Top U.S. energy companies last year paid out more of their earnings to shareholders than they invested in new oil and gas fields for the first time, according to a report released on Tuesday.
The outlook for stronger energy prices has not changed the focus on investor returns from the U.S. industry, according to the report’s authors, Ernst & Young LLP. U.S. energy companies have been focused on regaining favour with investors after years of overspending on production growth hurt returns and put them in the doghouse.
The returns focus has lifted the energy sector to about 4.5 per cent of the S&P 500′s market valuation, a doubling of its weighting since 2020, but well below its 8-per-cent average.
Spending on dividends and share buybacks by the top 50 U.S. independent oil and gas producers hit US$58.8-billion last year, topping the US$55.1-billion allocated to exploration and development, according to the EY research.
Combined profits of the group, which includes shale stars such as DiamondBack Energy Inc., Pioneer Natural Resources Co., and ConocoPhillips, topped US$333-billion last year, a third more than the US$217-billion in 2014, when U.S. spot oil prices averaged US$93 a barrel.
Last year’s investor payouts were up substantially – 214 per cent over 2021 and more than sevenfold over 2020 levels, the report said. Money spent on finding and tapping oil and gas also rose, but as a much slower pace.
“We expect this will continue even in a high interest rate environment or a high oil price environment,” said Bruce On, a principal in EY’s strategy and transactions group. One new outlet for the cash is acquisitions, which have risen this year and could continue next, he said.
Returns benefited from strong oil and gas pricing and a cost-consciousness that emerged after energy prices collapsed three years ago. Profit per barrel last year hit US$32 compared to about US$10 in 2014, when energy prices were about the same level as today, EY said.
Energy’s market weight as a percentage of the S&P 500 remains below its historical average of about 8 per cent even after doubling from three years ago.