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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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Oil Majors Take On More Debt To Fund Dividends

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Exxon posted its first quarterly loss in more than 30 years. But even as debt mounts and questions arise about peak oil demand, the oil supermajor nevertheless vowed to protect its dividend while also aiming to grow indefinitely into the future.  Exxon lost $610 million in the first quarter, down from a profit of $2.4 billion a year earlier. Worse, the period only included a few weeks of oil prices at catastrophically low levels. As a result, the second quarter is bound to lead dramatically worse numbers. 

On an earnings call with investors and analysts, Exxon’s CEO noted the extreme uncertainty in the oil market, but aside from spending cuts and a slowdown on operations, the company’s long-term plans remain mostly unaltered. 

An excellent profile of ExxonMobil in Bloomberg Businessweek pointed out all the missteps that the company has made over the past decade, such as vastly overpaying for XTO Energy to get into shale gas late; a costly bet on Canadian oil sands that didn’t pan out; gambling big on Arctic Russia, only to be forced out by sanctions; and again, getting into the Permian relatively late. 

One of the familiar refrains from multiple Exxon executives during each downturn or each poor quarterly performance is to reassure skittish investors not to worry, and to reiterate the bright prospects over the long-term – an inexorable increase in population, GDP, and thus, oil demand. The Bloomberg Businessweek article even pointed out the absurdity of making such a claim in early April, just as the market was falling apart. “You could almost feel Woods gritting his teeth in the company’s statement that day,” the Bloomberg Businessweek reporters wrote, referring to Exxon’s CEO waiving away concerns about the company’s trajectory as he pointed to steady long-term demand growth.

Announcing first quarter results on May 1, Woods did it again. Ever the optimist, he looked to the future. “The long-term fundamentals that drive our business have not changed. Despite the current uncertainty and volatility, the fundamentals that underpin our business remains strong,” Woods said on an earnings call. 

However, the current crisis is arguably the most uncertain time in the history of the oil market. Any claims to knowing the future are not worth much. It could take years for oil demand to rebound – or, demand may have already hit a peak

In the short run, the oil majors are shutting in production, in part because they have operations that are located in multiple OPEC+ countries that agreed to reducing output. Chevron and ExxonMobil together are shutting in around 800,000 barrels per day. ConocoPhillips also said it would cut over 400,000 bpd. 

Related: The Most Critical Oil Storage In The United States

Steep spending cuts are concentrated in the Permian. Still, Exxon and Chevron, which have tried to outdo each other in the Permian, both reiterated that the current downturn is temporary. “We would intend to bring activity back to the Permian when we see prices recover,” Chevron’s CFO Pierre Breber told Reuters.

Both also refused to touch their dividends. “The dividend is secure,” Wirth said, according to the FT. “I don’t look to what Shell is doing to decide our dividend policy,” Exxon’s Darren Woods defensively told investors, referring to Shell’s decision to cut shareholder payouts. 

However, such an approach is costly. ExxonMobil needs oil prices to average around $75 per barrel in order for it to break even and fund its dividend. Its rivals need roughly $50 per barrel, according to RBC Europe Limited and Reuters. To fund the payouts, Exxon needs to sell assets and take on debt. 

But the asset sale strategy will prove difficult because few companies are in a position to buy assets that the majors do not want. “It’s going to be harder to do that in an environment like this, where people are strapped of cash, so I would expect to see that divestment program slow,” Woods said. Exxon will delay its attempts to sell off some $2 billion in North Sea assets. 

That leaves debt as a source of fundraising. Exxon has taken on billions of dollars of debt in the past two months alone. 

Meanwhile, the European majors – namely Shell, BP and Equinor – are beginning to change their strategy, eyeing long-term uncertainty. Shell and Equinor just slashed their dividends by roughly two-thirds, each. BP’s debt rose to a record high as it chose to defend its dividend, but even the British oil giant warned of an energy transition coming. 

“The pandemic only adds to the challenge of oil in the future… therefore the question has to be: Will consumers consume less? And I think there’s a real possibility of that,” BP CEO Bernard Looney said on an earnings call last week. Shell’s CEO Ben van Beurden made headlines talking about the uncertainty of peak demand. 


The European majors are pressing forward with their plans to transition into lower-carbon companies, at least on paper. The moves are still relatively minor, but they are at least rhetorically committing themselves to strategies of becoming net-zero carbon emitters by 2050 or earlier. 

ExxonMobil and Chevron are resisting such a transformation. Both companies have slashed spending by 30 percent, but described the downturn as a temporary obstacle. “It feels like we're finding the bottom right now,” Chevron’s chief executive, Mike Wirth, said.

By Nick Cunningham of Oilprice.com

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