Oil and gas investors appear willing to accept reduced dividends in exchange for increased investments in clean energy initiatives, according to a recent study by Deloitte, as reported by Reuters.
The report highlights that prominent institutional investors in the oil and gas sector are inclined to forgo higher dividends and share buybacks in favour of allocating more resources toward energy transition projects.
Deloitte’s findings, as cited by Reuters, indicate that in 2022, oil and gas companies led all industries in distributing cash to shareholders, boasting a combined dividend and buyback yield of 8%. It’s worth noting that last year saw record-breaking net income from fossil fuel sales, with the global oil and gas industry raking in approximately $4 trillion in revenue.
According to the Reuters report cited, the Deloitte study noted that oil majors Exxon Mobil, Chevron, BP, Equinor, Shell, and TotalEnergies collectively paid out a record $110 billion in dividends and share repurchases to investors in 2022.
Meanwhile, investors holding $2.3 trillion of equity in the global oil and gas industry are changing their expectations about growth markets faster than energy company executives.
The Deloitte study also highlighted the fact that about 75% of surveyed investors stated that they would continue holding shares to accelerate investments in lower-carbon technologies, even if yields shrank to as little as 3%.
The IEA context
In the May 2023 edition of its World Energy Investments Report, the International Energy Agency (IEA) highlighted the fact that the substantial profits generated by the oil and gas sector in 2022 were primarily allocated to boosting shareholder returns and reducing debt.
Only a small portion of the available free cash flow was channelled toward investments in clean energy initiatives.
According to the IEA, oil, and gas companies have a pivotal role to play in facilitating the essential shift of capital towards cleaner energy alternatives, and this can be achieved by redirecting a larger portion of their resources into clean energy projects, including those focused on low-emission fuels.
The IEA wrote:
- “The $1.5 trillion returned to shareholders in the form of dividends and buybacks from 2020 to 2022 could have fully covered the investment requirements in all clean fuels in the NZE Scenario between 2023 and 2030.”
Again, in July 2023, the IEA said that only 2% of oil and gas profits could finance emissions reductions in industry operations.
The agency noted that oil and gas companies need to make sufficient capital available for investments in methane abatement through direct financing by commercial banks and private capital funds, or through securities listed on capital markets that are tied to sustainability performance.
According to the IEA, investors and insurers can establish methane performance requirements for future lending, request disclosure improvements to promote emissions reporting transparency, and set up underwriting standards that include methane reductions.
