Investors sometimes forget that oil is not quite like other common stock investments because it involves a non-renewable resource. Oil companies constantly seek replacement rates of 100% or greater because it means they are replacing what they produce. If their replacement rate is below 100%, it is producing faster than it is replacement, and eventually, the company would be left with no assets.
This is why the five supermajors are constantly playing the repurchase stock and engage in M&A course of action as a matter of strategy. They repurchase the shares to increase the price per share of the stock and then issues the same stock as currency in a subsequent merger to get its hands on the target company’s oil reserves to maintain the status quo of growing profits 6-8% over the long haul while yielding 3-5% as a formula that involves extended (sometimes even decade-long) periods of underperformance … Read the rest of this article!