Big Oil on track for near-record $38 billion share buyback
Western oil and gas majors are on track to buy back shares at near-record levels this year as they seek to earn investor confidence by raising yields.
The seven supermajors – BP, Shell, ExxonMobil, Chevron, TotalEnergies, Eni and Equinor – are on track to return $38 billion to shareholders through buyout programs this year, according to data from Bernstein Research. Investment bank RBC Capital Markets puts the total figure at $41 billion.
That would be nearly double the $21 billion in buybacks made in 2014, when oil last traded above $100 a barrel, and the highest level since 2008, when their total buybacks fell. surpassed $46 billion thanks to a huge stock purchase program at Exxon.
Between 2006 and 2008, Exxon, then the world’s largest company by market capitalization, repurchased about $30 billion of its own stock each year, buoyed by a period of capital discipline and the disposal of assets following its 1999 merger with Mobil.
This time, each supermajor has beefed up its stock purchase program, said Biraj Borkhataria of RBC Capital Markets. “The sector has been at its best for a long time. Now the question is cycle time.
Shell is expected to lead the pack, buying back more than $12 billion of its own stock in 2022, according to RBC and Bernstein. At least $8.5 billion of those buybacks will be completed in the first half of the year, Shell said this month, including $5.5 billion from the sale of its assets in the U.S. Permian Basin. .
Chevron repurchased $1.4 billion worth of stock in 2021 and said it will spend $3 billion to $5 billion on buybacks this year.
The sector’s underperformance during the pandemic meant most management teams felt their stocks were undervalued and buybacks were cheap, Borkhataria said.
In addition to the stock purchases, about $50 billion is expected to be returned to shareholders in the form of dividends, he added, noting that the supermajors’ total shareholder return could rise further if oil prices rise further.
Several banks, including Goldman Sachs, expect Brent, currently at $93 a barrel, to trade above $100 later this year. BP’s target of $4 billion in share buybacks a year and a 4% annual dividend increase through 2025 is based on an oil price of just $60 a barrel.
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Some critics have suggested that the takeovers divert capital from the energy transition. BP repurchased shares worth $3.2 billion in 2021, while total capital expenditure in its low-carbon energy division was $1.6 billion. But many investors say returning cash to shareholders allows them to reinvest those funds in other parts of the energy sector.
Given the uncertainties surrounding future energy demand, companies have had to “strike a balance” between returning cash to shareholders, maintaining spending on core businesses and investing in the energy transition, said Nick Stansbury, chief executive. climate solutions at Legal and General Investment Management, the UK’s largest asset manager.
“In the face of this uncertainty, allocating significant weighting to share buybacks at particularly undemanding levels is likely to be an attractive proposition for investors,” he said.