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Oil majors have been outspending to return dividends to investors, report says

In the last decade, five of the world's largest oil and gas majors — Exxon Mobil Corp., Chevron Corp., Royal Dutch Shell PLC, BP PLC and Total SA have been returning more money to investors than they have been generating, according to a recent study.

Since 2010, these companies have collectively paid out $536 billion in dividends and share buybacks, while generating almost $329 billion in free cash flow over the same period, according to the Jan. 16 report from the Institute for Energy Economics and Financial Analysis, which researches financial issues related to the energy sector and has a stated mission of reducing dependence on oil and other nonrenewable energy resources.

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While using a range of strategies to account for the $207 billion difference, most of the companies bridged the shortfall by taking out new long-term loans and selling assets, according to the report, and divestitures of noncore assets will continue to play a key role in funding dividends and share buybacks.

From 2010 through the end of the third quarter of 2019, Anglo-Dutch major Shell divested $68 billion, IEEFA said, including asset sales of $11 billion in 2017 and $6 billion in 2018 that were used to boost cash reserves and cut debt.

However, Shell executives said in November 2019 that the company might have to delay the completion of its $25 billion share buyback, as a sluggish world economy could slow its ability to reduce its gearing and hike returns. Shell disclosed recently that earnings for the fourth quarter of 2019 could be negatively affected by at least $500 million and that it will write down as much as $2.3 billion.

In addition, Exxon is plowing ahead with a plan to sell off $15 billion in assets by 2021 and $25 billion by 2025 as it continues to invest heavily to build out its upstream operations in the U.S. Permian Basin over the next five years, and London-based BP continues to work toward completing its $10 billion divestment program, which will help the company not only reduce debt but start buybacks as well.