European energy giants face some tough choices this earnings season Shareholder dividends at risk Because they want to cut costs amid falling crude oil prices.

Western oil and gas majors have long sought to keep investors happy with share buyback programs and dividends.

But numerous industry headwinds and expectations for a particularly weak earnings season have increased pressureand promises to distribute cash to shareholders are tenuous.

British shell and french total energy When the companies report this month, they are expected to report their lowest fourth-quarter profits in nearly five years, according to an analyst consensus compiled by the London Stock Exchange.

Atul Arria, vice president and chief energy strategist at S&P Global Energy, said European energy companies find themselves in a “very difficult” market environment and industry players are likely to report lower quarterly profits and lower free cash flow.

“So, what are they going to do? The last thing they’re going to do is cut the dividend. If there are any buybacks, they’re going to reduce their buybacks and probably have to scale back their capital plans,” Arya told CNBC via video call.

Arya said any cuts to capital plans would likely come at the expense of low-carbon projects, adding that cutting exploration and development projects could send the wrong message to investors.

“If they still need cash, they may take on more debt, although I think most of them don’t want to. They’re all highly leveraged,” he added.

Some European energy giants are already doing this. BP in April Reduced share buyback scale The financial report fell short of market expectations, falling to US$750 million from US$1.75 billion in the previous quarter.

total energy september says The company has decided to adjust the pace of share buybacks “to respond to economic and geopolitical uncertainty and preserve room for maneuver.”

Maurizio Carulli, energy and materials analyst at Quilter Cheviot, described the dividend as “sacrosanct” for the oil majors because it helps enforce capital discipline and prevent excessive spending.

Buybacks, by contrast, are more cyclical, and prolonged lower crude prices mean oil majors may find it tempting to pull that lever first, Carulli said.

“There’s some uncertainty about how much the company will consider, but it’s clear that’s the direction,” Carulli told CNBC.

The outlook for reduced quarterly share repurchases reflects Significant changes in mood Started a few years ago.

In 2022, the combined profits of the five major Western oil companies Nearly $200 billion Fossil fuel prices soared following Russia’s full-scale invasion of Ukraine.

Companies such as Exxon Mobil, Chevron, Shell, BP and Total Energies are flush with cash and trying to capitalize on what UN Secretary-General Antonio Guterres has called “huge profits“Reward shareholders with higher dividends and stock buybacks.