told a federal court judge that Saudi Crown
Prince Mohammed
bin Salman should have sovereign immunity from a U.S. federal lawsuit related to the brutal killing of Saudi journalist Jamal Khashoggi. The immunity decision amounted to a concession to Prince Mohammed, bolstering his standing as the kingdom’s de facto ruler after the Biden administration tried for months to isolate him.
It is an unusual time for OPEC+ to consider a production increase, with global oil prices falling more than 10% since the first week of November. Oil prices fell 5% after reports of the increase and then pared those losses after
Prince Abdulaziz
‘s comments. Brent crude traded at $86.25 on Monday afternoon, down more than 1%.
Ostensibly, delegates said, a production increase would be in response to expectations that oil consumption will rise in the winter, as it normally does. Oil demand is expected to increase by 1.69 million barrels a day to 101.3 million barrels a day in the first quarter next year, compared with the average level in 2022.
Saudi energy minister Abdulaziz bin Salman has said the kingdom would supply oil to ‘all who need it.’
Photo:
AHMED YOSRI/REUTERS
OPEC and its allies say they have been carefully studying the G-7 plans to impose a price cap on Russian oil, conceding privately that they see any such move by crude consumers to control the market as a threat. Russia has said it wouldn’t sell oil to any country participating in the price cap, potentially resulting in another effective production cut from Moscow—one of the world’s top three oil producers.
Prince Abdulaziz said last month that the kingdom would “supply oil to all who need it from us,” speaking in response to a question about looming Russian oil shortages. OPEC members have signaled to Western countries that they would step up if Russian output fell.
Talk of a production increase sets up a potential fight between OPEC+’s two heavyweight producers, Saudi Arabia and Russia. The countries have an oil-production alliance that industry officials in both nations have described as a marriage of convenience, and they have clashed before.
Saudi officials have been adamant that their decision to cut production last month wasn’t designed to support Russia’s war in Ukraine. Instead, they say, the cut was intended to get ahead of flagging demand for oil caused by a global economy showing signs of slowing down.
Raising oil production ahead of the price cap and EU embargo could give the Saudis another argument that they are acting in their own interests, and not Russia’s.
Another factor driving discussion around raising output: Two big OPEC members, Iraq and the United Arab Emirates, want to pump more oil, OPEC delegates said. Both countries are pushing the oil-producing group to allow them a higher daily-production ceiling, delegates said, a change that, if granted, could account for more oil production.
Under OPEC’s complex quota system, the U.A.E. is obligated to hold its crude production to no more than 3.018 million barrels a day. State-owned Abu Dhabi National Oil Co., which produces most of the U.A.E.’s output, has an output capacity of 4.45 million barrels a day and plans to accelerate its goal of reaching 5 million barrels of daily capacity by 2025. Abu Dhabi has long pushed for a higher OPEC quota, only to be rebuffed by the Saudis, OPEC delegates have said.
Last year, the country was the lone holdout on a deal to boost crude output in OPEC+, saying it would agree only if allowed to boost its own production much more than other members. The public standoff inside OPEC was the first sign that the U.A.E. has adopted a new strategy: Sell as much crude as possible before demand dries up.
Earlier this month, Iraqi Prime Minister Mohammed Shia’ al-Sudani said that his country, which is the second-largest crude oil producer in OPEC, would discuss a new quota with other members at its next meeting.
A discussion of OPEC production quotas has been on hold for months. The idea faces opposition from some OPEC nations because many can’t meet their current targets and watching other countries run up their quotas could cause political problems domestically, delegates said.
—Michael Amon contributed to this article.
Write to Summer Said at summer.said@wsj.com and Benoit Faucon at benoit.faucon@wsj.com
SHARM EL SHEIKH, Egypt—President Biden is moving to tighten restrictions on emissions of methane, a potent greenhouse gas, and boost funding for developing countries to adapt to the effects of climate change and transition to cleaner technologies, according to the White House.
Mr. Biden is expected to announce the measures in a speech before a United Nations climate conference, known as COP27, according to a fact sheet released by the White House ahead of the address. The measures include plans for the Environmental Protection Agency to require oil-and-gas companies to monitor existing production facilities for methane leaks and repair them, according to administration officials.
