(The opinions expressed here are those of the author, a

columnist for Reuters.)

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Oil majors cut spending, boost shareholder returns amid

uncertainty

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Exxon Mobil ( XOM ) bucks trend with increased spending,

production

plans

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Peak demand narrative persists despite geopolitical energy

shocks

By Ron Bousso

LONDON, March 26 - Top oil and gas companies are losing

confidence in the outlook for their core businesses.

Recent strategy updates by leading European and U.S. energy

firms saw them lower capital expenditures while increasing

shareholder payouts. This looks a lot like the beginning of a

long-term managed decline.

While there is no question that oil, and especially gas,

will continue to fuel global economies for decades, there is

tremendous uncertainty about the price outlook due to the

acceleration of alternative clean technologies such as wind,

solar and biofuels.

Oil and gas is a capital-intensive industry requiring heavy

investment simply to maintain production, and project lead times

are very long, so cutting spending now sends a clear signal

about a company's long-term trajectory.

Indeed, the boards of top European oil companies have

recently slowed down, or even abandoned, investments into

renewables. While that allowed them to shift more capex towards

oil and gas, overall spending has been moderated. Oil and gas

output is expected to be flat or grow in the low single-digits

by the end of the decade.

Shell on Tuesday lowered its annual spending

outlook to $20-22 billion through 2028, down from previous

guidance of $22-25 billion per year, while also noting that it

will keep oil output flat at 1.4 million barrels per day. It

will instead focus on growing liquefied natural gas sales by

4%-5% per year.

At the same time, Shell raised guidance for shareholder

returns - dividends and share repurchases - to 40-50% of cash

flow from operations, up from 30-40%.

BP, which is facing the fallout from a disastrous

attempt to swiftly pivot towards renewables, announced last

month that it was slashing spending to $13-15 billion per year,

compared with $16.2 billion in 2024, while also seeking to boost

shareholder returns.

France's TotalEnergies is taking a similar

approach.

EXXON EXCEPTION

Over in the U.S., Chevron ( CVX ) plans to cut spending

while growing production by 5%-6% between 2024 and 2026, after

which growth is set to decelerate. That could change if its $53

billion acquisition of Hess goes through, but this consolidation

points towards more spending cuts ahead.

The big exception here is Exxon Mobil ( XOM ), the largest

U.S. oil and gas producer, which has a history of being

countercyclical. It plans to increase spending to $28-$33

billion per year between 2026 and 2030 from $27.5 billion in

2024 while also increasing production to 5.4 million bpd from

4.3 million bpd last year.

This divergent strategy reflects the company's dominant

presence in two of the world's fastest-growing and lowest-cost

oil and gas basins, the Permian shale basin in the United States

and Guyana's offshore areas. Other Western majors simply cannot

compete with that.

So if one takes a short-term view, the change in strategy by

most top oil and gas companies makes sense and is positive for

investors. Rising uncertainty about the industry's outlook is

leading to improved discipline aimed at avoiding the value

destruction that blighted many companies' performance over the

past decade.

But this industry has always taken a long-term approach due

to the longevity of its investments, and the current strategies

largely ignore future risks.

PEAK DEMAND

Less than 20 years ago, the industry was focused on peak oil

supply, the idea that existing fossil fuel reserves would not

meet surging global demand. Rising energy prices and bullish

investors encouraged energy firms to explore and develop new

resources such as deep water reservoirs and, crucially, the U.S.

shale basins. This, in turn, revolutionized the industry and led

to a surge in oil and gas production from non-OPEC members.

In the middle of the last decade, the prevailing concern

started shifting to peak oil demand as discussion of the energy

transition increased. And there are now already indications that

gasoline consumption is on the cusp of plateauing in China and

the United States.

Importantly, the peak demand narrative has survived despite

the temporary concern about oil and gas supply that followed

Russia's invasion of Ukraine in 2022. The brief energy price

shock led governments around the world to rethink energy

transition strategies and encourage higher domestic production.

And companies also do not appear to be altering their

strategies following the re-election of President Donald Trump,

whose support of the fossil fuel industry and animosity towards

renewables are well documented.

So, for now, it appears likely that Western oil companies

will remain on their current trajectory, focusing on oil and gas

while reducing spending and sending more cash back to

shareholders.

That should make investors happy in the short term. But

whether the boards of energy majors will find a way to maintain

their companies' scale and importance over the long term, as the

global energy system evolves, remains to be seen.

The opinions expressed here are those of the author, a

columnist for Reuters.

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