Big Oil loss puts BP dividend cut in play

Bloomberg

For the first time since the West’s five energy supermajors were created in the early 2000s, all of them are set to post a quarterly loss.
Once a money-making machine, Big Oil is now relying on ever-increasing amounts of debt, raising the pressure on highly prized dividends. BP Plc may cut its payout for the first time since the Deepwater Horizon disaster a decade ago.
The sheer scale of global oil demand destruction — some 30 million barrels a day, or a third of regular usage, in April — sent energy markets into a second-quarter tailspin, from which they’ve only recently started to recover. Worst-in-a-generation oil prices combined with Opec production cuts, collapsing refining margins and millions of barrels of unsold crude mean no facet of Big Oil’s business has emerged unscathed.
“There really hasn’t been anywhere to hide, even in the integrated model,” said Noah Barrett, a Denver-based energy analyst at Janus Henderson,which manages $294 billion. “Terrible quarter, but it’s behind us now. The focus will be on how the recovery takes shape.”
For BP, analysts from banks including Goldman Sachs Group Inc and Citigroup Inc are expecting a cut in the payout of anywhere between 30% and 65%, a historic move for a company that has been a cornerstone dividend payer in the UK’s FTSE 100 Index for decades.
It would reduce the amount of debt needed and free up cash for CEO Bernard Looney’s high-profile strategy to eliminate almost all of the carbon emissions from the company’s operations and the fuel it sells to
customers.
The move would follow Equinor and Royal Dutch Shell, which cut its dividend for the first time since World War II earlier this year. Exxon Mobil, Chevron Corp and Total aren’t expected to follow suit, though analysts at Goldman reckon a cut at Exxon “could enable a financially healthier company.”
Big Oil borrowed some $80 billion during the quarter, giving it a cash balance of $194 billion to see it through an intense period of losses as well as scheduled debt repayments this year and in 2021, according to Jefferies Financial. But this will increase net-debt-to-capital ratios, a key measure of indebtedness.