Billions in Oil-Company Buybacks Down the Drain? Yes, Citi Says

(Bloomberg) -- U.S. oil drillers started the year ushering in a new era of shareholder returns with promises of billions of dollars in share buybacks. To that they added debt repurchases, then shoveled money into drilling budgets as they raced to sink more wells.

None of it mattered, according to Citigroup Inc., compared with the price they could collect for their oil.

A study of 31 exploration and production companies found the “predominant variable” for the best-performing stocks in the group this year has been the price companies realized for their barrels after adjusting for shipping costs and other factors, Citi analyst Robert Morris said in a note to clients Wednesday.

Despite a lot of earnest talk from oil executives this year about shareholder returns and fiscal discipline, little else -- not cash flow growth, production and capital-spending guidance, debt metrics, dividends or buybacks -- was a “distinguishable factor” in performance, Morris wrote.

“Oil prices reign above all,” he concluded.

“Interestingly, return of capital to shareholders has not exhibited any clear correlation since Q2 earnings kicked off,” Morris wrote. Companies that announced share repurchases as well as the three that increased dividends underperformed a Citi index tracking the sector.

“Thus far in 2018, E&Ps with higher oil-price realizations and higher oil-production mixes have generally outperformed,” Morris wrote. “No such clear pattern exists with the other operating parameters.”

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