Europe’s biggest oil companies Shell (SHEL.L) and TotalEnergies (TTEF.PA) extended their share buybacks on Thursday after their second-quarter profits beat an already record previous quarter on the back of soaring crude prices, gas and petroleum products.
The two companies combined are repurchasing $8 billion of stock in the third quarter after posting their highest respective quarterly profits while keeping their dividends stable, which could disappoint some investors.
Benchmark Brent crude oil futures are up more than 140% in the last twelve months, averaging around $114 a barrel in the quarter.
High crude prices normally weigh on refining margins, but tight supplies of refined fuel supported record second-quarter profitability, with Shell’s refining margin hitting nearly $28 a barrel.
Benchmark natural gas prices in Europe and global liquefied natural gas prices averaged all-time highs during the quarter.
Buoyed by record quarterly profit of $11.5 billion, Shell is buying back $6 billion of its own shares by the end of October, it announced on Thursday, following an 8-year buyback program. .5 billion completed in the first half.
Although this exceeds the company’s forecast for a shareholder return of up to 30% on cash from operations, Shell has not increased its dividend from its current level of 25 cents per share, an annual increase of 4% after a 60% reduction during the pandemic.
TotalEnergies, with a 9% rise in quarterly profit to $9.8 billion, said it would buy back $2 billion in the third quarter after buying $3 billion of its own shares in the first half.
It had already announced a 5% annual increase in its first quarterly dividend for this year to 0.69 euros per share, and said on Thursday it would maintain that level for its second interim dividend of 2022.
“(TotalEnergies) has chosen to hold its buyback stable until (third quarter), which may disappoint some investors given the current macroeconomic environment,” said RBC analyst Biraj Borkhataria.
Shares of TotalEnergies fell 2.1% and shares of Shell rose 1.6% after the earnings announcement, after rising around 35% and 49% respectively in the past twelve months.
That compares to an index of European oil and gas companies (.SXEP) gaining 1.6% in early trading.
The buyouts of Europe’s two largest oil and gas groups by market capitalization came the same week Norway’s Equinor (EQNR.OL) raised its 2022 dividend and share buyback forecast by 30% to a total of about $13 billion.
Small rival Repsol (REP.MC) also announced on Thursday a strengthened share buyback program thanks to windfall profits, which doubled in the first half.
A rapid recovery in demand after the end of pandemic shutdowns and a spike in energy prices driven by Russia’s invasion of Ukraine boosted profits for energy companies after a two-year recession.
The strong profit windfall has allowed companies to reduce debt piles that have risen sharply during the pandemic as well as boost returns for shareholders.
TotalEnergies’ debt ratio, or leverage, fell below 10%, half its level a year ago, from 12.5% in the first quarter, while Shell’s fell to 19, 3% versus 21.3%.
Eni, Exxon and Chevron are due to announce their results on July 29 and BP on August 2.
(This story corrects bullets to note second quarter)
Source: Reuters (reporting by Shadia Nasralla; editing by Jan Harvey)