Shareholder power dominates big oil results

LONDON/HOUSTON: Oil industry shareholders sick of poor returns and worried that company bosses will waste cash on costly projects are getting their message across, third quarter results from the industry's top players showed this week.
All of the world's top investor-controlled companies were anxious to emphasize their efforts to control spending and to play up aggressive asset sale programs that might also finance share buybacks and dividend increases in future.
BP, the smallest of the top five, was also the most aggressively compliant, raising its dividend, cutting back capital spending plans, and ramping up its asset sales target to $10 billion over the next two years from between $4 and $6 billion previously - cash that will also go back to shareholders.
"At the moment the market likes oil companies that cut back on expenditure and pay out big dividends," said Malcolm Graham-Wood, analysts and adviser at VSA Capital.
The top five, Exxon Mobil, Chevron, Shell, Total and BP have all badly underperformed the global MSCI World index this year, which is up 20.6 per cent in the year to date, even with share buybacks already in train.
The worst performers are Exxon, whose shares have managed just a 2.6 percent rise, and Shell, down 5.8 percent. They are also the two companies seen as most resistant to pressure to give more cash back to shareholders.
Shell's finance director Simon Henry launched a stinging attack on short-termism gripping the industry along with his company's results — even though Shell is itself buying back $5 billion worth of stock this year and paying out $11 billion in dividends after raising its payout at the end of 2012.
"Those who are cutting capex are being very highly rewarded ... 10-15 years ago the entire industry cut capex, obsessed by returns and with the market egging them on, but cutting investment is one of the reasons we've got a $110 oil price," he said after third-quarter results.
Shell was among the cutters last time around as the industry retrenched 10-15 years ago, sacking engineers and pulling back from investments to an extent that made it hard to respond to an upturn.
The company ended that period with a damaging reserves downgrade in 2004 that took years to recover from.
"What you're seeing is more of an olive branch being put forward by names like BP and Total than Shell in recent quarters," said Nomura analyst Theepan Jothilingam, "and in the background Shell's net investment number has continued to rise — but one needs to be careful about being positioned for the long term in terms of the right balance between investing for the future and cash return today."
Reduced spending by the top companies could be bad news for the service firms that provide rigs and help engineer new projects, although French services group Technip on Thursday brushed aside those concerns.
"I think this discipline will be applied to investments (in the downstream), and that it remains still very positive for investments in exploration and production," said Chief Executive Thierry Pilenko.
The third-quarter results themselves were a mixed bag, with BP and Total beating analysts' expectations, Shell missing, and Exxon landing in line.
Weak refining margins — well flagged by the industry — reduced profits across the board compared with a year earlier.
Chevron's results are due out on Friday.