Big Oil Back To Boosting Shareholder Returns

Thanks to huge cost cuts across the board and recent oil price improvement, Big Oil exited the survival mode in which it had languished for three years, and the pressure is on again to boost shareholder returns by removing the scrip dividends and resuming share buybacks.

Trying to maintain dividends while they were heavily bleeding cash at the beginning of the downturn, all of Europe’s Big Oil resorted to scrip dividends and suspended share buybacks. The only oil major that actually cut its dividend was Italy’s Eni, which reduced its dividend to US$0.93 (0.80 euro) for 2015 from US$1.304 (1.12 euro) for 2014.  

But as the higher oil prices and the cost cuts resulted in strong cash flows for Big Oil, the companies are now trying to reward their shareholders.  

BP surprised the market at the end of October by resuming a share buyback program as it doubled its third-quarter profit, in a sign that the UK oil supermajor is now more optimistic regarding its business and cost structure. BP restarted its share buyback program to offset the dilution coming from its scrip dividends—the plan under which investors can choose to be paid in shares instead of in cash.

Shell topped forecasts with its Q3 earnings, but has yet to announce that it will be ending its scrip dividend program. Shell paid total dividends to shareholders in Q3 of US$4.0 billion, of which US$900 million was settled by issuing 33.8 million A shares under the Scrip Dividend Programme.

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“I’d like to see them [Shell] announce the turning off of scrip, start talking about the $25 billion buyback - it has been a while since they spoke about that,” Jags Walia, asset manager at Dutch pension fund APG, which holds shares in both Shell and BP, told Reuters on Thursday. 

“The pressure is on Shell to draw a line in the sand and commit to end scrip dividend,” Brendan Warn, analyst at BMO Capital Markets, tells Reuters, adding that if Shell announces the end of the scrip, it would send a signal that Big Oil has really learned to live in the lower-for-longer oil price world.

Norway’s Statoil continues its scrip program through Q3 2017, while France’s Total said in August that after closing the deal to buy Maersk Oil that it would consider removing the discount offered on the scrip dividend.

By Tsvetana Paraskova for Oilprice.com

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