Western energy majors are on course to buy back shares at near record levels this year as soaring oil and gas prices enable them to deliver bumper profits and boost returns for investors.
The seven supermajors — including BP, Shell, ExxonMobil and Chevron — 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 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 biggest total since 2008.
The plans underscore the strength of companies that are reaping the rewards of a resurgence in energy demand as lockdown restrictions are rolled back.
Gas prices are at record levels and oil is trading at a seven-year high of more than $90 a barrel, resulting in big profits for the supermajor group rounded out by TotalEnergies, Eni and Equinor.
Banks including Goldman Sachs expect Brent crude to trade at more than $100 later this year, with some predicting that if Russia invades Ukraine it will trigger a sharper spike in energy costs.
Biraj Borkhataria at RBC Capital Markets said: “The sector is in the best shape it’s been in for a long time. Now the question is the duration of the cycle.” The underperformance of the companies’ shares during the pandemic meant that management teams felt their shares were undervalued and that buybacks were cheap, he added.
Shell is set to lead the pack in 2022, buying back more than $12bn of its own shares, according to 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.
Pressure to cut emissions and the uncertainty over future demand has meant that oil and gas companies are also investing less on replacing supply than in the past, leaving management teams with more cash.
But some critics have suggested that buybacks are diverting capital from investing in the transition to the greater use of renewable energy to combat climate change.
BP is targeting $4bn of share buybacks a year having bought back $3.2bn of shares last year. Total capital expenditure in its low-carbon energy division was half that in 2021 at $1.6bn.
Nick Stansbury, head of climate solutions at Legal and General Investment Management, the UK’s largest asset manager, said companies had to “strike a balance” given the uncertainties surrounding future energy demand.
“Allocating significant weight to buying back shares at particularly undemanding levels is likely to be an attractive proposition for investors,” he said.
BP’s 2021 results were its best in eight years, while Chevron and Exxon reported their highest profits since 2014.
On top of the share purchases, roughly $50bn is expected to be returned to shareholders via dividends, Stansbury added, noting that total shareholder returns from the supermajors could move higher if oil prices climbed further.
Record buybacks totalling $46bn in 2008 were driven in large part by a huge share purchasing plan at Exxon.
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 the divestment of assets following its 1999 merger with Mobil.
