Oil majors record biggest cash flow since 2008, but green investment slows

Exxon Mobil, Chevron, Shell, BP, and Total have recorded a combined cash flow of $31 billion in the fourth quarter 2021, funnelling cash back to investors and strengthening their balance sheets, however, new findings show they are taking their foot off the gas on green investment.

According to Bloomberg’s estimates, ExxonMobil, Chevron, BP, Shell, and TotalEnergies also booked combined adjusted net earnings of $31 billion for Q4 2021—the highest for any quarter in more than nine years.

The first to report earnings was Exxon Mobil, which had earnings of $23 billion in 2021—a major swing back from the loss of $22.4 billion reported in 2020. With that cash, Exxon raised dividends and laid out plans to repurchase $10 billion in shares over the next 12 to 24 months. This behaviour was expected from the company, which has raised annual payouts for 39 years in a row, making it one of corporate America’s “dividend aristocrats.”

Where ExxonMobil is scaling back is its new investment. The company is looking to spend between $21 billion and $24 billion this year—a big drop from the $30 billion to $35 billion a year set out by chief executive Darren Woods in 2019. Woods’ reversal on the pre-pandemic growth plan will keep capital spending at low levels, which translates to high commodity prices and massive cash flow.

Chevron chose a similar route: It will be buying back $5 billion in shares a year, raising its dividend, and scaling down its investments to $15 billion this year from the $20 billion promised in 2019.

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“We are working hard to win back investors. This is a sector that has underperformed for 10 years, for five years, for three years,” Pierre Breber, Chevron’s chief financial officer, told the Financial Times.

As the price of oil nears $100 a barrel, the heads of top energy companies told Reuters that prices are expected to stay volatile, giving little incentive to invest billions into low-carbon projects that could take a decade or more to show a return on investment.

Sam Fankhauser, professor of climate economics and policy in the Smith School at the University of Oxford, says increasing dividends and buying back shares detracts from green investment in the near term.

“In the short term it does because it’s money that you could have invested and didn’t,” said Fankhauser, who added that “the companies will give you the medium- to long-term answer, which says if we don’t keep our shareholders happy, we will not be able to raise money, which we will have to do for even more investment.”

Fankhauser notes the big oil companies are “playing the long game, and they’re making their sector and their business attractive to investors, which they will need.”

While rising oil and gas prices offer oil supermajors the resources to accelerate green investments, Biraj Borkhataria, cohead of European energy research at RBC Capital Markets, told Fortune that he didn’t expect companies to “meaningfully” ramp up activities to transition away from oil and gas.

That’s because those who have kept their core petroleum business—now highly profitable—today have an advantage over those who have already made moves away from oil and gas. “A highly profitable core business effectively funding the transition is a huge differentiator at these commodity prices,” he said.

In 2020, it was easier for investors to cite ESG reasons for their decision to not be invested in oil and gas, Borkhataria says. “That was when oil was less than $40 a barrel,” he said. Today, however, that has changed: “At $90 a barrel energy companies are highly cash generative and also remain an inflation hedge for investors.”

With oil prices—and oil stock returns—soaring, Borkhataria says investors may just hold their nose: “We think the ESG concerns can be worked out…”