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In the Big-Oil Buyback Splurge, Shell Is Especially Generous – WSJ

European energy giant’s 13% distribution yield in 2022 was higher than those of Exxon and Chevron

Shell became the latest big energy company to report record results for 2022.
Shell became the latest big energy company to report record results for 2022.(Martha Lavandier/AP)

Carol Ryan, WSJ

LONDON
Energiesnet.com 02 06 2023

Oil-and-gas giants on both sides of the Atlantic are printing cash as energy prices stay higher for longer due to the war in Ukraine. Based on the share of its market value it is handing back to shareholders, London-listed Shell SHEL 1.16%increase; green up pointing triangle appears particularly enticing.

On Thursday, Shell became the latest big energy company to report record results for 2022. U.S. competitors Chevron and Exxon Mobil have posted bumper profits in recent days. Shell more than doubled its adjusted earnings to $39.9 billion, breaking the previous record set in 2008. It also made $17 billion more than it did in 2014, when Brent prices were at similar levels to today.

One reason is a strong end to the year for its huge liquefied-natural-gas business. A stellar result from the integrated gas division helped push fourth-quarter earnings to $9.8 billion, almost $2 billion higher than analysts had expected. The shares rose 2%. The good news was a welcome change from the weak third quarter, when hedges that went sour due to volatile energy prices dragged on group profit.

In total, Shell handed $26 billion to its shareholders last year. The company’s all-in distribution yield, measuring total dividends and buybacks as a share of average market value, was 13% in 2022, according to brokerage Bernstein, compared with 8% and 7%, respectively, at Exxon Mobil and Chevron.

Some of that difference reflects the widening valuation gap between European and U.S. oil-and-gas stocks. Shell changes hands for under seven times forward earnings, compared with roughly 11 for Exxon and Chevron. Investors are dubious that a push into renewables at Shell and BP can deliver the same returns as fossil fuels.

But there has also been a major step-up in share buybacks at Europe’s integrated energy companies. In 2022, they spent $42 billion on their own stock, up from $9 billion in 2021. 

That can only last as long as companies are making fat profits. Yet it also fits with a wider trend toward share buybacks among European companies, particularly in the energy and finance sectors. Bernstein calculates that European companies announced buybacks equivalent to 2.4% of their market capitalization on average over the last 12 months, compared with 2.2% for U.S. companies—the first time in at least 20 years that the region has overtaken U.S. equities on this measure.

For now, the cash is still coming. Shell increased its fourth-quarter dividend by 15% and said it would buy back $4 billion worth of its shares between now and its first-quarter results. Europe’s energy majors have work to do to close the widening valuation gap with their American competitors. Generous shareholder returns should help.

Write to Carol Ryan at carol.ryan@wsj.com

Appeared on the WSJ in the February 3, 2023, print edition as ‘Shell Is Very Generous With Buybacks’.

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