Hi, this is Liam Denning with today’s edition of Elements, Bloomberg’s new energy and commodities newsletter. We bring you a daily mix of commentary from Bloomberg Opinion writers and the best of our market-leading news coverage. We hope you’re enjoying it, and if you haven’t yet signed up to get it direct into your inbox, you can do that here.
Today’s Take: Stealth Oil Windfall Tax
Whenever oil producers gush profits, some politician will
The IRA’s 1% levy on stock buybacks is, of course, not limited to oil majors. S&P 500 buybacks look set to top $1 trillion this year, with technology and financials dwarfing the energy sector, both in absolute dollars and share of payout yield. Of the top 25 buybacks in the first quarter, only one energy company, refiner Marathon Petroleum Corp., makes the list — at No. 23.
That understates the relevance of this new tax for the industry, however. For one thing, buybacks ramped up in the second quarter, as did targets. Marathon boosted its own payout to more than $3 billion. Exxon Mobil Corp., which regularly topped the rankings during the supercycle, practically doubled its own to almost $4 billion. For 2022 as a whole, buybacks for six large US energy companies — Chevron Corp., ConocoPhillips, Exxon, Marathon, Occidental Petroleum Corp. and Valero Energy Corp. — might total $55 billion, making up about 60% of their overall distributions.
That preponderance of buybacks versus dividends reflects a financial philosophy shaped by boom and bust.
A 1% levy isn’t going to upend that philosophy, and the fact it doesn’t kick in until 2023 may turbocharge buybacks over the next several months. It will add to energy companies’ frustrations, though. While the sector is forecast to generate 12% of second-quarter S&P 500 earnings, it languishes at just 4% of the index weight. That disparity may be a bat-signal for buybacks, but it also reflects stubbornly high capital costs that an extra layer of expense won’t help.
--Liam Denning, Bloomberg Opinion
Chart of the Day
Record profits on the back of high oil prices and refining margins have translated into increased dividends and, especially, big buybacks from large US oil and gas companies. Annualizing dividends paid so far and factoring in announced buyback programs imply a 2022 payout yield for the six companies here of about 10%, with roughly 60% of that relating to buybacks.
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Is it the end of the world as we know it? Geopolitical analyst and author Peter Zeihan believes so. He debates war, economics, demographics and more alongside Eurasia Group’s Ian Bremmer in a recent podcast hosted by Sam Harris.
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