Methane is 80 times as potent at trapping heat from solar radiation as carbon dioxide over its first 20 years in the atmosphere. It is responsible for about half a degree Celsius of global warming since the preindustrial era, and its levels are rising fast, according to measurements made by the National Oceanic and Atmospheric Administration.
The planned rules affect hundreds of thousands of U.S. wells, storage tanks and natural-gas processing plants, and require companies to replace leaky, older equipment and buy new monitoring tools.
EPA Administrator
Michael Regan
said flaring—a technique used by gas producers to burn off excess methane from oil and natural-gas wells—would be reduced at all well sites under the planned rules. Owners would be required to monitor abandoned wells for methane emissions and plug any leaks, he said.
“We’ve tightened down to limit flaring as much as possible without banning it,” Mr. Regan said.
President Biden met on Friday with Egyptian President Abdel Fattah Al Sisi in Sharm El Sheikh.
Photo:
KEVIN LAMARQUE/REUTERS
The American Petroleum Institute, which represents U.S. oil and gas producers, said it was reviewing the proposed rule.
“Federal regulation of methane crafted to build on industry’s progress can help accelerate emissions reductions while developing reliable American energy,”
Frank Macchiarola,
API’s senior vice president of policy, economics and regulatory affairs, said in a statement.
Lee Fuller of the Independent Petroleum Association of America, a Washington, D.C., trade group that represents many smaller producers, said his group would be reviewing the regulations closely.
“While everyone wants to produce oil and natural gas using sound environmental procedures, there will always be a need to assure that the regulatory structure is cost effective and technologically feasible,” he said in a statement.
Rachel Cleetus, lead economist for the Union of Concerned Scientists, a nonprofit advocacy group, said in a statement that the EPA had “taken an important step forward by issuing a robust standard for methane emissions from oil-and-gas operations.”
Mr. Biden is walking a political tightrope during his brief stopover in Egypt on his way to summits in Cambodia and Indonesia. The war in Ukraine has unleashed turmoil in energy markets, underscoring the world’s continued reliance on fossil fuels.
Control of the U.S. Senate and House of Representatives still hinged on races that were too close to call as of early Friday morning, with both parties girding for a final outcome that might not be known for days. If Republicans win control of either chamber it would mean more power to a party that is deeply skeptical of Mr. Biden’s climate agenda and reluctant to spend billions of dollars to help other countries transition to cleaner sources of energy.
The White House said Mr. Biden is expected to announce an additional $100 million for the United Nations Adaptation Fund, which helps countries adapt to floods, droughts and storms that climate scientists say are increasing in frequency and severity as the earth’s atmosphere and oceans warm. The U.S. has yet to pay the $50 million it pledged to the fund at last year’s climate talks in Glasgow.
As world leaders gather for the COP27 climate conference in Egypt, WSJ looks at how the war in Ukraine and turmoil in energy markets are complicating efforts to reduce carbon emissions. Photo: Mohammed Salem/Reuters
The U.S. also owes $2 billion to the U.N. Green Climate Fund, which finances renewable energy and climate adaptation projects in the developing world. The administration has asked for $1.6 billion for the fund in the fiscal 2023 budget.
The White House said Mr. Biden would also pledge $150 million to a U.S. fund for climate adaptation and resilience across Africa; $13.6 million to the World Meteorological Organization to collect additional weather, water and climate observation across Africa; and $15 million to support the deployment of early-warning systems in Africa by NOAA in conjunction with local weather-forecasting agencies.
The U.S. pledges don’t address demands from poorer nations to provide money for damage they say is the result of climate-related weather events—a new category of funding known as “loss and damage.” This week at the summit, Belgium and Germany pledged a combined 172 million euros, equivalent to $176 million, to support loss-and-damage payments to developing countries. Scotland pledged $5.8 million and Ireland pledged $10 million.
Developing countries have made a renewed push to set up a mechanism for loss-and-damage payments after severe floods in Pakistan this summer that caused $30 billion in losses, according to World Bank estimates, killed more than 1,700 people and displaced 33 million residents. Sen.
Sherry Rehman,
Pakistan’s federal minister for climate change, said she is hoping for more resources from the U.S. and other nations to help her country.
