The world’s most significant oil and gas companies should break a business taboo and consider reducing dividends, somewhat than taking on any extra debt to maintain payouts as they weather the fallout from the coronavirus pandemic, traders say.
The top five so-called oil giants have avoided decreasing dividends for years to keep traders sweet and added a $25 billion collectively to debt levels last year to maintain capital spending while giving back billions to shareholders.
The strategy was made to maintain the attraction of oil company shares as investors came under increased strain from climate activists to ditch the stocks and help the world shift faster towards meeting carbon emissions goals.
Now, this technique is in danger. Oil prices have dropped 60% since January to below $30/barrel as demand collapsed due to the pandemic and as a battle for purchasers between Saudi Arabia and Russia warned to flood the market with crude.
The most recent collapse in oil prices has sent power firms plunging, just as they had been recovering from the last crash, which saw crude drop from $115 a barrel in 2014 to $27 in 2016.
Firms from Exxon to Shell have declared plans to chop spending and canceling share buyback programs to balance their books and prevent already grown debt levels from inflating.