The largest oil and gas companies for years have paid more money to investors than they can afford, according to a new report.
The study from the Cleveland-based Institute for Energy Economics and Financial Analysis found that the five largest oil majors — Exxon Mobil, Chevron, Royal Dutch Shell, BP and Total — spent $536 billion on shareholder dividends and stock buybacks since 2010 while bringing in just $329 billion in free cash flow.
“The oil majors are consistently under-performing the market and may believe that shareholders won’t notice, as long as they receive generous dividends,” said Tom Sanzillo, co-author of the report and director of finance for the institute, a think tank that supports renewable energy. “As these companies continue to sell off assets and acquire more debt, they reveal a sector in disarray.”
Free cash flow is the amount of cash a business generates after accounting for operations and capital expenditures, such as equipment and facilities. This is cash that can be used for growth, debt reduction, dividends, stock buybacks or other uses.
The study covered the period of the most recent oil bust, from 2014 to 2017, when a lot of companies maintained dividends and buybacks — even as revenues fell sharply — to stop investors from abandoning their firms.
BP, in particular, was shrinking during most of the past decade, selling off many assets after the 2010 Deepwater Horizon tragedy in the Gulf of Mexico. Yet it and Exxon Mobil, Chevron and Shell held dividends steady during the worst of the oil bust and have increased them since then. Exxon’s is up from 63 cents a share in 2014 to 87 cents today; Chevron from $1 a share to $1.19; Shell from 76.5 cents a share to 79.9 cents; and BP from 57 cents to 61 cents. Only Total, which regularly tweaks its dividend on a quarterly basis, is lower. Total was at 69.6 cents per share in mid-2014 and is now at 60.6 cents.
But the largest integrated energy companies have financial buffers from their refining and petrochemical operations to offset revenue losses when oil prices are weak.
“We are well-positioned to deliver strong long-term shareholder value in any business environment,” said Chevron spokesman Sean Comey, adding that Chevron is able to profit at lower oil prices than any of its peers.
Exxon, Shell and BP declined comment.
The study found that asset sales played a big role in funding the companies’ dividends and buybacks. The study noted that Shell, for example, sold $68 billion in assets from 2010 through late 2019. But the company also bought the London-based BG Group for $53 billion in 2016 and sold many assets to help fund the megadeal and reduce debt.
Ultimately, investors may move away from oil companies for two reasons: financial performance and growing concern about climate change. The institute, in a separate release, highlighted this week’s decision by the world’s largest fund manager, BlackRock, to better align itself with the Paris climate accord goals and invest much less in energy companies, starting with coal companies and utility firms that rely on coal.
“Investors are gradually moving away from energy stocks,” Sanzillo said. “A look behind the dividend payments of the leading companies helps explain why. For the core business of these companies, there is more money going out than coming in.”
jordan.blum@chron.com
twitter.com/jdblum23
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January 17, 2020 at 05:00PM
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