The world’s biggest oil companies are generating record profits, and they’re using a big part of the windfall, worth tens of billions of dollars, to buy back their own shares.
BP, Chevron, Exxon Mobil, Shell and TotalEnergies are on track to report some $60 billion in profits for the second quarter. Half of that is accounted for by Chevron and Exxon, which reported record profits on Friday. Shell and TotalEnergies reported bumper earnings on Thursday and analysts expect similarly big things from BP next week.
Oil companies have profited from high energy prices, which have risen since Russia invaded Ukraine and supply has struggled to keep up with demand. Some of those enormous earnings have been reinvested in expanding operations, improving technologies and hiring workers. But much of that money has also gone toward share buybacks, which primarily reward shareholders by raising the value of a company’s stock.
The five oil giants spent more than $20 billion on buybacks in the first half of the year, and are likely to spend even more in the second half.
“It says that they’re comfortable about the future of their business,” Faisal A. Hersi, an energy analyst at Edward Jones, said of the buybacks.
Chevron, which spent nearly $4 billion repurchasing its own shares in the first half of the year, raised the upper limit of its buyback target for the full year to $15 billion, up from $10 billion before. Exxon, which spent $6 billion on buybacks in the first half, said on Friday it was “on track” with a plan for $30 billion in buybacks in 2022 and 2023, a target that it tripled a few months ago.
Shell said it would repurchase $6 billion in stock in the third quarter and TotalEnergies’ plan for $2 billion in third-quarter buybacks was seen as overly conservative by comparison, so the company’s stock has not risen as much as the others this week.
Investors have been keeping a close eye on company earnings this quarter, as fears rise about a potential recession’s effect on business conditions. Energy companies stand out for their bullishness, especially when compared to their counterparts in other industries. Big banks, including JPMorgan Chase and Citigroup, said this month that they were pausing share buybacks to conserve capital and meet regulatory requirements.
Energy companies using windfall profits to buy back shares is doubly contentious. President Biden has accused oil companies of profiteering off surging energy prices and Britain, home of BP and Shell, has announced a special tax on the “extraordinary” profits of oil and gas companies. Spending money on buybacks, instead of investing in expansion or hiring workers, has also attracted the ire of politicians, with Senator Elizabeth Warren of Massachusetts calling them “manipulation” and fellow Democrats proposing a tax on buybacks.
