1. Big Oil dividends at risk
- The collapse of oil prices puts dividends at risk. Equinor (NYSE: EQNR) became the first large oil company to cut its dividend, slashing it by two-thirds this week from $0.27 per share to just $0.09.
- There is going to be tremendous pressure on dividends of other oil majors, who have seen their yields spikes as their share prices nosedived this year.
- As a group, the five majors – BP (NYSE: BP), Chevron (NYSE: CVX), ExxonMobil (NYSE: XOM), Royal Dutch Shell (NYSE: RDS.A) and Total (NYSE: TOT) – barely covered their dividends with cash flow in 2019. Brent averaged $64 per barrel last year.
- ExxonMobil has borrowed billions of dollars in recent weeks, suffered credit downgrades, and has steadfastly refused to touch its dividend. “A dividend that erodes the balance sheet, thereby raising the risk premium, stops being a down-payment on value and ultimately becomes a drag on it,” Liam Denning writes in Bloomberg Opinion.
2. Consolidation set to hit U.S. shale
- The oil industry “delivered its best corporate returns in periods of consolidation, financial tightening and rising barriers to entry,” Goldman Sachs said in a research note.
- “We believe this environment (and shareholder pressure for de-carbonisation) could engender a similar phase of consolidation and capital discipline, as in the late 90s,” the bank said.
- After the 2014 downturn, consolidation…