The world’s five biggest publicly-traded fossil companies are facing a choice between paying promised dividends to investors or funneling more money into exploration as a crippling oil price crash enters its third year.
Exxon Mobil, Royal Dutch Shell, Chevron, Total SA, and BP “may struggle to make more than US$40 billion in annual dividend payouts to investors,” Bloomberg reports, citing Chief Energy Strategist Chris Kettenmann of Macro Risk Advisors. “Without a recovery in oil prices from the current sub-$50-a-barrel level, major energy explorers will have to increasingly cannibalize drilling budgets to ensure they have enough cash to cover dividend commitments next year.”
“There’s massive risk to the dividend structure of these big oil companies over the next 12 months,” Kettenmann said.
“They might be able to borrow to pay it, but it raises the question about sources and uses of capital,” he added. “Are you really growing value within the company spending $12 billion a year on share distributions, versus investing in projects that are generating a rate of return for investors?”
Fossils have “cancelled $1 trillion in exploration and construction projects since crude markets began a downward spiral from above $100 a barrel in June 2014,” Bloomberg notes. “Hundreds of thousands of workers have been fired and billions of barrels of discoveries written off to conserve cash; among the largest producers, only dividends have been shielded from austerity measures.”
With exploration budgets down from $100 billion to $40 billion per year, a separate Bloomberg Markets report cites Edinburgh-based analysts Wood Mackenzie’s conclusion that new oil discoveries last year—totalling 2.7 billion barrels—were at their lowest since 1947. This year, fossils added 736 million barrels to their inventories as of July 31.