LONDON/HOUSTON - Top Western energy companies are expected to unleash billions in returns to shareholders when they announce what is set be a second-straight quarter of record-breaking profits, lifted by stellar refining margins and high oil and gas prices.
A rapid recovery in demand following the end of pandemic lockdowns and a surge in energy prices, driven by Russia's invasion of Ukraine, have boosted profits for companies such as Exxon Mobil and Shell after a two-year slump.
Exxon earlier this month said it could post its strongest quarter yet, with profit potentially surpassing $16 billion, almost twice its first-quarter earnings.
The companies have used the cash surge to cut debt accumulated during the pandemic, and, as they reach their debt targets, analysts anticipate they will increase cash distribution to shareholders.
"Given how much balance sheet repair has already occurred in the last 18 months, we believe there is upside to shareholder distribution plans across the sector," RBC Capital Market analyst Biraj Borkhataria said in a note.
The profit bonanza has stirred demands for governments to increase taxes on energy companies to help consumers deal with record-high electricity and fuel prices. Britain, home to Shell and BP, imposed a 25% windfall tax in May.
In the United States, President Joe Biden accused Exxon of making "more money than God" and said companies were exploiting a global oil supply shortage to fatten profits.
Oil prices rose in the second quarter, with benchmark Brent crude averaging around $113 a barrel in the quarter, compared with $102 a barrel in the first three months.
The energy majors' good fortunes - BP Chief Executive Officer Bernard Looney called his company a "cash machine" - has also increased pressure on boards to revise their shareholder returns plans, drawn up mostly after the pandemic struck.
Shell, BP and TotalEnergies have indicated they will boost returns in the form of share repurchases.
But some investors say they should do more.
Shell's Chief Executive Officer Ben van Beurden told Reuters last week that Europe's largest oil and gas company was considering growing returns beyond its current target of 20% to 30% of cash generation.
The London-based company is forecast to report adjusted earnings of $10.8 billion in the second quarter, according to Refinitiv analyst consensus figures, smashing the previous quarter's record of $9.1 billion.
Shell pledged in 2020 to raise dividends by 4% annually after it trimmed its flagship payout by more than 60% in response to a collapse in energy demand at the height of the coronavirus crisis, in the first cut since the 1940s.
Some investors and analysts say that with the strong outlook for energy prices, Shell should hike its dividend further.
"Based on a $70 long-term oil price, we see significant potential for Shell to increase its dividend and guide towards longer-term dividend growth," Jonathan Waghorn, portfolio manager at the Guinness Global Energy fund, said.
Shell has the capacity to increase its dividend by as much as 50% at current prices, Waghorn said.
Shell declined to comment on dividends.
Analaysts at Jefferies expect BP to raise its share buybacks to $3.5 billion in the second quarter from $2.5 billion in the previous quarter. HSBC analysts expect the London-based company to increase its dividend by 4% or even more.
TotalEnergies is expected to increase repurchases by 50% to $3 billion, Jefferies said.
Exxon and Chevron, which had suspended buybacks, have accelerated cash distributions in recent months, making analysts bet share repurchases could stay flat.
Exxon has more than doubled its buyback target to $30 billion through next year, while Chevron has updated its buyback guidance to the high end of its $5 billion to $10 billion annual range.
Second-quarter profits are expected to be boosted by a sharp rise in profits from refining, which have more than doubled in the quarter to $45.5 a barrel, according to BP average estimates.
Shell and Total report on July 28, Exxon and Chevron report on July 29. BP discloses its financial earnings on Aug. 2.
(Reporting by Ron Bousso; editing by Barbara Lewis)