Big Oil’s bid to lure back investors with cash could ultimately fail

LONDON — The world’s largest oil and gas majors are seeking to lure back investors by returning more cash to shareholders. Market participants, particularly those looking to the long term, remain highly skeptical.

It comes at a time when oil and gas companies are raking in their highest profits since the onset of the coronavirus pandemic amid a sustained period of stronger commodity prices.

A robust showing in the three months through June built on better-than-expected first-quarter earnings and lent further support to the industry’s efforts to pay down debt and reward investors.

In the U.S., ExxonMobil said late last month that it would back shareholder returns through its dividend and Chevron announced it would resume share buybacks at an annual rate of between $2 billion to $3 billion.

In Europe, meanwhile, the U.K.’s BP, France’s TotalEnergies, Norway’s Equinor, Italy’s Eni and Anglo-Dutch oil giant Royal Dutch Shell all announced share buyback programs or increased dividend payouts — or both. It reflects a broader industry trend of energy majors seeking to reassure investors that they have gained a more stable footing amid the ongoing Covid-19 crisis.

Share buybacks are designed to boost the firm’s stock price, benefiting shareholders. Dividend payments, meanwhile, reflect a token reward to shareholders for their investment. Both are options available to a company seeking to reward investors.

Ahead of the second-quarter results, energy analysts had warned that Big Oil still faced a host of uncertainties and challenges. Some of these include the remarkable success of shareholder activism in recent months, a “tremendous degree” of ongoing investor skepticism and intensifying pressure to massively reduce fossil fuel use.

“Day traders may reap short-term profits, but serious long-term investors have concluded that the old energy of the past — oil and gas extraction, is just that — old, with a sell-by date that is moving closer by the day,” Kathy Hipple, finance professor at Bard College in New York, told CNBC via email.

“Once institutional investors determine that demand has peaked — which likely has already happened — they will abandon the sector permanently,” she added. “Many already have, based on the stock performance of the sector over the past several years.”