Shareholders demand Big Oil return

Nov 07, 2013
<p>Investors ask energy firms to cut capital spending programs amid analyst pessimism</p>

Shareholders have confronted Big Oil executives this week over concerns surrounding poor potential returns and costly projects, as oil companies post disappointing third-quarter results.

The world’s five leading oil firms – BP, ExxonMobil, Chevron, Royal Dutch Shell and Total, collectively known as Big Oil – have since promised to control spending and return cash to stakeholders through asset sales, share buybacks or dividends. Analysts, meanwhile, remain pessimistic about stock prices that continue to drag.

Most oil firms are exponentially increasing their spending as they attempt to boost production by drilling in costlier and more remote parts of the world, including US shale projects and deep-water fields off the coasts of Africa and Brazil.

BP – the smallest of the Big Oil firms – made the most immediate changes, after raising dividends, cutting plans to spend capital and boosting its asset sales target to $10 bn over the next two years. Shareholders should see a return in the near future, considering that such targets were previously set at between $4 bn and $6 bn.

The other four firms recognized a need to severely cut spending in order to fairly reward investors, but are yet to announce major changes. Exxon outlined vague plans to reduce its capital expenditure next year after it carried out $41 bn of planned spending in 2013. The firm’s executives said they had returned $5.8 bn to shareholders in the third quarter through dividends and share repurchases, though it is yet to announce any increases in the value of the former.

French fuel giant Total also announced that its capital spending is set to peak this year at between $28 bn and $29 bn, and is due to fall to around $24 bn between 2015 and 2017. Its shareholders have already benefitted from a rising share price.

The five firms have all performed poorly against the global MSCI World index this year, which is currently up 20.6 percent for the year to date, even with share buybacks already in motion.

The news comes alongside the revelation that Big Oil companies could reap significant profits if the Environmental Protection Agency (EPA) follows through on suggested proposals to cut the Renewable Fuel Standard (RFS) requirement for biofuel blending.

Analysis conducted in the ethanol industry finds the oil industry could make $9 bn-$14 bn in 2014 if the EPA were to change the RFS obligation from a statutory level of 14.4 bn gallons to between 12.36 bn and 13.18 bn.

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