Major European oil and gas companies are upbeat that they would reap big profits in the coming quarters after last year’s doldrums caused by the COVID-19 pandemic. Royal Dutch Shell said it would increase dividend payout for the second quarter by nearly 40% and start a $2 billion share buyback. TotalEnergies also said it would allocate as much as 40% of its surplus cash to buy back shares. Equinor on Wednesday said it would launch a share buyback that will amount to $300 million in the third quarter.
This move marked a stark reversal from spending, dividend, and job reductions in 2020 when energy demand and prices crashed due to the health crisis. Analysts said oil companies are trying to win back investors amid growing concerns about climate change. Until recently, these firms have focused on repaying debt and reinforcing their balance sheets after the pandemic ravaged the energy market.
However, commodity prices, including those of fossil fuels, have surged and boosted these companies’ profits. Shell and TotalEnergies reported adjusted net income and cash flow rebounded to pre-pandemic levels in the second quarter. Analysts have predicted the return of profit to pre-pandemic figures. However, they were caught in surprise by the scale of Shell’s dividend boost and stock repurchase.
Analysts said that the move is oil companies’ efforts to win back investors. These companies have focused on transitioning to low-carbon energy, which raised questions among investors about how much it will cost and whether it would hurt the companies’ profit margins. These doubts have put pressure on the companies’ overall valuation, which remains 22% below pre-pandemic levels. Analysts said higher oil and gas revenues would make it easier for these firms to execute their energy transition plans without losing investors.
