Getting out of the oil rent impasse

Ihe oil revenue has never been so lucrative. The multinationals in the sector have just published historical results in turn. They have accumulated more than 200 billion euros in profits in the 2022 financial year by surfing on the energy crisis. An indecent figure when compared with the difficulties experienced by households and businesses in the face of inflation.

The legitimacy of accumulating such sums is all the more questionable since they are not the result of a particular strategy or skill. These astronomical profits are mainly the direct consequence of the surge in world prices for black gold.

These will not ebb in the short term. Russia announced on Friday, February 10, the reduction of 5% of its oil production in response to Western sanctions. This decision, coupled with the reopening of the Chinese economy, after the abandonment of the zero Covid health policy, and the less gloomy than expected global growth outlook are all factors that will keep the price of a barrel at high levels and continue to feed the rent enjoyed by the oil companies.

Excess cash

But it is not so much the amount of profits that ask questions than how they are used. Calls to tax the windfall effect have been heard, even if the exceptional contributions on superprofits decided at European Union level are probably not sufficient. The shareholder remuneration policy, in particular the mechanism for share buybacks, is much more problematic. For a company, it is a matter of buying back its own securities on the market and then canceling them.

Reducing the number of shares in circulation automatically increases earnings per share, which has the effect of boosting the stock market price. The American Chevron has just announced a share buyback plan of 75 billion dollars, that of ExxonMobil amounts to 35 billion, while TotalEnergies devotes nearly 40% of its profits to its shareholders.

Companies justify resorting to share buybacks because of the lack of investment opportunities that would offer a return higher than the cost of capital. Having nothing better to do with their profits, they prefer to return the excess cash to their shareholders.

This short-term calculation is difficult to justify at a time when the ecological transition should mobilize the maximum of available resources. It is essential to persuade companies to participate in this effort. Share buybacks have just been singled out by the President of the United States, Joe Biden, in his State of the Union address during which he called for more taxation of these practices in order to encourage long-term investments.

These are still insufficiently devoted to the decarbonization of the economy. BP has thus just revised downwards its hydrocarbon production reduction targets. Shell’s investments in renewable energy are stalling. At Chevron or ExxonMobil, they are reduced to a bare minimum. As for TotalEnergies, the 5 billion earmarked for decarbonization in 2023 is not up to the challenge.

To castigate the superprofits of the oil companies will not help the ecological transition. On the other hand, the oil companies must be encouraged to spend this manna on decarbonization and convince managers and shareholders that maintaining the oil revenue leads to a dead end.