War-fueled oil rally set to lift shale profits to highest since 2022

U.S. shale producers are expected to report their strongest quarterly profits since 2022 after the Iran war sent crude prices soaring, with analysts expecting much of the windfall to be returned to shareholders rather than spent on expanding production.

ConocoPhillips, Occidental Petroleum, EOG Resources, Diamondback Energy and Devon Energy are among the producers expected to post sharply stronger second-quarter earnings after benchmark oil prices climbed for much of the quarter, boosting cash flow across the sector.

Oil majors Chevron and ExxonMobil posted strong Q2 profits, with Chevron beating estimates on its highest profit in six years while Exxon missed despite reporting its biggest profit in four years.

Unlike then, however, analysts say companies are unlikely to ramp up drilling, instead prioritizing dividends, share buybacks and balance-sheet strength.

Morningstar analyst Joshua Aguilar said crude markets could become oversupplied if the U.S.-Iran conflict is resolved, but analysts say stronger balance sheets and disciplined spending leave shale producers better positioned than in 2022 to withstand lower oil prices.

Enverus analyst Drew Depoe said most of the incremental cash flow would likely be returned to shareholders, while Arif Gasilov, partner at consulting firm Gasilov Group, said producers entered the latest geopolitical shock with much stronger balance sheets than in 2022.

Rystad Energy analyst Matthew Bernstein said only Diamondback explicitly linked stronger oil prices to higher activity.