Weaker crude prices and refining margins are likely forcing four of the five supermajor oil companies to borrow money to fund $15 billion in share buybacks for the most recent quarter, raising doubts over the payouts’ long-term sustainability.
An imbalance in oil supply and demand is increasing pressure on the highly-anticipated U.S. Presidential election.
Share buybacks have become a cornerstone of Big Oil’s strategy as the post-Covid commodities rally spurred record profits and provided an opportunity to court investors betting against a fast energy transition. But with cash flow declining, those shareholder return pledges are now under strain. Crude prices are down more than 20% from this year’s high even as tensions have escalated in the Middle East.
The European majors have higher debt levels, allowing less room to maneuver. BP warned of rising net debt levels earlier this month despite already having the highest leverage ratio among its peers. The company is also the worst performing Big Oil stock this year, declining 15% compared with an almost 7% drop in crude.
Borrowing to fund buybacks “could be a good use of cash while companies have reasonably strong balance sheets,” Kim Fustier, head of European oil and gas equity research at HSBC Plc, said in an interview. “The question is, ‘how sustainable will it be?’”
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