Big Oils 2Q26 wrap up Strong FCF and degearing in 2Q

Equity Research 6 August 2026 | 12:23AM CEST

2Q26 wrap-up: Strong FCF and degearing in 2Q; screening for upside to cash returns with higher refining margin in 2H26

2Q26 was a strong quarter for EU Big Oils, with sector FCF 26% above expectations Michele Della Vigna, CFA | ($39.6bn vs. $31.4 bn), driven by OCF (pre-WC) of $58.7bn (+14% yoy) and a Goldman Sachs Bank Europe SE - Milan working capital release of $4.1bn (vs. the $27.4bn build in 1Q26), allowing for branch

$19.9bn of net debt reduction qoq. Five key themes stood out this quarter: Quentin Marbach | (1) Continued strong oil trading and higher downstream earnings in 2Q26. Goldman Sachs International

Downstream & Oil Trading earnings for Shell, BP and TotalEnergies improved by Yulia Bocharnikova | +$2.9bn qoq (+43%) to $9.6bn, with Shell C&P +23% vs consensus and BP C&P Goldman Sachs International +11%. Integrated Gas earnings were up +$1.1bn qoq (+26%) to $5.6bn but with some divergence – ENI GGP was +55% vs consensus, Equinor MMP +25% and Shell IG Anastasia Shalaeva | +11%, while TotalEnergies IG came in -10%. Goldman Sachs International

(2) Upside to refining into 2H26. The refining market was already tight before the Will Chen | Goldman Sachs International Middle East conflict, and recent disruptions have tightened balances further, with 1.3-1.4 mb/d of Middle East refining capacity remaining impaired and 3-4 mb/d of Russian refinery capacity continuing to experience disruptions from the ongoing conflict with Ukraine. We continue to see upside to refining margins into 2H26, with EU Big Oils commodity price indices tracking +3% spot vs 2Q26 despite lower Brent. Companies with higher exposure to refining and jet fuel (Repsol, OMV) are seeing the largest increases in their commodity price index. Overall, we see the highest upside to 2026E EPS consensus for Repsol (+20%), Galp (+15%) and Shell (+11%, also on a particularly attractive valuation).

(3) Superior cash returns to shareholders for Eni and Repsol and upside for Shell, Total and Galp. On our estimates, EU Big Oils offer, on average, 8.1%/8.2% in total cash returns to shareholders in 2026E/27E. We see the highest returns for ENI at 11.5%, Repsol at 11.2% and Shell at 8.1%, with further potential upside for Repsol and Shell to 12.5%/9.9%, which currently offer 31%/33% of CFFO in dividends and buybacks vs their policies of 30-40%/40-50% respectively.

(4) Idiosyncratic growth through our Top Projects database, with Galp and Repsol as leaders. Amid strong non-OPEC growth in 2025/26E, we highlight Galp (Buy), as Bacalhau is ramping up in 2026E. For Repsol (Buy), we expect the greatest FCF inflection given project start-ups in the US (Leon-Castille, Pikka) that we estimate are accretive to cash flow per barrel.

(5) Risk of potential windfall tax increases across Europe. With Portugal

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announcing a windfall tax on July 30th, we have run a theoretical exercise applying the same calculation to European majors as an indicative read-through of relative exposure to similar windfall taxes across European countries. On our estimates, Repsol has the highest percentage of profit that could potentially be taxed in Europe, at c.12%, followed by Galp and ENI at 2.4% each (link).

Pricing in this report is as of the close on August 4, 2026.