U.S. negotiators are concerned the concept of loss and damage exposes wealthier nations to spiraling liability. There is also the scientific uncertainty of determining which effects can be tied to human-induced climate change and which are part of normal seasonal variation. However, U.S. climate envoy
John Kerry
said this week at the conference that he is open to discussing loss and damage.
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“We need more,” Ms. Rehman said in an interview. “What you hear everywhere at COP is ‘action now.’ Everything else is fluff.”
Mr. Biden arrived at the climate summit Friday after most world leaders have departed. He met privately with Egyptian President
Abdel Fattah Al Sisi
at the conference, located at a resort town along the Red Sea. The U.S. and Germany were expected to announce Friday a $250 million financing program to build 10 gigawatts of new wind-and-solar energy facilities in Egypt while decommissioning 5 gigawatts of inefficient natural-gas power plants.
The Biden administration’s efforts to curb methane emissions follow an agreement reached on the sidelines of the Glasgow summit a year ago, in which China and the U.S. pledged to work on reducing emissions of the gas. Beijing this week announced a plan to cut methane emissions but hasn’t yet included the new measures in its climate plans submitted to the U.N.
Nigeria announced its first-ever regulations, including limits on flaring, to cut overall methane emissions by more than 60% over 2020 levels. Canada said Thursday it plans to cut emissions of methane from its oil-and-gas industry by more than 75% over 2012 levels by 2030.
Emissions from flaring are far higher than previous government and industry estimates, according to an analysis of 300 wells in four states published in September in the journal Science.
The White House says 260 billion cubic meters of gas are wasted every year from flaring and methane emissions within the oil-and-gas sector.
Under the 2015 Paris climate agreement, countries aim to limit global warming to well under 2 degrees Celsius above preindustrial levels and preferably to 1.5 degrees. The gap between the emissions cuts pledged by 166 nations, including the U.S., and their current emissions puts the world on track to warm 2.5 degrees Celsius, or 4.5 degrees Fahrenheit, by the end of the century, according to a recent U.N. report.
White House officials point to Mr. Biden’s support of the Democrats’ climate, health and tax legislation that allocates hundreds of billions of dollars to climate and energy programs, including tax credits for buying electric vehicles and investments in clean technologies.
Administration officials said the legislation has helped put the U.S. on track to meeting Mr. Biden’s goal of cutting domestic emissions 50% below 2005 levels by 2030.
—Matthew Dalton and Scott Pattersoncontributed to this article.
is changing its name to SLB, dropping the family name of the brothers who founded the oil-field services company nearly a century ago.
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The company said the punchier moniker, which is effective Monday, is meant to embrace its focus on newer energy services, such as clean hydrogen and carbon-capture technology. The rebranding includes a new logo and comes as the company said it would focus on creating and scaling new energy systems such as carbon solutions, hydrogen, geothermal and geoenergy, energy storage and critical minerals.
“It’s simple, it’s bold, it’s still related to our heritage,” Chief Executive
Olivier Le Peuch
said. “We have to find a path to keep this heritage and, at the same time, [it’s] an opportunity to draw a new north for the company.”
Brothers Conrad and Marcel Schlumberger founded the predecessor to the company that would carry their family name in France in 1926, when they created the Société de Prospection Électrique, or the Electric Prospecting Company, according to the company website.
Throughout the 1930s, the company grew rapidly and established international business units bearing the Schlumberger name. In 1940, the company moved its headquarters to Houston, the burgeoning center of the U.S. oil drilling industry.
Over the past century, the company has evolved from its roots doing surface prospecting for the metal-ore mining industry. By the 1960s, its deep-sea drilling equipment was used in the search for sunken vessels and the company began providing high-precision sensors to the National Aeronautics and Space Administration.
Money is a sticking point in climate-change negotiations around the world. As economists warn that limiting global warming to 1.5 degrees Celsius will cost many more trillions than anticipated, WSJ looks at how the funds could be spent, and who would pay. Illustration: Preston Jessee/WSJ
The company has since grown aggressively through acquisitions, cementing its lead as the world’s largest oil-field services company through its 2010 acquisition of Smith International for over $11 billion.
More recently, Schlumberger has expanded into renewable-energy services along with the broader oil-and-gas industry. In 2020, Schlumberger launched a business unit to explore low-carbon and carbon-neutral technologies.
