US independent oil and gas producers are rewarding investors by hiking dividend payments and expanding share buy-backs
Companies reduced dividends and share repurchases in 2014-16 — bar a few exceptionally disciplined operators, such as Occidental Petroleum — as they struggled to conserve cash and balance budgets. But most firms' operations are now profitable at much lower oil prices because of efficiency improvements, hefty asset sales and cost-cutting measures. And the increase in dividends and buy-backs follows mounting shareholder pressure for companies to improve margins and refrain from chasing output growth.
Hess — the key producer in North Dakota's Bakken formation — has trebled its planned share buy-back program for 2018 to $1.5bn. The expanded plan reflects a higher oil price outlook, successful asset disposals and improved visibility regarding capital requirements for Guyana's Stabroek offshore license. "Repurchasing stock represents a highly compelling returns opportunity for our shareholders," chief executive John Hess says.
Companies have tried to boost their capital efficiency since oil prices started to decline in mid-2014, encouraging the higher dividend payments. Producers were as capital efficient last year as in 2014, even though oil prices were 45pc lower, according to a survey by investment bank Seaport Global of 73 leading US independents. And large asset disposals are bolstering some firms' shareholder returns at the same time.
ConocoPhillips aims to repurchase $2bn worth of shares this year, up from its previous target of $1.5bn, supported by divestments totalling $16bn in 2017. The company expects cash flows to be "significantly higher" this year, owing to the recent rise in oil prices. But it will not increase spending. Management will instead follow "our priorities, by allocating excess cash flow towards dividends, the balance sheet and share buy-backs", chief executive Ryan Lance says.
Anadarko Petroleum is similarly constraining capital expenditure to focus on shareholder returns, earmarking a further $500mn for its 2018 buy-back plan, taking it to $3bn. The company offloaded $4bn worth of assets last year. It aims to fund dividends from its operations and expected free cash flow beyond 2018. "This is a repeatable revenue stream that results in repeatable payments to shareholders," chief financial officer Robert Gwin says. But the firm will buy back shares from one-off gains, such as asset sales.