Investors in the fossil energy company BP celebrated on Tuesday. The new CEO Murray Auchincloss, who recently took over from Bernard Looney (who had to leave because he had concealed several relationships with subordinates), presented resounding annual figures in the morning. And then he handed out some nice gifts to investors. The dividend will increase significantly (10 percent). And his company will again buy back shares worth billions of dollars next year. Even more than last year.
The latter measure is usually as favorable to investors as dividend increases. Because the shares are ‘delisted’ from the stock exchange, there are ultimately fewer left to distribute future dividends. And so investors will in principle receive more in the next dividend round (depending, of course, on how the profit turns out).
The shares of the British group skyrocketed on the London stock exchange. At the end of the day the price was 5.5 percent higher. That was the highest level in two months. Not bad for a first public appearance, Auchincloss might think.
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The picture at the other major Western oil companies was not much different in recent days. The British Shell and the American oil giants Exxon and Chevron also published their annual figures last week. They also achieved historically high profits in 2023, thanks to the still high energy prices. Although they were not as high as during the record year 2022, when prices went through the roof as a result of the energy crisis.
And there too there were dividend increases and the ambitions for the repurchase of own shares were once again increased. The stock prices of these companies also rose significantly after the publication of the annual figures. The French TotalEnergie will close the earnings season of the Western oil majors tomorrow. But expect the same picture there.
For an industry that has already been declared dead by some, because there is no longer any room for ‘fossil energy’ now that the earth is warming dangerously, it seems that for the time being there is still plenty of money to be made. Collectively, Exxon, Chevron, Shell and BP returned almost $100 billion to their shareholders last year – despite oil prices having fallen sharply from the record levels of the previous year.
These are amounts not seen since the industry’s previous heyday, in the 1980s and 1990s. Exxon and Chevron are currently even among the top ten best ‘payers’ of the companies included in the American stock market index S&P500, according to figures from the Bloomberg news agency. And next year, even higher dividend payments may be in store, if you believe the oil companies.
Conscious strategy
What is going on here? And what does it say? In any case, it is the result of a conscious strategy by the oil companies, according to sector experts. In recent years, virtually all major Western oil companies have transformed themselves into some sort lean mean cash machines, for example, says independent oil analyst Cyril Widdershoven: companies whose main goal is to squeeze the maximum return from their activities and then reward the shareholder as generously as possible. “We keep a close eye on costs and invest cautiously. Not only in fossil energy, but especially in renewable energy – because there the returns are often even worse.” In fact, the oil companies say it themselves, but they use friendlier terms for it. BP, for example, says it wants to become a “higher value company.”
Widdershoven understands why they do that, he says: oil companies are capital-intensive enterprises, and searching for oil in the most inhospitable places in the world is very expensive to begin with. And they cannot do without the favor – and billions – of investors. “But the competition for that investor is now enormous in the Western financial world.” A significant group of investors now prefer to invest their money in tech companies such as Apple, Google, Meta and Amazon, because even more money is made there. This is reflected in, among other things, the price-earnings ratios. For example, these are twice as high at Meta as at Exxon. “So they want to appease the investor.”
But he doesn’t think it’s wise. In fact, according to him, that strategy amounts to a liquidation sale in slow motion. “Oil companies that only buy back their own shares with the money they earn ultimately structurally erode their ability to pump oil. They would be better off investing that money, or at least more of it, in searching for and developing new oil and gas fields.” According to him, the world really benefits from this, although such views are increasingly sensitive in the self-described ‘climate-conscious’ West. According to Widdershoven, the demand for oil will increase significantly in the coming years, especially in poorer countries.
Main responsibility
Critics of the fossil industry will probably think such a liquidation sale is fine. In their view, the sector is primarily responsible for global warming and it would be better to close it down as quickly as possible. But this also means that not much can necessarily be expected from the oil companies when it comes to the transition to a more sustainable energy supply. These investments are already only a fraction of the investments in fossil energy sources by companies. But with their vast financial resources and expertise, they could theoretically play a more important role.
The oil companies themselves think so too, at least to the outside world. In their view, they are positioning themselves very strategically for both the shorter term, in which they believe the world could not yet function without fossil energy, and for the longer term, in which, in their view, cleaner energy will become more dominant. The new BP boss, Murray Auchincloss, also said during the presentation of the figures on Tuesday that he wants to fully adhere to the ‘green’ vision previously expressed by his company. BP is now considered the greenest of all fossil energy companies because it has the strictest sustainability targets (even though it already weakened them last year, under pressure from shareholders who wanted more returns).
Auchincloss also said he was prepared to confront the most critical of his shareholders: the activist British investor Bluebell Capital Partners. He had called on Auchincloss in a letter last week to weaken its green targets even further, so that more dividends could be paid out.
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