If you examine the history of the world since oil became a fuel of choice to help run our lives, the history is mixed with big oil. Originally it was Standard Oil and John D Rockefeller which was broken up to into 7 very large companies. The ones based in Europe have always had a government backed portion which meant finding and developing oil was in the national interest. The big oil companies in Europe are BP, Royal Dutch Shell, TotalEnergies, Equinor and Italy’s Eni. All the companies went all over the world to discover oil and influence the governments where the oil was discovered.
In Europe, climate change is more ingrained into the politics of Europe than it is in America and according to an article by Ron Bousso and Sabrina Valle, the big oil companies in Europe will become less dependent on oil and more on greener companies.
In the oil industry, similar to every commodity based company, once oil is discovered in a commercial pool, the cost of finding the oil and the cost of selling the oil is based on the commodity price. For the oil companies, the price of oil has gone up over the years and the big oil companies still have reserves discovered at low prices. Typically, the oil companies would determine long term projects than would cost billions to discover more commercial oil.
Times have changed and the big European companies are now doing a different strategy which includes giving shareholder the lion’s share of cash. For example, Shell sold its Permian shale oil business (Texas holdings) for $9.5 billion, promising to return $7 billion to shareholders. BP has said it will cuts its output to roughly one million b/d by 2030 from 2019 levels.
In contrast, the American based companies such as ExxonMobil and Chevron, encouraged by the White House are spending more money on oil projects.
In 2022, European firms are set to return to investors, a record $54 billion in dividends and share buybacks, according to analysis by Bernstein, while Exxon and Chevron are set to pay out more than $30 billion.
Linking to dividend paying stocks, the big oil companies around the world for generations have been some of the biggest dividend paying companies to own. Given high oil prices it is hard not to have money in the sector, the issue an investor should consider is if you own European big oil the dividend payout is likely higher or own US based companies which pay dividends and find new discoveries.
There are more questions than answers, till the next time – to raising questions.