Europe’s oil majors leave pandemic blues behind

Europe’s major energy companies profited from a rise in oil prices to report big increases in 1st quarter earnings on Thursday, April 29, putting the worst of the pandemic-driven slump in fuel demand behind them.

Last year’s demand collapse forced BP, Royal Dutch Shell, and Equinor to slash their dividends and preserve cash as they try to transform themselves into companies that can thrive in a low-carbon world.

With benchmark oil prices recovering from an April 2020 low of $16 a barrel to about $67 a barrel this month, most of the companies managed to drive profits back above levels seen before the coronavirus pandemic first struck.

BP’s 1st quarter headline profit figure of $2.6 billion exceeded its 1st quarter profit of $2.4 billion in 2019 and was more than 200% higher than in 2020.

France’s Total reported headline profits of $3 billion in the first 3 months of 2021, up 69% from last year and 9% above the 1st quarter of 2019.

Norway’s Equinor, meanwhile, came in with a 1st quarter profit of $5.5 billion on Thursday, also exceeding its pre-pandemic profit of $4.2 billion.

Shell’s 1st quarter profit climbed 13% from last year to $3.2 billion though that was still below 2019’s $5.3 billion.

But despite recovering profits, payouts were still below pre-pandemic levels with the exception of Total, which had kept its dividend steady throughout the pandemic.

“[Total’s] dividends are held flat but the buyback question will now arise given the sub 20% gearing [debt-to-equity ratio],” Bernstein analysts said.

While Shell has increased its dividend twice in the past 6 months, the 17.35 cents it paid per share in the 1st quarter was below the 47 cents it paid out before the pandemic.

Shell, which is set to increase its dividend by 4% next year, has flagged share buybacks once its debt falls to $65 billion which Barclays and Bernstein say is possible this year.

Equinor also raised its payout to 15 cents per share, but again this was short of 2019’s 26 cents per share.

“The suggestion is that capital is being preserved to allow for an acceleration of new energy investment,” Citi said.

BP’s 3.8 pence per share 1st quarter dividend was about half of what it paid in 2019. However, it is starting share buybacks which analysts expect to increase in the 3rd quarter.

“BP should be able to buy back at least $10 billion between 2021 and 2025,” said analysts at Jefferies.

Spain’s Repsol reported a 5.4% rise in 1st quarter adjusted net profit to 471 million euros, though this was 24% below earnings in the first 3 months of 2019.

It decided in November to cut its 2021 and 2022 cash payouts to 0.60 euro from 1 euro per share, but said share buybacks could push returns above 1 euro per share by 2025. – Rappler.com