Big Oil’s dividends look safe – for now
FIONA MAHARG-BRAVO
Reuters Breakingviews
Published Tuesday, Jan. 20 2015, 4:40 PM EST
Oil companies don’t like to cut dividends, even when the price of crude tumbles. Dividends are likely to be held firm this year. But the pressure on payouts is mounting.
The halving of the crude price in six months has the feel of 1986. Both then and now, the rout came after three years of relative stability and a surge in supply. Then, the price fell from $30 (U.S.) to $10 a barrel after the Organization of Petroleum Exporting Countries decided not to cut production. It took nearly five years for the oil price to recover fully.
Production is once again not falling fast and demand remains tepid. Industry analysts are starting to expect a similarly slow recovery this time. JPMorgan assumes the oil price won’t reach $90 a barrel until 2019. Goldman Sachs predicts oil will only climb to $70 next year – far from the $100 to $110 range which prevailed from 2011 to mid-2014.
After the 1986 drop, the major oil companies cut capital expenditure by 24 per cent, Morgan Stanley points out. There were also big cost cuts. Morgan Stanley calculates that Royal Dutch Shell PLC, Exxon Mobil Corp. and Chevron Corp. reduced upstream operating cost per barrel by 30 per cent in 1986. Together with improved refining profits, free cash flow actually remained constant that year. Dividends were safe.
This time around, the majors will try just as hard to maintain their dividends. Some have already started axing expensive projects and cutting jobs. They are selling assets. But in some ways they are less well protected than in 1986. In 2014, majors needed oil at $120 a barrel to afford all of their budgeted expenses, according to Goldman Sachs.
There is some wiggle room. European oil majors have an average “gearing” (net debt divided by total equity plus net debt) of 16.6 per cent as of September last year, Bernstein estimates. Allowing this to rise to 25 per cent, the 2009 level, would fund one and a half years of dividend payments at current levels. Shell is one of the more resilient, with gearing set to end 2014 at just 7 per cent, reckons JPMorgan.
But borrowing to pay dividends can only be temporary. Oil bosses will find cuts inevitable if oil stays around $50 a barrel for several years.
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Royal Dutch Shell conspired directly with Hitler, financed the Nazi Party, was anti-Semitic and sold out its own Dutch Jewish employees to the Nazis. Shell had a close relationship with the Nazis during and after the reign of Sir Henri Deterding, an ardent Nazi, and the founder and decades long leader of the Royal Dutch Shell Group. His burial ceremony, which had all the trappings of a state funeral, was held at his private estate in Mecklenburg, Germany. The spectacle (photographs below) included a funeral procession led by a horse drawn funeral hearse with senior Nazis officials and senior Royal Dutch Shell directors in attendance, Nazi salutes at the graveside, swastika banners on display and wreaths and personal tributes from Adolf Hitler and Reichsmarschall, Hermann Goring. Deterding was an honored associate and supporter of Hitler and a personal friend of Goring.
Deterding was the guest of Hitler during a four day summit meeting at Berchtesgaden. Sir Henri and Hitler both had ambitions on Russian oil fields. Only an honored personal guest would be rewarded with a private four day meeting at Hitler’s mountain top retreat.
IN JULY 2007, MR BILL CAMPBELL (ABOVE, A RETIRED GROUP AUDITOR OF SHELL INTERNATIONAL SENT AN EMAIL TO EVERY UK MP AND MEMBER OF THE HOUSE OF LORDS: 
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