Big Oil

Oil majors seek to persuade investors to stick with them

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With the energy sector being the best performing one within the S&P 500 and many European markets, oil prices rebounding and an upswing in second-quarter earnings, the world’s largest oil and gas companies are seeking to win back investors by returning more cash to shareholders, CNBC reported.

In the U.S., ExxonMobil  posted its biggest quarterly profit in more than a year on July 30. The Texas-based giant earned $1.10 per share in the second quarter, beating market expectations of 99 cents, according to IBES data from Refinitiv and  backed shareholder returns through dividends. The shares of the company have risen 43% this year.

Chevron’s revenue rose to $37.6 billion and the company beat earnings expectations for the second quarter, posting adjusted earnings of $1.71 per share versus expectations for $1.59.

It also announced it would revive share buybacks at an annual rate of between $2 billion to $3 billion, a sign that the company sees the strong oil market lasting well beyond 2021.  Chevron halted a $5 billion annual share buyback program in March 2020.

Across the Atlantic, U.K.-based energy major  BP, raised its dividend from 5.25 cents a share to 5.46 cents, the first increase since slashing it last August and announced a $1.4bn share buyback.
BP made a profit of $7.8bn in the first six months of 2021, compared with a loss of $21.2bn in the same period last year.

Last month, Royal Dutch Shell surprised investors by raising its dividend almost 40% and launching a $2bn share buyback scheme. The Anglo-Dutch firm reported big surges in adjusted net income and cash flow for the second quarter.

France’s TotalEnergies which also reported big surges in adjusted net income and cash flow for the second quarter, promised to divert as much as 40% of its surplus cash to stock repurchases.

Norwegian oil and gas group Equinor commenced on July 28, the first tranche of around $300 million, of the new share buy-back program announced at the Capital Markets Day on 15 June 2021. For 2021 the share buy-back program is expected at $600 million.

Italy’s Eni has also pledged to start a $400mn share buyback program over the next six months, after turning in one of its best half yearly performances in a decade boosted by firmer oil prices.

It’s not just Big Oil returning money to shareholders, almost every natural resources group is taking a similar approach boosting returns to shareholders. The move comes as the industry is under increasing pressure to turn away from fossil fuels and embrace clean energy.

Share buybacks, a decision by a company to buy back its own shares from the marketplace, are designed to boost the company’s stock price, benefiting shareholders. Dividends are regular payments of profit made to investors who own a company’s stock. Both reflect a token reward to shareholders.

“We think there is going to be a lot more investors starting to pile into to some of those big energy names.” Rohan Reddy, analyst at Global X, a New York-based provider of exchange-traded funds told CNBC.

But other market participants are skeptical. Will energy majors manage to reassure investors to stick with them?