Over the last years many energy companies made gigantic windfall profits which allowed them to ramp up their shareholder distributions. Dividends and buybacks are often the reasons for investments in big energy companies. Since the high in 2022, oil prices have almost halved, though. With the main driver oil now trading around 60–65 USD, the question arises whether these generous payouts are sustainable. Short answer: no, if we see a longer period of low energy prices. What does this mean for the Supermajors and their investors? And how do I handle this unfavorable environment? Is it maybe even advantageous for my setup?

Summary and key takeaways from today’s Weekly
– The Big Oil Majors have been paying out dividends and conducting buybacks very generously in the recent past.
– But this should slow down now, especially for Exxon Mobil and Chevron.
– I explain why it makes more sense to look for smaller energy companies and lay out their competitive advantages.

Let’s be honest, most investors buy shares of the Big Oil companies primarily for their dividends. More seasoned people know these companies respectively their equities mostly rely on energy prices. Oil and gas up, stocks up and vice versa.

That’s the back-the-envelope equation.

As Supermajors are too big to grow much organically, the second instrument they frequently use when flush with cash are buybacks. The issue is most of these corporates repurchase their shares pro-cyclically, i.e. when energy prices and their equities (as well as valuations) are high.

I hate that.

These three arguments – practically no growth, almost entirely dependent on the price of energy and pro-cyclical buybacks rather lead to lackluster stock returns.

And they bring new risks with them. First they cannot outperform the market if energy prices aren’t supportive. Second, they are occasionally doing big acquisitions which often lead to levered balance sheets, share dilutions and not seldom to the destruction of shareholder value. Of course, all three combined is not ruled out, either.

Now that we are having again a less supportive environment, the question arises what to expect if energy prices, primarily oil, stay where they currently are? Or even worse, what if we see another dip? Are shareholder distributions safe?

And what does this mean for my setup, as I have presented a few energy stocks to my paid-members?

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Will Big Oil (have to) reduce its distributions?

On purpose am I using the word “distributions”. It does not only contain dividends, but also buybacks which I am calling directly by their names each.

With oil prices now around 60–65 USD per barrel and the commonly shared view that there’s little upside under current circumstances, it is not brave to assume these companies won’t be earning as much as compared to oil prices of 80–100 USD (or even more like during the spike in 2022).

This is a no-brainer correlation, but there’s a reason why I am writing this so explicitly.

Namely, many of the dividend hikes and current stock buybacks were announced when oil prices were noticeably higher. This is important to understand. As a consequence, when earnings respectively free cash flows take a meaningful hit (they do disproportionately due to high fixed-costs), a readjustment is unavoidable if the status quo shall not be debt-financed.

Let’s have a look at how the Supermajors acted during the oil price crash of 2020.

Exxon Mobil (ISIN: US30231G1022, Ticker: XOM) and Chevron (ISIN: US1667641005, Ticker: CVX) kept their dividends stable, but at the expense of their balance sheets. The French TotalEnergies (ISIN: FR0000120271, Ticker: TTE) also kept the dividend stable, but they used a mix of more debt and a stock dividend (paid one quarterly dividend with new dilutive shares instead of cash).

The two British representatives, Shell (ISIN: GB00BP6MXD84, Ticker: SHEL) and BP (ISIN: GB0007980591, Ticker: BP.) axed their dividends as their balance sheets already were strongly levered. In the case of Shell this was the first cut since almost 80 years back then. Very painful.

Below is a chart showing in a simplified way the development of each company’s free cash flow (focus only on the broad trend here).

You can imagine the price of oil having done the same move – more or less.

These companies are of course more than just oil producers, but this approach works fine as a broad yardstick. I want to keep it simplified on purpose as my focus is on something else.

Speaking of distributions, here’s the chart showing the evolution of share buybacks with from left to right: Shell in rose-red, Chevron in gold, TotalEnergies in dark-green, BP in red and Exxon in light-green.

At first sight a bit more complex, but basically the trend is the same.

Little activity before 2022 due to low oil prices, a big explosion in 2022, still high but a bit less in 2023 for most and since then again less. The only exception here seems to be Exxon (light-blue column).

It should not be surprising that with lower energy prices and less cash flow generation distributions are not likely to be sustained at highs levels. But what does this mean in practice with concrete numbers?

Here’s for each company a breakdown of free cash flow generation (blue) and how much they spent on dividends (black) and buybacks (green).

I have taken away the pointer on purpose from the chart in order to not cover up the columns. From the charts, it becomes evident that free cash flows have been melting slowly to noticeably lower levels. The numbers go only until year-end 2024.

Below is now a table with the latest figures as per Q1 2025.

	free cash flow last twelve months (in bn. USD)	dividends + buybacks last twelve months (in bn. USD)
Exxon Mobil	28.2	38.6
Chevron	13.5	27.5
TotalEnergies	16.9	17.7
Shell	31.2	24.1
BP	10.1	12.2

^{source: own table, data from tikr}

In a nutshell, Shell looks like the only one capable to sustain their pace. TotalEnergies and BP have been paying out a bit more than they generated in FCF. Exxon and Chevron are clearly over-shooting.

