Oil Supermajors’ Torrent of Cash Earns Love From Investors

The world’s biggest oil companies are pumping out cash like crude’s at $100 a barrel again, and investors love it.

Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp. and BP Plc smashed analysts’ earnings estimates for the fourth quarter, giving investors assurance that their dividends and buybacks are secure even with oil trading near $60.

Those companies together generated close to $43 billion of cash flow from operations, the highest in more than four years. They achieved this despite a deep slump in crude prices at the end of the year, maintaining returns by keeping a tight grip on spending and squeezing more out of projects at lower prices.

“The 12-month rolling cash flow continues to point upwards, and I think that’s what’s important,” said Oswald Clint, an analyst at Sanford C. Bernstein Ltd. “It isn’t just refining-led improvements, it isn’t just an upstream oil price, it’s widespread across the businesses.”

The market rewarded the companies’ efforts. BP surged the most in almost three years after its profit beat even the most optimistic analyst estimate. Shell’s B shares gained 3.6 percent when it reported earnings on Jan. 31, while Exxon and Chevron increased by a similar amount on Feb. 1. France’s Total SA, the fifth member of the oil-supermajor group, reports earnings Feb. 7.

The group’s strong performance comes at a crucial time. They need to remain attractive for shareholders who stuck with them through a years-long downturn because of the reliability and size of their dividends. Shell’s cash payout of almost $15.7 billion was the largest in the world, besting its Big Oil rivals and other corporate giants such as Apple Inc. and AT&T Inc.

Beyond the dividend, major oil companies need to demonstrate they can maintain share buybacks, increase production, and still invest to grow. Shell’s Chief Financial Officer Jessica Uhl said the company can “do it all.” BP can curb debt, repurchase shares and invest with oil at $50 a barrel, CFO Brian Gilvary said.

Chevron gave the market a pleasant surprise with a $25 billion stock buyback pledge. Exxon surpassed analysts’ forecasts with the biggest refining bonanza in six years and Permian Basin crude output that almost doubled. Exxon CEO Darren Woods said he would ramp up both spending and asset sales this year as the company plows billions into new drilling and refinery expansions.

Still, some concerns remain. BP’s debt is rising and its gearing — the ratio of net debt to capital — has breached the upper end of its target range of 30 percent. Shell didn’t replace all of the oil and gas reserves it produced last year, raising concerns among some analysts about future production. These issues could become significantly more urgent if oil prices were to fall again.

The companies are seeking to preempt these concerns by promising to remain efficient and disciplined with their spending and operations. For now, investors seem convinced, but companies will have to work hard to maintain this hard-won respect.

Asked in a Bloomberg interview what his focus for this year would be, BP’s Gilvary said: “Capital discipline, capital discipline, capital discipline.”