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European Energy Majors Enter a Tough Earnings Season

Europe’s largest oil and gas companies are heading into what analysts expect to be one of their most challenging earnings seasons in years, as falling crude prices squeeze profits and force difficult decisions over shareholder returns.

Norway’s Equinor is set to report fourth-quarter results first, followed by Shell, with BP and TotalEnergies due to publish earnings next week. Market consensus compiled by LSEG suggests that both Shell and TotalEnergies are on track to post their weakest fourth-quarter profits in nearly five years.

The backdrop is a sharp deterioration in industry conditions. Oil prices recorded their steepest annual decline in years amid oversupply and softer global demand, cutting into cash flows just as companies attempt to balance dividends, share buybacks, capital spending, and energy transition investments.

Buybacks in the Crosshairs as Cash Flow Tightens

For decades, Western oil majors have relied on dividends and aggressive share repurchase programs to keep investors onside. But with quarterly profits and free cash flow now under pressure, analysts say buybacks are likely to be the first lever pulled.

Atul Arya, vice president and chief energy strategist at S&P Global Energy, described the current environment for European producers as “very difficult,” with most companies expected to report lower earnings and reduced free cash flow.

He said dividends are typically protected at all costs, leaving buybacks and capital expenditure as the main variables.

“The last thing they will do is cut dividends,” Arya said. “They will reduce the buybacks if they have any buybacks and they may have to taper their capital program.”

Arya added that any cuts to capital spending are most likely to hit low-carbon and transition projects first, as trimming traditional exploration and development could send the wrong signal to markets. While taking on additional debt remains an option, most majors are already highly leveraged and reluctant to stretch balance sheets further.

Dividends Remain Untouchable, Analysts Say

Industry analysts widely view dividends as non-negotiable.

Maurizio Carulli, energy and materials analyst at Quilter Cheviot, said dividends are effectively “sacrosanct” for oil majors, serving as a cornerstone of capital discipline and a safeguard against overspending.

Buybacks, on the other hand, are more flexible and cyclical. In a prolonged low-price environment, Carulli said, companies are far more likely to scale back repurchases than risk a dividend cut.

“There is some uncertainty about how much companies will consider, but it is quite clear that this is the direction,” he said.

Several European majors have already begun adjusting. BP reduced its share buyback to $750 million in April, down sharply from $1.75 billion in the previous quarter, after disappointing earnings. TotalEnergies announced in September that it would slow the pace of repurchases to preserve financial flexibility amid economic and geopolitical uncertainty.

U.S. Oil Giants Hold Firmer Ground

While European companies brace for tougher results, their U.S. counterparts have so far shown more resilience.

Exxon Mobil and Chevron both reported stronger-than-expected fourth-quarter profits last week, despite the broader downturn in oil prices. Their scale, integrated operations, and exposure to higher-margin assets have helped cushion the impact of weaker crude.

That contrast underscores a growing divergence between U.S. and European energy majors, with American firms generally enjoying stronger balance sheets and more stable shareholder payout policies.

From Windfall Years to Belt-Tightening

The looming cuts to buybacks mark a dramatic shift from the boom years that followed Russia’s full-scale invasion of Ukraine.

In 2022 alone, the five largest Western oil companies Exxon Mobil, Chevron, Shell, BP, and TotalEnergies generated nearly $200 billion in combined profits as energy prices surged. Flush with cash, companies ramped up dividends and launched massive share repurchase programs, drawing criticism from policymakers and advocacy groups.

U.N. Secretary-General António Guterres famously labeled those earnings “monster profits,” calling on energy companies to contribute more to consumers and climate efforts.

Today, that era feels distant. With crude prices lower, margins compressed, and capital demands rising from both traditional operations and energy transition initiatives, oil majors are once again being forced to prioritize.

What Investors Should Watch Next

As earnings roll in over the coming days, investors will be closely focused on three key signals: changes to share buyback guidance, reaffirmation of dividend commitments, and any revisions to capital spending plans.

Management commentary on demand trends, oil price assumptions, and transition investments will also be critical in shaping expectations for the rest of the year.

For now, the message from analysts is clear. Dividends are likely to hold, but buybacks are increasingly vulnerable. After years of outsized returns, Big Oil is entering a more constrained phase, where preserving cash and protecting balance sheets may take precedence over rewarding shareholders.

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