Big Oil Enjoys Bonaza

Big Oil Enjoys Bonaza, Faces Sustainability Issues

Big Oil experiences Bonaza, benefiting from the consequences of Russia's invasion of Ukraine and the OPEC+ alliance's stringent management of the market. These profits have been channeled into massive bumper payouts to the shareholders. 

The Buyback Boom

However, the favorable tailwind has transitioned into an adverse headwind, and it is anticipated that the volume of the group's share repurchases will decrease, likely from the year 2025 onwards.

Investment Bank, Jefferies Financial Group Inc, has issued a cautionary note regarding the financial sustainability of numerous international oil corporations. 

According to the Jefferies Financial Group, at present forward pricing projections for the forthcoming year are approximately half of these companies, are at risk of being unable to maintain their distribution levels without resorting to increased borrowing.

Buybacks by companies have emerged as a favored strategy for the reinvestment of capital back into the equity of shareholders. In contrast to dividends, which are subject to taxation, the implementation of buybacks serves to augment the value of the remaining shares by diminishing the overall quantity of shares in circulation. 

Sustainability Issues of BigOil

Notably, the Big Oil is facing severe issues as the industry does not have any ties with Wall Street and lesser in the European green financial hubs

For Big Oil, that’s a big problem. The industry doesn’t have many allies on Wall Street and certainly even fewer in the greener financial hubs of Europe.

Big Oil is currently navigating through an entirely new landscape. Brent, the global benchmark for oil, saw an average price of approximately US$90 per barrel between the years 2022 and 2023. However, the market has since experienced a downturn, with Brent currently trading below US$75 per barrel. 

Furthermore, futures contracts for delivery in 2025 are being traded at an average price of around US$70 per barrel. The situation extends beyond just the crude oil prices. 

Over the past three years, the industry has also benefited from historically elevated refining margins, with an average profit of US$35 per barrel in the 2022-23 period, in stark contrast to the current margins of less than US$15 per barrel. 

It is to be informed that the industry has seen a significant increase in the price of liquefied natural gas (LNG), with an average price of US$24 per million British thermal units in the 2022-23 period, in comparison to the current price of approximately US$12 per million British thermal units.

However, in the recent quarter, ExxonMobil Corp, Chevron Corp, Shell Plc, TotalEnergies SE and BP Plc decided to repurchase shares over $16.5 billion, annually equivalent to $66 billion yearly, or approximately 5.5% of the current combined market value of Big Oil.