Big Oil Unloved Despite Record Shareholder Returns

• Oil majors continue to underperform the broader markets.
• In terms of shareholder returns among the S&P 500 index, Exxon and Chevron have climbed up in the rankings of the most generous stocks in recent months.
• The top two U.S. oil and gas producers also both reported on Friday higher production, especially from the Permian.

Big Oil has seriously underperformed the overall market over the past year, and it’s not just because of the decline in oil prices.

Investors are not convinced that oil companies—despite supplying essential products for today’s way of living such as gasoline, chemicals, fibers and what-not—have a future. Instead, they are focused on the trendy technology stocks, which have now become the darlings of the stock market. 

The top U.S. oil producers, ExxonMobil and Chevron, have been trying to win investors back by adding large share buybacks to the constant dividend increases they have been doing over the past four decades. 

In terms of shareholder returns among the S&P 500 index, Exxon and Chevron have climbed up in the rankings of the most generous stocks in recent months, according to data compiled by Bloomberg. But they can’t compete with the massive share repurchases by Apple, Alphabet, Microsoft, or Meta. 

In terms of shareholder returns from buybacks and dividends combined, Exxon ranks fourth among S&P 500 companies, behind Apple, Alphabet, and Microsoft. Chevron is seventh, with JP Morgan and Meta between it and Exxon.

Shareholder returns at Exxon and Chevron are at all-time highs, and profits last year were the second-highest in a decade, right after the record highs of 2022 when all Big Oil firms posted massive earnings amid rallying oil and gas prices.  Related: Iraq Wants to Ditch the U.S. Dollar in Oil Trade

The top two U.S. oil and gas producers also both reported on Friday higher production, especially from the Permian. 

Exxon posted higher-than-expected earnings for the fourth quarter, while its full-year profit was the second-highest in a decade, as the supermajor boosted its Guyana and Permian production and achieved record annual refinery throughput.   

Exxon also said it generated $55.4 billion of cash flow from operating activities and distributed a record $32.4 billion to shareholders in 2023.

“Our consistent strategy and execution excellence across the business delivered industry-leading earnings and enabled us to return more cash to shareholders than our peers in 2023,” Exxon’s chairman and chief executive officer Darren Woods said.

At the end of last year, ExxonMobil said it would accelerate the pace of its share repurchases to $20 billion annually in 2024 as it raises production and generates higher cash flows and earnings. After the Pioneer merger closes, Exxon plans to increase the pace of the share buyback program in 2024 to $20 billion annually through 2025, “assuming reasonable market conditions.”

Chevron also boosted cash returns to shareholders to a record and set annual oil and gas production records in 2023, as it reported its second-highest yearly earnings last year and fourth-quarter profits beating consensus estimates.

“In 2023, we returned more cash to shareholders and produced more oil and natural gas than any year in the company’s history,” Chevron’s chairman and CEO Mike Wirth said.

Cash returned to shareholders totaled more than $26 billion for the year, up by 18% from the previous year’s record total.

Yet, despite the stellar operational performance and record returns to shareholders of the past two years, Exxon and Chevron’s stocks are trailing the market.  

Oil prices have dropped by 6% over the past 12 months, Exxon’s stock has lost nearly 9%, and Chevron’s has dipped more than 10%. At the same time, the S&P 500 gas gained 20%. 

“For the sector to trade at a higher multiple, the investors need to view oil as moving back into an era of scarcity,” Jeff Wyll, a senior analyst at Neuberger Berman, told Bloomberg. 

“We may be there in a few years, but we’re not there now.” 

Big Oil is unloved by many now. 

But the largest U.S. firms believe they have a lot to offer to patient investors as an industry that will be around for a long time as it’s essential to the global economy, Chevron CEO Wirth told Bloomberg TV in an interview. 

“There’s a real value opportunity here for patient shareholders,” Wirth noted.

By Tsvetana Paraskova for Oilprice.com

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