U.S. oil companies spent less on interest over the last decade despite higher rates

ENB Pub Note: This article from the EIA highlights significant challenges that the United States’ oil and gas companies face. However, what the world is facing is a lack of investment in oil and gas, and this will ultimately become a problem. The four trillion dollars needed to invest in drilling to meet demand from the regular decline curves is a real issue. It is also an excellent avenue for investment and returns, as the United States’ public and private companies have done a much better job of returning money to their investors. 

1. 2021–2022 Surge:
   • In 2022, global oil and gas companies (including U.S. firms) spent $135 billion on share buybacks, a fourfold increase from 2021, with North American companies contributing the majority. U.S. firms like ExxonMobil, Chevron, and ConocoPhillips were significant players.
   • A 2022 analysis by Friends of the Earth, BailoutWatch, and Public Citizen noted that 20 major U.S. oil and gas companies authorized $45.6 billion in buybacks in the year leading up to March 2022, with $24.35 billion authorized in January–February 2022 alone.
   • Chevron announced a $75 billion buyback program in early 2023 (initiated in 2022), one of the largest in the sector, tripling its previous annual rate to $17.5 billion per year.
   • ExxonMobil, Chevron, BP, Shell, and TotalEnergies (U.S. and global majors) spent over $44 billion on buybacks and dividends in 2021 and planned at least $32 billion for 2022.
2. 2023 Activity:
   • Globally, the oil and gas industry distributed $136 billion in buybacks between January and mid-November 2024, with U.S. companies like Marathon Petroleum, Chevron, and ExxonMobil leading.
   • Marathon Petroleum executed $35 billion in buybacks since May 2021, reducing its share count by nearly 50%, and authorized an additional $5 billion in 2024.
   • An X post from April 2024 highlighted ExxonMobil with a $17 billion buyback, Chevron with $15 billion, and Shell with $3.8 billion, reflecting ongoing programs.
3. 2024–2025 Trends:
   • BP announced $1.75 billion in buybacks for Q1 2024, targeting $3.5 billion for the first half and $14 billion by the end of 2025.
   • Northern Oil and Gas increased its buyback program by $100 million in March 2025, doubling its authorization after repurchasing $10 million in shares.
   • Analysts suggested in April 2025 that some majors, like Chevron and BP, might trim buybacks due to a 12% oil price decline, but many maintained robust programs.

• 2022: Approximately $50–60 billion in U.S.-specific buybacks, based on the $135 billion global figure (with North America dominating) and the $45.6 billion for 20 U.S. firms.
• 2023: Likely $40–50 billion, assuming U.S. firms contributed a significant portion of the global $136 billion, with Chevron’s $17.5 billion annual rate and Marathon’s $5 billion as examples.
• 2024–2025: Conservatively $30–40 billion, factoring in BP’s $14 billion plan, Northern Oil’s $100 million, and ongoing programs from ExxonMobil and Chevron, adjusted for potential reductions due to lower oil prices.

• Chevron: $75 billion program (2022–2025), with $17.5 billion annually.
• ExxonMobil: $17 billion in 2022–2023, with ongoing programs.
• Marathon Petroleum: $35 billion since 2021, plus $5 billion in 2024.
• BP: $14 billion planned through 2025.
• Northern Oil and Gas: $100 million increase in 2025.
• Others: ConocoPhillips, Occidental, EOG Resources, and Devon Energy also announced significant buybacks (e.g., Devon’s $1 billion in 2018, extended into 2021).

• High Oil Prices: Brent crude ranged between $74–$90 in 2024, boosting profits.
• Investor Pressure: Shareholders demanded capital returns over production growth.
• Capital Discipline: Companies focused on reducing debt and rewarding investors.

• Exact figures are hard to pinpoint because not all buybacks are fully executed, and smaller companies’ programs are underreported.
• Global figures often include non-U.S. firms (e.g., Shell, TotalEnergies), requiring estimation for U.S.-only totals.
• Recent oil price declines (e.g., $55/barrel in April 2025) may reduce 2025 buybacks.

Higher oil prices, increased drilling efficiency, and structurally lower debt needs have contributed to lower interest expenses for some publicly traded U.S. oil companies over the past decade, despite the level of interest rates across the economy being relatively high.

Based on the published financial reports of 26 U.S. publicly traded oil companies, interest expenses per barrel of oil equivalent (BOE)—a measure that accounts for crude oil, hydrocarbon gas liquids, and natural gas production—in 2024 were about $1.50/BOE, or around 6% of production expenses. In real dollar terms and as a share of production expenses, interest expenses are lower than they were before the pandemic, even though general interest rates are now higher.

Although interest expenses typically represent a small portion of production expenses—those associated with labor, materials, and the costs of extracting and storing oil and other commodities—their variability can fluctuate with macroeconomic conditions. For example, a rapid decline in crude oil prices might lower some production expenses but not interest expenses, which are often fixed throughout the life of a loan. During these times, interest expenses can represent 15% or more of regular production expenses.

The decline in interest expenses may be counterintuitive as interest rates in the United States have generally increased since 2020 and 2021. Short-term interest rates—designated by the federal funds effective rate, which determines the interest rate on overnight bank loans—have reached as high as 5.3% since 2022 and stayed above 4% since then, compared with nearly 0% five years ago.

The Federal Reserve determines the federal funds rate, and the rate serves as a key monetary policy tool to reach the goals of price stability and maximum employment. The federal funds rate affects other interest rates that are determined from market participants’ supply and demand for loans, including bank loans, government bonds, and corporate bonds. For example, Moody’s Aaa and Baa corporate bond rates represent different bond yields based on creditworthiness.

Oil company interest expense has declined despite higher interest rates because of:

• Relatively high oil prices. Crude oil prices increased in the years after the pandemic. Higher oil prices bring in more revenue, which means oil companies need to borrow less to fund their capital expenditures and can also pay down debt obligations. In addition, higher oil prices increase the value of a company’s proved reserves and reduce the risk of loan default, which may lead to better borrowing terms, such as lower interest rates.
• Increased efficiency and cost reduction. Lowering production expenses and improving efficiency increases company profits, which could result in better borrowing terms and lower borrowing costs.
• Tempered investment growth and strategy. In recent years, companies have implemented strategies that favor modest capital expenditure growth by targeting fewer but more profitable projects. With this approach, the company may generate more profits even if the company’s production growth was small or unchanged. This strategy reduces companies’ needs for outside capital, including borrowing.

Principal contributor: Jeff Barron

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