The problem is the price of oil is on its lowest level over the last twelve months (Q2 started after where I set the cursor), i.e. future free cash flows could be a lot lower.

“Could”, because the companies have a few levers to pull. They can and likely will reduce investments and try to cut costs where possible to preserve cash and cash flow.

But this doesn’t change the fact that the current environment could be challenging.

I do not expect any dividend cuts at the moment. Also, I am expecting the companies to defend their dividends for as long as possible. Even if they should pay out more in cash than they generate for a quarter or two.

For a cut, we would need substantially lower oil prices.

Here’s another table showing the free cash flow and only the dividend without buybacks which likely will be lowered first.

	free cash flow last twelve months (in bn. USD)	dividends last twelve months (in bn. USD)
Exxon Mobil	28.2	17.2
Chevron	13.5	11.7
TotalEnergies	16.9	8.0
Shell	31.2	8.6
BP	10.1	5.0

^{source: own table, data from tikr}

From this table, we can see that currently all dividends are covered by free cash flow.

But one thing caught my eye. Remember when I wrote above that oil prices are now the lowest over the last twelve months and thus cash flows could be pressured?

Case in point, it looks like Chevron could be the first to be challenged.

They will definitely not axe their cash payout immediately. Not even if it would cost them more than they generated in cash. However, per last count, Chevron had only 4.6 bn. USD in cash on the balance sheet. A quarterly payments costs them almost 3 bn. USD. So it is almost safe to say that they will massively lower their buyback.

As to the dividend: No cut immediately, but it needs to be watched!

Exxon has clearly more breathing room with 17 bn. USD in cash on the balance sheet while a quarterly dividend costs a bit less than 4.5 bn. USD. But here, too, buybacks will likely be lowered meaningfully.

The European counterparts have more breathing room, but with the exception of Shell I am also expecting at least partially lower buyback activity at these oil price levels.

With this, my conclusion until here is that Exxon and Chevron, especially the latter, very likely will have to lower their share repurchases. This is again pro-cyclically, this time the other way around. At lower prices less or maybe even no buybacks while at the highs they were going full steam ahead.

In an article on Seeking Alpha (see here), analysts are quoted with needed oil prices of 95 USD for Chevron and 88 USD for Exxon to sustain the current total shareholder distribution pace, i.e. dividends and buybacks.

That fits perfectly with my calculations.

As to my strategy and whether this is not bad news for my stock ideas for my paying members: No, it could be even beneficial.

Am I nuts? Lower oil prices shall be good for my energy / oil stock ideas?

Yes, indeed.

While in the short-term on the surface, lower oil prices will clearly also negatively affect the financial results of my chosen picks, they have a few key advantages.

The proof that this pick works: While during 2024 the price of oil closed slightly on the negative, Vista’s stock almost doubled. It doesn’t look that bad over the last twelve months, either.

Despite a correction from its all-time high early this year, Vista still is up 11% while the price of oil is down by 22% over the same period.

Another idea, where I have not disclosed the company for now, is a small producer that, too, has low production costs. This time even in the mid-20s USD.

While I also had Petrobras (ISIN: BRPETRACNPR6, Ticker: PBR.A) as an active case in the past, I had closed it last year due to politics in Brazil.

That was a good choice as since then the stock is down by 18%.

Of course Petrobras has been paying huge dividends. But I was directionally right with my move to close the case. Their dividends are being lowered with lower free cash flow which makes them dependent on the price of oil more compared to my still-active cases.

I want to close this Weekly with a few words on why I still remain so relaxed regarding oil. Why do I not fear lower prices which would push down my energy-related ideas?

The reason is that I expect a negative surprise from the supply side in the sense that a supply shock will send oil prices higher again – no matter whether there’ll be a recession or not.

In its letter to shareholders, the management of one of the biggest independent energy companies with activities in the Permian Basin in the US, Diamondback Energy (ISIN: US25278X1090, Ticker: FANG) wrote in brief that at current levels the US’ production will have peaked.

Period. Either higher prices or supply has reached its maximum.

I have written numerous times about this topic in the past. This only confirms my thesis. Once the US shale revolution tilts, the price of oil is much more likely to rise than to fall.

The reason is that US shale was the main growth driver over the last more than 15 years for worldwide energy production, turning the US from a net importer to a net exporter. You can just search for “shale” in the search bar above if you’re interested in more background. I can also highly recommend to read my Weekly about why recessions do not necessarily align with falling commodity prices (see here).

With that, if one believes in at least stable oil prices with the potential for more, it makes more sense to look for smaller companies like those I have presented to my paid-members. They have clear competitive advantages, no burden to sustain a dividend and are able to develop an own life in the sense that their stocks can rise, even meaningfully, despite lower oil prices.

As a bonus, many qualify as takeover targets. This is never the primary thesis, but a nice to have.

Conclusion

The Big Oil Majors have been paying out dividends and conducting buybacks very generously in the recent past.

But this should slow down now, especially for Exxon Mobil and Chevron.

I explain why it makes more sense to look for smaller energy companies and lay out their competitive advantages.

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