ExxonMobil: oil major is right to focus on pumping shareholder returns

Big Oil companies gush profits as readily as Wall Street gushes affection for their shares. At the White House a different sentiment prevails. President Joe Biden has threatened to impose a windfall tax on major oil companies unless they increase output.

ExxonMobil’s latest payout plan will do little to defuse tensions. The US oil producer intends to expand its share buyback programme for a second time this year. It will spend $50bn from this year to 2024. That is an annual increase of 11 per cent from the current programme — one that was only announced in April.

Biden’s case for a windfall tax — variations of which are already in place in the EU and the UK — may seem straightforward. In the wake of Russia’s invasion of Ukraine, sky-high oil prices have allowed integrated oil companies to profit from helpless consumers. Exxon is expected to earn a record $59.4bn in net income this year.

Yet Big Oil has good reasons to resist pressure to rush into new drilling projects and focus on shareholder returns. The boom-to-bust nature of the energy industry means high oil prices come and go. Oil majors such as Exxon lost tens of billions of dollars in 2020 when oil prices collapsed during the coronavirus pandemic. Many smaller producers went bankrupt.

Increased share buybacks will placate investors who might object to Exxon’s plans to boost capital expenditure just as crude prices are retreating. Exxon plans to spend between $23bn and $25bn on energy projects next year, up from around $22bn this year.

The company may well hope that steadily falling gasoline prices help to distract politicians. The national average cost for a gallon of regular unleaded petrol, currently $3.33, according to AAA, is down 12 per cent from a month ago and a third lower than the record $5.02 in June.

Even if crude prices just hold steady from today, the chance of another embarrassing largesse will fade next year. Further calls for windfall taxes should fade along with it.