Thanks to historically high hydrocarbon prices, exploration and production (E&P) companies in 2006 are once again rewarding shareholders through stock repurchases and dividend increases. However, Standard & Poor’s (S&P) said those large share buybacks have tempered the credit ratings improvement E&Ps likely would have received otherwise.

S&P analyst Andrew Watt noted in a report that stock repurchases and dividend increases accelerated in the first six months of 2006 compared with 2005, totaling more than $75 billion. Share repurchases alone in the first half of 2006 amounted to nearly $38.5 billion, or nearly 70% of the figure for all of 2005 and well ahead of the $29 billion for 2004, Watt noted.

“Moreover, repurchases appear to be picking up momentum heading into the fourth quarter,” Watt said. “At the current pace, share repurchases plus dividends in 2006 will easily surpass the $100 billion recorded by rated oil and gas companies globally in 2005.”

Several of the top 10 repurchasers this year, including ExxonMobil Corp., BP plc and Chevron Corp., will exceed their 2005 totals by the end of the third quarter, he noted. “As many as 20 issuers could pass the $1 billion share-buyback threshold by year’s end.”

The top 10 share repurchasers in fiscal 2Q2006 in order were ExxonMobil, Total S.A., Chevron, EnCana Corp., Nabors Industries Inc. Valero Energy Corp., BG Group, Baker Hughes Inc. and Occidental Petroleum Corp. In the first six months, the top 10 dividend players in order were ExxonMobil, BP, Statoil ASA, Total, Chevron, ConocoPhillips, Occidental, Schlumberger Ltd., Marathon Oil. Corp. and BG.

“The credit impact has been to quiet somewhat the positive ratings environment for the sector,” Watt noted. “Record oil prices have boosted shareholder expectations for higher equity returns, prompting energy producers to try to deliver those. In addition to share repurchases, companies are using their windfalls to boost dividends or make acquisitions that rely heavily on debt financing. All of these measures have tended to limit ratings improvement.”

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