Oil companies woo investors with big dividends, climate concerns turn them away

International oil companies recorded a bumper second quarter revenue and are using their excess cash to lure investors but climate concerns leave them unimpressed.

Higher oil prices saw them growing revenue at the rate of 24.9 percent with reported earnings of $15.9 billion compared to a loss of -$10.6 billion in the second quarter of 2020 according to new data from FactSet, an American financial data and software company.

Flushed with cash, these oil companies are turning on the charms rewarding shareholders with higher dividends and share buybacks designed to boost their shares.

Chevron, Marathon Oil, Equinor ASA, and Royal Dutch Shell have announced dividend hikes during their latest earnings call while ConocoPhillips and BP Plc have reinstated share buybacks after bumper earnings.

Shell for example raised its dividends almost 40 percent and launched a $2billion share buyback scheme. TotalEnergies is also proceeding with its own share buyback deal on the back of stronger oil prices.

Companies, often share corporate profits to and return cash to shareholders to make their shares more attractive to investors. For oil companies, struggling to adjust to the reality of energy transition, the gambit is a clever way to return investors turned off by climate concerns and bring new ones.

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Analysts say, the reality of energy transition cannot be wished away regardless of the efforts to make the shares of energy companies attractive.

“For the Big Oil Companies and their shareholders, it is no longer about whether they like to align their models and portfolios with the global energy transition or not, it is now both ethical and moral requirements to align their operational interests with the global decarbonisation agenda,” Uchenna Obi, UK-based clean energy expert.

It is not clear how much good this will be in the long-term. Kathy Hipple, finance professor at Bard College in New York, has told CNBC that Big Oil’s bid to lure back investors with cash rewards is unlikely to work on long-term investors.

The bumper earnings of oil majors should ordinarily be cheering news in a market hungry for yields and see investors beating a path to the door of big oil but many have largely been unimpressed.

Oil companies have struggled to keep their shareholders in line. In May, activist investor Engine No. 1 LLC successfully ousted two directors at the company’s annual shareholder meeting to compel Exxon to embrace a transition away from fossil fuels and power towards a greener energy strategy.

Chevron also suffered shareholder rebellion against the company’s board by voting 61 percent in favour of a proposal from a Dutch campaign group Follow which seeks to force the company to cut its carbon emissions.

The risks of investing in some new oil and gas developments far outweigh whatever anticipated returns on a risk-return matrix says.

“It is a well documented fact that the stocks of some of the big green energy companies are outperforming those of the Big Oil corporations.

“So why wouldn’t investors push for less risky, more stable and guaranteed return that is not only comparable to those of the traditional Oil companies, but that also boost the investors moral and ethical credentials.” said Ibe.

The gravity of the situation is seen in the fact that high yields on oil stocks has not translated to enthusiasm. ExxonMobil currently sports a 6.60 percent dividend yield (Fwd); Chevron yields 5.68 percent, BP 5.56 percent and Shell 5.01 percent, however investors have been largely wary.