Big Oil on course for near-record $38bn in share buybacks

Western oil and gas majors are on course to buy back shares at near record levels this year as they seek to win investor confidence by boosting returns.

The seven supermajors — BP, Shell, ExxonMobil, Chevron, TotalEnergies, Eni and Equinor — are poised to return $38bn to shareholders through buyback programmes this year, according to data from Bernstein Research. Investment bank RBC Capital Markets puts the total figure even higher at $41bn.

That would be almost double the $21bn in buybacks completed in 2014 when oil last traded above $100 a barrel and the highest level since 2008 when their total buybacks topped $46bn driven by a huge share purchasing scheme at Exxon.

Column chart showing that energy supermajors are set to buy back shares at record levels in 2022

Between 2006 and 2008, Exxon, then the world’s biggest company by market capitalisation, bought back roughly $30bn of its own shares every year, supported by a period of capital discipline and the divestment of assets following its 1999 merger with Mobil.

This time, every supermajor has supercharged its share purchasing programme, said Biraj Borkhataria at RBC Capital Markets. “The sector is in the best shape it’s been in for a long time. Now the question is the duration of the cycle.”

Shell is set to lead the pack, buying back more than $12bn of its own shares in 2022, according to both RBC and Bernstein. At least $8.5bn of those buybacks will be completed in the first half of the year, Shell said this month, including $5.5bn from the sale of its assets in the US Permian basin.

Chevron bought back shares worth $1.4bn in 2021 and has said it will spend $3bn to $5bn on buybacks this year.

Bar chart of oil groups’ forecast buybacks in 2022 ($bn) showing supercharged share purchases

The underperformance of the sector during the pandemic meant that most management teams felt their shares were undervalued and that buybacks were cheap, Borkhataria said.

On top of the share purchases, roughly $50bn is expected to be returned to shareholders via dividends, he added, noting that total shareholder returns from the supermajors could move even higher if oil prices climbed further.

Several banks, including Goldman Sachs, expect Brent crude, at present at $93 a barrel, to trade at more than $100 later this year. BP’s target of $4bn of share buybacks a year and a 4 per cent annual increase in the dividend until 2025 is based on an oil price of just $60 a barrel.

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Some critics have suggested that buybacks are diverting capital away from the energy transition. BP bought back shares worth $3.2bn in 2021, while total capital expenditure in its low-carbon energy division was $1.6bn. But many investors argue that returning cash to shareholders enables them to reinvest those funds in other parts of the energy sector.

Given the uncertainties surrounding future energy demand, companies had to “strike a balance” between returning cash to shareholders, maintaining spending on core businesses and investing in the energy transition, said Nick Stansbury, head of climate solutions at Legal and General Investment Management, the UK’s largest asset manager.

“In the face of this uncertainty, allocating significant weight to buying back shares at particularly undemanding levels is likely to be an attractive proposition for investors,” he said.

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