Western energy majors are on track to buy back shares at near-record levels this year as soaring oil and gas prices allow them to earn windfall profits and boost returns for investors.
The seven supermajors – including BP, Shell, ExxonMobil and Chevron – 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 biggest total since 2008.
The plans underscore the strength of businesses reaping the rewards of a resurgence in energy demand as lockdown restrictions are rolled back.
Gas prices are at record highs and oil is trading at a seven-year high at over $90 a barrel, translating into big profits for the supermajor group complemented by TotalEnergies, Eni and Equinor.
Banks including Goldman Sachs expect Brent to trade above $100 later this year, with some predicting that if Russia invades Ukraine it will trigger a bigger spike in energy costs .
Biraj Borkhataria of RBC Capital Markets said: “The sector is in the best shape it has seen in a long time. Now the question is cycle time. The underperformance of corporate stocks during the pandemic caused management teams to feel their stocks were undervalued and buybacks were cheap, he added.
Shell is expected to lead the pack in 2022, buying back more than $12 billion of its own stock, 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.
Pressure to reduce emissions and uncertainty about future demand has meant that oil and gas companies are also investing less in supply replacement than in the past, leaving management teams with more cash.
But some critics have suggested the buyouts divert capital away from investing in the transition to greater use of renewables to tackle climate change.
BP is targeting $4 billion in share buybacks a year after repurchasing $3.2 billion worth of shares last year. Total capital expenditure in its low-carbon energy division was half that of 2021 at $1.6 billion.
Nick Stansbury, head of climate solutions at Legal and General Investment Management, the UK’s largest asset manager, said companies needed to “strike a balance” given the uncertainties surrounding future energy demand.
“Allocating significant weight to share buybacks at particularly undemanding levels is likely to be an attractive proposition for investors,” he said.
BP’s 2021 results were the best in eight years, while Chevron and Exxon reported their highest profits since 2014.
In addition to stock purchases, about $50 billion is expected to be returned to shareholders in the form of dividends, RBC’s Borkhataria added, noting that total returns to supermajor shareholders could rise if oil prices rise further.
Record takeovers totaling $46 billion in 2008 were driven in large part by a massive stock purchase plan 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 the sale of assets following its 1999 merger with Mobil.
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