With gas and electricity prices surging and governments pushing action to address the climate crisis, some analysts and ESG investors expected that oil and gas companies would take advantage of their bumper profits to invest more into new gas exploration and low-carbon technologies. 

But Big Oil has taken a different tack. High commodity prices are good for existing production streams, and so, with oil hovering around $90 a barrel, the oil majors are shoring up their business by repaying the debts they’ve accumulated over COVID-19, increasing their dividends, and buying back shares.

And as big oil companies funnel cash back to investors and strengthen their balance sheets, they are taking their foot off the gas on green investment.

While governments and consumers may not be thrilled by this turn of events, shareholders are elated. Those who stayed with the petroleum companies while other investors greened up their portfolio during the pandemic—which saw the five supermajors post a combined loss of $76 billion in 2020—are finally reaping their reward.

Shares in oil companies are up around 20% year to date, outpacing the broader market, with bank analysts expecting them to go higher as oil nears $100 a barrel. The last time oil prices reached $100 a barrel was in 2014—which is also the last time oil and gas profits peaked.  

Tightened purse strings

The first to report earnings was Exxon Mobil, which had earnings of $23 billion in 2021—a major swing back from the loss of $22.4 billion reported in 2020. With that cash, Exxon raised dividends and laid out plans to repurchase $10 billion in shares over the next 12 to 24 months. This behavior was expected from the company, which has raised annual payouts for 39 years in a row, making it one of corporate America’s “dividend aristocrats.”

Where Exxon Mobil is scaling back is its new investment. The company is looking to spend between $21 billion and $24 billion this year—a big drop from the $30 billion to $35 billion a year set out by chief executive Darren Woods in 2019. Woods’ reversal on the pre-pandemic growth plan will keep capital spending at low levels, which translates to high commodity prices and massive cash flow.

Chevron chose a similar route: It will be buying back $5 billion in shares a year, raising its dividend, and scaling down its investments to $15 billion this year from the $20 billion promised in 2019.

“We are working hard to win back investors. This is a sector that has underperformed for 10 years, for five years, for three years,” Pierre Breber, Chevron’s chief financial officer, told the Financial Times.

Meanwhile across the Atlantic, European oil companies Shell, BP, and Total have also all recorded soaring profits and, taking the same course, increased dividends and bought back shares. The European oil companies have splintered away from their core petroleum business, however, and although they are still scaling back on investment, a greater portion will go to clean energy. 

Shell is staying conservative on capital spending, aiming at the lower end of the $23 billion to $27 billion range forecast for this year. That is still an increase from $20 billion invested in 2021, but it is the same investment forecast as several months ago, despite Shell’s new profits and soaring inflation.

U.K.’s BP is reducing its oil output by 40%, or roughly 1 million barrels per day, by 2030. The company’s chief executive, Bernard Looney, told investors that by 2025 the company plans to dedicate 40% of its spending budget to low-carbon investment in offshore wind, hydrogen, and EV charging networks—rising to 50% of the budget by the end of the decade, when BP wants to be earning $9 billion to $10 billion from these sectors.

France’s Total meanwhile said net investments should reach $14 billion to $15 billion in 2022, including $3.5 billion in renewables and electricity. 

“The [exploration and production] sector generated record-high free cash flow last year. Even so, investments in upstream business segments remained little changed at $420 billion vs. $400 billion in 2020, slashing the investment ratio to about 40% in 2021 from 60% the year before,” Olga Savenkova, senior upstream analyst with Rystad Energy, told Fortune.

Going green

As the price of oil nears $100 a barrel, the heads of top energy companies told Reuters that prices are expected to stay volatile, giving little incentive to invest billions into low-carbon projects that could take a decade or more to show a return on investment.

Sam Fankhauser, professor of climate economics and policy in the Smith School at the University of Oxford, says increasing dividends and buying back shares detracts from green investment in the near term.  

“In the short term it does because it’s money that you could have invested and didn’t,” said Fankhauser, who added that “the companies will give you the medium- to long-term answer, which says if we don’t keep our shareholders happy, we will not be able to raise money, which we will have to do for even more investment.”

Fankhauser notes the big oil companies are “playing the long game, and they’re making their sector and their business attractive to investors, which they will need.”

But according to others, whether or not green investment efforts will actually be accelerated with rising oil and gas prices is another story.

While rising oil and gas prices offer oil supermajors the resources to accelerate green investments, Biraj Borkhataria, cohead of European energy research at RBC Capital Markets, told Fortune that he didn’t expect companies to “meaningfully” ramp up activities to transition away from oil and gas.

That’s because those who have kept their core petroleum business—now highly profitable—today have an advantage over those who have already made moves away from oil and gas. “A highly profitable core business effectively funding the transition is a huge differentiator at these commodity prices,” he said. 

A windfall tax

The ability of governments to push these oil giants to transition away from oil may be limited. In the face of soaring energy prices, some governments are calling for a one-off “windfall tax” imposed by a government on oil and gas company profits.

But BP CEO Looney as well as Shell CEO Ben van Beurden dismissed such calls on environmental grounds, saying a windfall tax would eat into investments into the energy transition space. 

Oxford’s Fankhauser thinks this could indeed be the case. With a one-off windfall tax, “share price takes a hit, profitability takes a hit, and they would probably have to rein in certain types of activities,” he said. “The question is what would they do at the margin, what do they consider to be their marginal investment project that they stopped doing. I don’t know what that is, [but] you can speculate it might be a green one.”

Will this turn some investor heads

The question now is whether solid balance sheets, strong growth, and rising dividends will attract investors who previously snubbed oil and gas for ESG reasons.

“We expect investors to follow the numbers,” Borkhataria told Fortune.

In 2020, it was easier for investors to cite ESG reasons for their decision to not be invested in oil and gas, Borkhataria says. “That was when oil was less than $40 a barrel,” he said. Today, however, that has changed: “At $90 a barrel energy companies are highly cash generative and also remain an inflation hedge for investors.”

With oil prices—and oil stock returns—soaring, Borkhataria says investors may just hold their nose: “We think the ESG concerns can be worked out…”