The following year, the company said it wanted to achieve net-zero greenhouse gas emissions by 2050, with minimal reliance on offsets. The company has since rolled out new offerings to reduce carbon dioxide and methane emissions from oil-and-gas operations.
Earlier this month, Schlumberger announced two partnerships, one meant to introduce sustainable technology into the production process for battery-grade lithium compounds and another to accelerate the industrialization of carbon-capture technology.
Shares of Schlumberger are up more than 68% so far this year, outperforming the S&P 500’s decline of 21% over the same period. Last week, the company posted third-quarter earnings that topped Wall Street expectations on 28% revenue growth from a year ago.
Write to Will Feuer at will.feuer@wsj.com and Benoît Morenne at benoit.morenne@wsj.com
are among the tech heavyweights featured in a packed week of earnings that investors will probe for indicators about the broader economy.
Other tech companies scheduled to report their latest quarterly reports include Google parent company
Alphabet Inc.
and
Microsoft Corp.
Investors also will hear from airlines such as
Southwest Airlines Co.
and
JetBlue Airways Corp.
, automotive companies
General Motors Co.
and
Ford Motor Co.
, and energy giants
Chevron Corp.
and
Exxon
Mobil Corp.
Nearly a third of the S&P 500, or 161 companies, are slated to report earnings in the coming week, according to FactSet. Twelve bellwethers from the Dow Jones Industrial Average, including
Boeing Co.
and
McDonald’s
Corp., are expected to report as well.
The flurry of results from a broad set of companies will give a sense of how businesses are faring as they deal with inflation denting consumer spending, ongoing supply-chain challenges and a stronger dollar.
People awaited the release of Apple’s latest iPhones in New York last month. The company will report quarterly results on Thursday afternoon.
Photo:
ANDREW KELLY/REUTERS
One area holding up to the challenges has been travel. Several airline companies have reported that consumers still have an appetite to spend on trips and vacations. On Friday,
American Express Co.
raised its outlook for the year in part because of a surge in travel spending.
“We expected the recovery in travel spending to be a tailwind for us, but the strength of the rebound has exceeded our expectations throughout the year,” American Express Chief Executive
Stephen Squeri
said.
In addition to airlines reporting, companies such as car-rental company
Hertz Global Holdings Inc.
and lodging companies
Hilton Worldwide Holdings Inc.
and
Wyndham Hotels & Resorts Inc.
will offer reads into leisure spending.
Overall, earnings for the S&P 500 companies are on track to rise 1.5% this period compared with a year ago, while revenue is projected to grow 8.5%, FactSet said.
Other companies will serve as a gauge for how consumers have responded to higher prices and whether they have altered their spending as a result.
Coca-Cola Co.
and
Kimberly-Clark Corp.
on Tuesday and
Kraft Heinz Co.
on Wednesday will show how consumers are digesting higher prices.
Mattel Inc.,
set to report on Tuesday, will highlight whether demand for toys remains resilient. Rival
Hasbro Inc.
issued a warning ahead of the holiday season.
United Parcel Service Inc.
will release its results on Tuesday and provide an opportunity to show how it is faring ahead of the busy shipping season. The Atlanta-based carrier’s earnings come weeks after rival
FedEx Corp.
warned of a looming global recession and outlined plans to raise shipping rates across most of its services in January to contend with a global slowdown in business.
Results from credit-card companies
Visa Inc.
and
Mastercard Inc.
will offer insights into whether inflation has finally put a dent in consumer spending after both companies reported resilient numbers last quarter.
Wireless carrier
T-Mobile US Inc.’s
numbers on Thursday will give more context to mixed results from competitors
Verizon Communications Inc.
and
AT&T Inc.
AT&T
issued an upbeat outlook on Thursday after its core wireless business exceeded the company’s expectations, whereas Verizon on Friday said earnings tumbled as retail customers balked at recent price increases.
Other notable companies lined up to report include
Another Tesla Inc. earnings call, and another fanciful Elon Musk prediction that likely encouraged yet another open file at the Securities and Exchange Commission on Wednesday.
The chief executive of Tesla Inc.
