OIL MAJORS USE CASH TO BUY BACK STOCK, INCREASE DIVIDENDS


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ExxonMobil and Chevron Corp. together will plow $50.3 billion into stock buybacks and shareholder dividends this year, compared to $37.5 in capital expenditures, including oil and gas drilling, Bloomberg reported.

The gap between the two figures is the greatest since 2008, when the Great Recession struck, Bloomberg noted.

Exxon tripled its budget for buying back shares to $30 billion this year; Chevron plans to buy a record $10 billion worth of its stock before 2023. 

The companies’ cutbacks on investments in production come as oil prices are their highest since 2007. 

The COVID War cut oil supplies, which never caught up with the surging post-COVID recovery, and now the Ukraine war and Western sanctions have made the shortage worse.

Chevron actually is increasing oil production by 15 percent this year in the Permian Basin spread across west Texas and southeast New Mexico, CFO Peter Breber said in a 5 May call with analysts.

The company’s operations have become much more efficient in recent years, he said, meaning Chevron can produce more oil with a smaller investment.

Also, its current capital budget allows Chevron to boost spending by $4 billion in future years and there are no plans to increase it, Breber said.

“We’re growing energy supply in the U.S.,” Breber told analysts. “At the same time, the objective for a capital-intensive commodity business is to do it in the most capital-efficient way. The more capital-efficient we are, the more capital gets returned to shareholders.”

Exxon is planning to pump 25 percent more oil out of the Permian this year, the company has said, and is speeding the development of a new oilfield off the South American coast of Guyana.

Exxon is funding more than half of its shareholder dividend this year out of $9 billion saved in management and administrative cost-cutting that will be completed by 2023, it noted.

However, in this year’s first quarter, Exxon delivered average production of only 3.7 million barrels a day, the lowest in more than 20 years, according to Bloomberg.

Still, Exxon’s first-quarter earnings were their highest since 2014, Chevron’s the best since 2012.

Now that oil prices have soared and remained high, will Exxon increase its budget to expand production?

“The short answer is no,” CEO Darren Woods said to reporters.

Politicians have alternately chided and pleaded with oil companies to raise production in order to lower the cost of gasoline and heating oil for consumers, who are being pummeled by relentlessly higher prices across the economy.

Even with more investments by majors, U.S. oil production will increase between 600,000 and 1 million barrels a day this year, oil expert Daniel Yergin, co-chair of IHS Markit, said in a recent CNN television interview.

“An increase of one million barrels per day would match what is happening in Russia, where production is down one million barrels per day,” he said.

President Joe Biden has announced a plan to replace the 180 million barrels of oil being released from the Strategic Oil Reserve this year, a signal to drillers that there will be a market for new oil produced.

TREND FORECAST: Domestic oil producers are not yet boosting production because their financial backers are insisting instead that the companies hoard cash and pay stockholders higher dividends, as we reported in “U.S. Oil Industry Will Not Raise Output, Executives Say” (29 Mar 2022).

If OPEC continues to refuse to pump more oil, the likelihood will grow that U.S. producers will convince their financiers to boost production enough to keep an oil shortage from crashing the economy but not so much that prices fall greatly.

If U.S. oil companies fail to respond to the growing crisis by mid-summer, the chances increase that Biden will invoke the Defense Production Act here as well and order oil companies to raise their output.

More broadly, history has shown that as oil prices increase, so does public interest in renewable energy and cars fueled by green power sources. 

Therefore, the oil industry will continue its balancing act: pumping enough to retard the green energy transition and protect its profits as long as possible, while not pumping so little that a disgruntled industrial sector and public speed that transition.

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