Rystad's report raises red flags about the long-term viability of current payout levels amid persistently low oil prices. The firm notes that the strong cash flows that previously allowed companies like BP, Chevron, ExxonMobil, Shell, TotalEnergies, and Eni to sustain high shareholder returns in 2024 are quickly eroding.
"Record-breaking shareholder payouts are now under threat as oil price hovers at $60," Rystad stated in its report. "Western energy supermajors are faced with an increasingly difficult challenge – either keep their promise of returning ever-higher shareholder returns or risk spurning investors to save their balance sheets." This stark choice underscores the delicate balancing act these companies face between maintaining investor confidence and safeguarding their long-term financial stability.
Cash Outflows Outpacing Inflows: A Growing Concern
In 2024, the six largest Western oil and gas companies collectively distributed an impressive $119 billion to shareholders through a combination of dividends and share buybacks, surpassing the previous record set in 2023. However, with the current decline in oil prices and a weakening of operational cash flows, Rystad cautions that these companies might need to trim payouts by as much as 20 percent to 40 percent in 2025 to ensure financial stability.
A key metric highlighting this concern is the payout ratio – the percentage of corporate cash flow from operations (CCFO) distributed to shareholders. This ratio soared to an unprecedented 56 percent in 2024, significantly higher than the historical range of 30 percent to 40 percent observed between 2012 and 2022. Rystad warns that if current payout levels are maintained this year, the ratio could balloon to over 80 percent, a level the firm considers "highly unsustainable." The research firm estimates that unless oil prices rebound or cash flows improve dramatically, total shareholder returns could fall to between $70 billion and $95 billion this year, a considerable drop from the $119 billion seen in 2024.
Dwindling Cash Reserves Add to Vulnerability
To sustain the recent surge in shareholder distributions, many of these energy giants have been drawing down their cash reserves. Rystad's analysis indicates that aggregate reserves peaked at nearly $160 billion between the third quarter of 2022 and the first quarter of 2023 but have since declined to just above $120 billion by the first quarter of 2025. Should current payout levels continue, these reserves will further shrink, increasing the companies' vulnerability to future market shocks and economic downturns.
Espen Erlingsen, Head of Upstream Research at Rystad Energy, emphasized the challenging position the majors are in. "Recent market volatility has left the majors with few economically attractive options that both allow for reinvestment while maintaining a competitive capital returns framework," he stated. Despite the inherent risks posed by falling oil prices, Erlingsen believes that "the majors will remain reluctant to scale back their capital returns framework in the near term," predicting that "buybacks—typically more flexible than dividends—are likely to be the first lever pulled."
Mixed Responses, but Commitment to Shareholders Remains Strong
While a survey by Rigzone, a global research firm, indicated that most of the six companies highlighted in the Rystad report (BP, Chevron, Eni, ExxonMobil, and TotalEnergies) had not yet responded to requests for comment by press time, Shell declined to provide an immediate statement. However, public declarations from company executives suggest a cautious optimism and a strong determination to uphold shareholder commitments, at least for the foreseeable future.
Sinead Gorman, CFO of Shell, affirmed during the company’s Capital Markets Day in March that "our dividend remains a financial priority" and is sustainable even at an oil price of around $40 per barrel. Shell also reiterated its commitment to share buybacks, even in a $50 per barrel environment, by leveraging its balance sheet if necessary. Similarly, BP has expressed confidence in maintaining and growing its dividend, targeting a minimum 4 percent annual increase, and confirmed plans for a $0.75 billion share buyback in Q2 2025. Patrick Pouyanne, CEO of TotalEnergies, emphasized during an April board meeting that the company's dividend would increase by 7.6 percent in 2025 and committed to a $2 billion share buyback in Q2, despite Brent crude dipping below $70.
Eni, ExxonMobil, and Chevron have also signaled their intention to stay the course. Eni, in May statements, revealed plans for a new share buyback program of up to $3.9 billion and a dividend increase. CEO Claudio Descalzi stressed the company's "financial discipline" and commitment to value creation. ExxonMobil returned $9.1 billion to shareholders in Q1 alone, split between dividends and buybacks, with its CEO asserting the company is "built for this" low-price environment due to years of restructuring. Chevron, too, returned $6.9 billion to shareholders in Q1, with CEO Mike Wirth highlighting the company’s strong balance sheet and disciplined capital management, which he expects to deliver "industry-leading free cash flow growth by 2026."
Investor Pressure and Future Risks
Analysts widely anticipate that companies will prioritize dividend sustainability, which is less flexible, while adjusting share repurchase programs in response to weaker cash generation. Several majors, including BP, Eni, TotalEnergies, and Shell, have formally stated payout ratio targets linked to CCFO. Adhering to these policies amidst declining cash flows would inherently necessitate a reduction in distributions.
"Applying these payout targets to current cash flow levels, total shareholder payouts could fall by approximately 20 percent to 40 percent from $119 billion to around $70 to $95 billion in 2025,” Rystad reiterated. This projected reduction would mark a significant shift from the last two years, which saw energy giants enjoy substantial profits and investor acclaim following Russia’s invasion of Ukraine and the subsequent spike in commodity prices.
Investor sentiment may become increasingly volatile if returns diminish significantly, especially amid ongoing geopolitical instability and macroeconomic uncertainty weighing on oil markets. The upcoming quarters will play a pivotal role in revealing how major energy companies strike a balance between sustaining shareholder trust and adjusting to a tough oil price landscape.