Some of the world’s largest energy companies are saddled with their highest debt levels ever as they struggle with low crude prices, raising worries about their ability to pay dividends and find new barrels.
Exxon Mobil Corp. , Royal Dutch Shell PLC, BP PLC and Chevron Corp. hold a combined net debt of $184 billion—more than double their debt levels in 2014, when oil prices began a steep descent that eventually bottomed out at $27 a barrel earlier this year. Crude prices have rebounded since, but still hover near $50 a barrel.
The soaring debt levels are a fresh reminder of the toll the two-year price slump has taken on the oil industry. Just a decade ago, these four companies were hauled before Congress to explain “windfall profits” but now can’t cover expenses with normal cash flow.
Executives at BP, Shell, Exxon and Chevron have assured investors that they will generate enough cash in 2017 to pay for new investments and dividends, but some shareholders are skeptical. In the first half of 2015, the companies fell short of that goal by $40 billion, according to a Wall Street Journal analysis of their numbers.
“Eventually something will give,” said Michael Hulme, manager of the $550 million Carmignac Commodities Fund, which holds stakes in Shell and Exxon. “These companies won’t be able to maintain the current dividends at $50 to $60 oil—it’s unsustainable.”
The debt is piling up despite cuts of billions of dollars on new projects and current operations. Repaying the loans could weigh the companies down for years, crimping their ability to make investments elsewhere and keep pumping ever more oil and gas.
The companies spent more than 100% of their profits on dividends last year. This year, the problem got worse. In the April-to-June period, Exxon paid $3.1 billion in dividends and had just $1.7 billion in net income, according to S&P Global Market Intelligence. Shell paid $1.26 billion in interest in the first half of 2016, compared with $726 million in the same period a year earlier.
http://www.wsj.com/articles/largest-oil-companies-debts-hit-record-high-1472031002
Lots of celebration in OPEC and environmental halls for news like this.
Consumers have already profited, but won't if the protracted slump stays with us.
