- A Study of Total Shareholder Returns in the Energy Sector from 2019 to 2023 Reveals Significant Performance Differences
- Average Annual Returns Range from 6% to 48% Across Energy Subsectors
- Within Subsectors, the Gap Between Top- and Bottom-Performing Companies Averages 30%
Over the last five years, energy top performers consistently created more value than their direct peers in the same macroeconomic context. Average annual total shareholder returns (TSR) between 2019 and 2023 ranged from 6% to 48% across subsectors, with an average of 12% for the overall sector. Within subsectors, there was an average 30% gap between the top- and bottom-performing companies. These are among the findings of a new report published today by Boston Consulting Group (BCG) titled Six Lessons from Energy’s Top Performers: Energy Value Creators 2024. The publication is based on a study of 150 of the largest energy companies, worth $5.1 trillion in market capitalization.
The clean tech subsector was in the lead, with a five-year average TSR of 48%, driven by accelerated earnings growth and a strong outlook. Regulated utilities had an average TSR of 6% over the period, but also showed a 23% difference in average annual returns between the top and bottom performers, surprisingly large given the regulated returns environment. The average TSR of integrated oil and gas companies was 10%, with the advantage of higher commodity prices countered by contracting valuation multiples.
Despite a challenging macroeconomic environment including higher inflation, volatile commodity prices, and changing policy and regulatory dynamics, some companies generated standout returns compared with their peers. In clean energy, top performers created ten times more value than the market index cumulatively during the five years covered by the study. In oil and gas, the leaders outperformed by approximately 400%, and in utilities by 77%.
“The ability to deliver superior shareholder value during the energy transition is a litmus test for strategic excellence, outstanding execution, and resilience,” said Rebecca Fitz, BCG partner and associate director, and coauthor of the report. “But this outstanding performance is the result of long-term capital allocation decisions. The most successful companies balance capital investment, shareholder distributions, and balance sheet optimization to enhance shareholder returns.”
The report looks at the factors that have enabled top performers to achieve superior TSR, including:
- Revenue growth and delivery: Top performers delivered double the revenue growth of their peers by managing capital projects to reduce risk and fine-tuning business models and portfolio strategies to maximize earnings.
- Cost management: Leading performers were 35% more likely to achieve cost savings, by implementing proactive strategic cost reduction programs to enhance earnings and build portfolio resilience.
- Balance-sheet health: The top TSR performers were twice as likely to allocate capital to improve balance sheets. They actively reduced debt and maintained financial health.
- Shareholder payouts: Top energy companies were 40% more likely to maintain shareholder payouts through cycles.
- Valuation multiple stability: Leading companies were 30% more likely to have a growing valuation through maintaining de-risked earnings growth, consistent payouts, and balance sheet health.
- Deal-Making: Eighty percent of top performers used transactions to actively manage their portfolios.
Download the publication here.
