Investors want just one thing from the world’s biggest oil companies: cash. But it is becoming harder for the oil giants to deliver, The Wall Street Journal reports.
Companies such as ExxonMobil, Royal Dutch Shell and BP have long used hefty and reliable dividends to keep investors on board in a sector that has volatile profits tied to commodity prices. The importance of the payments to investors has only grown in recent years due to short-term concerns about oil overabundance as well as long-term fears regarding the impact of climate change and electric vehicles on the future of fossil fuels.
But as the companies throw money at investors through dividends and share buybacks to keep them from fleeing, the payouts have begun to strain their balance sheets.
ExxonMobil and France’s Total haven’t generated enough cash this year to cover new expenses and dividends, according to FactSet data and company disclosures. BP was able to cover its dividend, but the company’s debt levels rose relative to its market capitalization. Shell needed asset sales to help cover dividends and buybacks.
Investors have long gotten generous dividends from oil companies. In the U.K., Shell and BP combined pay one in every seven pounds of the FTSE 100 dividend, says Jason Kenney, an analyst at Spanish bank Santander. Shell hasn’t cut its dividend since 1945.
Giant oil companies have found this harder to sustain since 2016, when oil prices plummeted to below $30 a barrel, from above $100. For at least two years, many big oil companies were generating a free cash flow that was either negative or below the combination of their capital-expenditure commitments and their dividends, says Kenney. Read the full story.
