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Oil majors paid shareholders $272 bln last year

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Lower oil prices, refining margins to curb profits

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Some companies to borrow, others to cut payouts, analysts

say

By Ron Bousso

LONDON, Oct 1 (Reuters) - Major energy companies are set

to borrow billions to maintain shareholder payouts or cut the

rate of share repurchases in the face of a drop in oil prices

after more than two years of bumper profits, analysts said.

The majors have for decades attracted investors by promising

steady payouts even as the transition to lower carbon energy has

cast doubt over the industry's long-term prospects.

BP, Chevron ( CVX ), Exxon Mobil ( XOM ), Shell

and France's TotalEnergies have paid

investors more than $272 billion in dividends and share

repurchases since the start of 2022.

Energy prices surged after Russia invaded Ukraine in

February 2022 and as the global economy emerged from the

pandemic, generating record profits for the energy industry.

The payout has since been almost double the rate over the

previous 10 quarters, Reuters calculations found.

But a drop in benchmark crude oil prices to below

$70 a barrel last month, their lowest since late 2021, coupled

with a sharp decline in profits for refining oil into fuels, is

set to cut earnings in the coming quarters.

LOST YEAR?

Several banks have in recent weeks cut oil price forecasts

in response to a weak demand outlook and trimmed profits

forecasts for the sector.

"With moderating oil prices and weak refining margins, 2025

could be seen as a lost year for the sector," RBC Capital

Markets analyst Biraj Borkhataria said.

Exxon, Chevron ( CVX ), Shell and TotalEnergies are expected to hold

share repurchases flat throughout next year, and Borkhataria

said they may resort to borrowing money to cover shortfalls when

interest rates are still high.

He said to maintain buybacks at their 2024 levels next year,

based on RBC's oil price forecast, Chevron ( CVX ) would need to borrow

next year $8.6 billion, Exxon $5.1 billion, TotalEnergies $5.6

billion, Shell $3.8 billion and BP $3.1 billion.

BP, which has higher debt than its rivals, is however likely

to slow the pace of buybacks, while returns from Italian energy

company Eni will depend on the scale of its asset

sales, Borkhataria added.

"The difference in your ability to maintain the

distributions is how strong your balance sheet is today, and how

willing are you to re-lever in order to maintain distributions,"

Borkhataria said.

UBS analyst Joshua Stone expects BP to cut its rate of

buybacks to $4 billion in 2025 from $7 billion this year, based

on an average crude price of $75 a barrel. Shell would reduce

the rate of buybacks by $1.5 billion to $12.5 billion while

TotalEnergies should be able to maintain its rate of $8 billion,

Stone added.

"The reality is that buybacks should slow more materially if

prices fall below $70 a barrel," Stone said.

TOUGH CHOICES

In its second quarter results in August, BP said that in

current market conditions it planned to buy back at least $14

billion through 2025 as part of its commitment to return 80% of

surplus cash to shareholders.

With a net debt of $22.6 billion at the end of June and a

market capitalisation of $85 billion, BP has the highest debt

ratio among the oil majors, according to LSEG data.

A BP spokesperson said its returns guidance remains

unchanged and that it maintains a disciplined financial frame.

Chevron ( CVX ), Exxon, Shell and TotalEnergies had no immediate

comment when asked about their planned shareholder returns.

Some have already tapped into cash reserves to stick to

their return promises. Chevron ( CVX ), for example, paid $6 billion to

investors in the second quarter of the year, when its net

earnings reached $4.4 billion while its debt rose by around $2.5

billion from the previous quarter.

Morgan Stanley analysts in late August lowered their

earnings forecast for the sector saying "share buybacks are

maxed out for now".

Investment bank Jefferies lowered its oil price assumption

for the remainder of 2024 and 2025 and said it expects the

sector's earnings to decrease by around 22% in the third quarter

compared to the previous three months.

Companies will try to maintain returns by cutting spending,

primarily on investments in low carbon energy, and by borrowing,

Jefferies analyst Giacomo Romeo said.

"Companies will have to face some tough choices in the

coming months if macro prices don't recover," he added.

(Additional reporting by Gary McWilliams; editing by Barbara

Lewis)