TSLA,
+0.84%
told investors Wednesday that he believes the valuation of the electric-car maker will exceed the combined market capitalization of the two most valuable companies in the world: Apple Inc.
AAPL,
+0.08%
and Saudi Arabian Oil Co.
2222,
+0.42%.
“I am of the opinion that we can far exceed Apple’s current market cap,” Musk said. “In fact, I see a potential path for Tesla to be worth more than Apple and Saudi Aramco combined.”
Based on Wednesday’s closing prices, the combined market capitalization of those two companies is about $4.4 trillion U.S. dollars. But at least he added a caveat — “That doesn’t mean it will happen or that it will be easy, in fact it will be very difficult, require a lot of work, very creative new products, expansion and always good luck.”
Full earnings coverage: Elon Musk teases massive Tesla stock buyback as CFO trims forecast for annual deliveries and stock falls
This type of outrageous prediction is not new for Musk. He already predicted that Tesla would be worth as much as Apple, and its market cap now is roughly the same size as Apple’s was then, though his explanation for why Tesla would spike to that level was way off.
The situation Musk is in right now, though, is new. As the soap opera that has erupted from his deal to buy Twitter Inc.
TWTR,
+0.10%
draws to a close, he is believed to need somewhere between $5 billion and $8 billion to finish off that deal, as our colleagues at Barron’s recently reported, and his only real avenue to that kind of cash is to sell Tesla stock.
Musk was precluded from selling shares before Tesla’s earnings report due to SEC rules, so what better way to try and pump Tesla’s stock before that blackout ended than to make some far-out predictions on the company’s earnings call?
From Barron’s: A Tesla stock sale is coming. We know who, why and when, but not how much.
A $4 trillion-plus price target wasn’t the only eye-opening claim Musk made in Wednesday’s call. He also told investors that he expected Tesla to perform the first stock buyback in its corporate history next year, and a large one at that: $5 billion to $10 billion.
“Even in a downside scenario next year, given next year is very difficult, we still have the ability to do a $5 [billion] to $10 billion buyback. This is obviously pending board review and approval,” he said. “So it’s likely that we will do some meaningful buyback.”
It is very odd to announce a share repurchase plan before it is approved and officially put in place by a board of directors, though sharing the news early is not automatically a violation of securities laws, said Stephen Diamond, an associate professor at Santa Clara University School of Law.
“Best practices would suggest waiting until you have your ducks in a row before making such an announcement, but I doubt it creates any obvious legal problems,” he said.
He added that the Tesla board is likely seeking approval from its auditors and legal counsel for the share repurchase, which would be why it isn’t approved yet.
“There is an accounting test under Delaware law that the company must meet in order to buy back shares,” Diamond said in an email. “Generally, it can only buy back shares if there is a ‘surplus’ available. To assess that would require support from their internal finance team to the board and likely as well outside opinions from their auditors and legal counsel.”
While early disclosure of buyback plans would not register alarms at the SEC office automatically, these types of pronouncements from Musk specifically will perk up some ears at the regulator’s offices. Musk has already faced recriminations from the agency for earlier statements, and been targeted for failing to live up to the settlement he agreed to in that case. Musk is also reportedly actively being investigated for his behavior as he moved to acquire Twitter, which Twitter seemed to confirm in a legal filing earlier this month.
More: Elon Musk’s legal battle with Twitter may be over, but his war with the SEC continues
On the call, Musk would only say that he is “excited about the Twitter situation,” while admitting that “myself and the other investors are obviously overpaying for it right now.”
Tesla officials did not respond to a request for comment or answer a question about whether Musk does need to sell more Tesla shares to complete the Twitter deal.
The question for Tesla investors, though, is whether they have overpaid for Tesla stock before another round of stock sales from Musk, who has already offloaded billions in shares in the past year, which reportedly resulted in yet another SEC inquiry. On Wednesday, though, shares fell more than 6% in after-hours trading despite the chief executive’s boosterism, which seemed to be overshadowed by a revenue miss and trimmed forecast.
Perhaps investors are finally seeing through Musk’s earnings-call bloviating that boosted the value of Tesla’s shares in the past. But if Musk sells Tesla shares in the coming days after trying to talk up the company’s value, it won’t be the investors who knock on his door, it might be the SEC yet again.
