What should big oil do with profits
The dark storm clouds that have been hanging over the oil industry during the crude-price slump have suddenly started raining cash.One of the things that is needed in the energy business is refineries that can process the light crude being produced from shale wells. One of the things that might hamper such an investment is the steel tariffs the Trump administration has imposed. The energy companies should be able to make a deal that would allow them to get the steel they need for that project in order to create domestic jobs and make the US less dependent on imported heavy crude needed for current operations. That would have a long-term benefit to the US economy and to US national security. They should try to get this deal.
After cutting billions of dollars of costs to survive the biggest downturn in decades, Big Oil is now riding a price rebound to generate enough cash to pay dividends and still have plenty left over. The big question is what they’re going to do with it.
Company bosses are at a crossroads. On the one hand, investors who stuck around during the price collapse want to see money returned through share buybacks. On the other, CEOs still have an eye on growth -- either through investments, acquisitions, or both. On either path, they would still have to maintain hard-earned discipline on spending.
“Rolling back a year ago, the narrative was around the sustainability of dividends. Now it’s about shareholder returns in excess of those dividends,” said Ryan Kauppila, a Boston-based fund manager at Putnam Investments, which manages $172 billion. “The market is still very focused on capital discipline. That doesn’t mean don’t spend, it means spend it well.”
Investors will be listening keenly as Big Oil’s second-quarter earnings roll in starting July 26, when Royal Dutch Shell Plc, Total SA, Equinor ASA and Repsol SA report. Exxon Mobil Corp., Chevron Corp. and Eni SpA announce the next day, and BP Plc on July 31.
These eight companies, and Galp Energia SGPS SA, will together have $8 billion of surplus cash in the second quarter even after stock repurchases, according to Royal Bank of Canada.
The hunt for growth has already started. BP has emerged as the front-runner to buy BHP Billiton Ltd.’s onshore oil and gas operations in the U.S., and is competing with Shell and Chevron, according to people familiar with the sale process. BP’s offer, said to value the assets at about $9 billion, would make it the company’s biggest deal in years.