More and more oil and gas producers are releasing plans for major share buybacks after a bumper six-month period for free cash flow.
Buybacks are welcomed by investors as they tend to boost share prices in the short-term and improve per share benchmarks as the number of outstanding shares in the market is reduced.
Our analysis of North American producers showed that debt repayments and tidying balance sheets were key points of focus in Q1 2021 as free cash flow began to increase significantly after a dire 2020. The same trends can be seen globally.
Now that cash flow has been consistently high for longer, rewarding shareholders through share repurchases appears to be the next step for many producers, judging by the recent outpouring of buyback announcements we’ve seen accompanying oil company Q2 results around the world. Dividend increases are also expected across the industry.
Below, we have summarized buyback plans recently announced by some of the world’s largest oil and gas companies:
The British supermajor intends to execute a share buyback of $1.4 billion before releasing its Q3 results. Based on the company’s current forecasts and pricing assumptions, BP expects to deliver buybacks of around $1 billion per quarter and have capacity for an annual increase in the dividend per ordinary share of around 4% on average through 2025.
Chevron will resume share repurchases in Q3 at an expected rate of $2-3 billion per year. Chevron has completed share repurchases in 13 of the last 17 years, returning over $50 billion in total to shareholders.
The company lowered its capital and adjusted operating cost guidance for 2021 and announced plans to increase 2021 share repurchases by $1 billion, bringing the total planned return of capital to shareholders to roughly $6 billion for the year.
Alongside a €0.86 per share dividend in Q3, the Italian major is set to buy back €400 million in shares by the end of the year.
Royal Dutch Shell
Having reduced net debt by $12 billion since Q2 2020, focus now shifts to shareholder distribution for Shell. The company has rebased its dividend to $0.24 per share, an increase of 38% from Q1 2021, and plans to buy back up to $2 billion of its shares before year-end. This represents an expected full year 2021 shareholder distribution of around 20-30% of operating cash flow.
The French company’s board of directors has decided to allocate up to 40% of any additional cash flow generated above $60 per barrel to share buybacks. The value of these repurchases for 2021 has been widely reported to be at least $800 million.
Evaluate Energy helps investors and industry observers track energy company capital management trends and quarterly cash flow results. Click the links to find out more about Evaluate Energy and Evaluate Energy Documents. All $ references above are US dollars.
Download our full review of Q1 cash flow trends for 86 producers from Canada and the United States here.