The
industry is scaling back to keep investors happy.
Ensuring that our planet remains hospitable requires leaving about three-quarters of all oil, gas, and coal deposits underground or beneath the sea floor.
And forgoing all those fossil fuels to avert a climate catastrophe means that loads of companies need to change the way they do business — or go out of business.
So it’s a relief to see Big Oil begin to scale back. But BP,
Shell, ExxonMobil, and their competitors aren’t doing that because they’re
worried about the climate. They’re just scrambling to keep the industry’s
relatively high dividends flowing
in this era of cheap oil.
“By the end of the year there will be about 4,000 fewer BP
employees than at the start,” BP chief executive Bob Dudley said when he announced the company’s lousy
performance between June and September. In addition to firing workers, the
London-based company has slashed spending on new exploration and drilling to
adjust to what this CEO calls a “new price environment.”
BP’s third-quarter profits were 40 percent lower than during the
same period a year earlier. Yet the oil giant has actually bumped up the
dividend it pays investors over the past 12 months.
“We spend time with our shareholders,” Dudley said. “We are committed to maintaining the dividend at
BP.”
In case you’ve lost track, here’s why gasoline is averaging
about $2.25 a gallon: The price for a barrel of crude topped $100 in
mid-2014 before tumbling because of a wave of over-production that hasn’t
abated. Oil experts see prices ranging between $40 and $60 a barrel as the new
— and way less profitable — normal.
Goldman Sachs analysts, for example, predict that prices could lumber along like this for 15 years, and may sink as low as $20 per barrel. This kind of prognosis is making the industry sound tight-fisted.
“We have to live within our means,” Shell CEO Ben van Beurden
told investors while discussing the company’s $6.1 billion third-quarter loss, which was magnified by
Shell’s decision to hold off on drilling for Arctic oil and mining the Carmon
Creek tar sands in Alberta, Canada.
Meanwhile, the Dutch oil giant is “pulling out all the stops” to
prop up its dividend, van Beurden said. And U.S.-based oil companies are
equally determined to continue paying investors to hang onto their stock.
Chevron recently announced that it will scrap up to 7,000
jobs after the corporation’s third-quarter profits plunged 63.6 percent. Its dividend remains intact after increasing for 28
straight years.
ConocoPhillips, which lost $1.1 billion during the third
quarter, intends to abstain from new offshore drilling projects and will sell
leases it won’t use. The company has no planto cut its dividend.
ExxonMobil CEO Rex Tillerson promised a “relentless
focus” on cost-cutting when he announced that third-quarter earnings amounted
to about half of what they were in 2014. The nation’s biggest oil outfit
is boosting its dividend, as it’s done for 33 years in a row.
See a pattern?
But just like it’s hard to make every mortgage payment when you
wind up unemployed for a long stretch, unprofitable companies eventually pare
dividends or stop paying them. That’s why Marathon, one of the 10 biggest U.S. oil
companies, recently slashed its dividend by 79 percent to a nickel per
share.
Anyone who sees Big Oil’s stocks as a perpetual source of
investment income should take note.
And until paring dividends becomes more commonplace, the
industry will inadvertently keep doing its share to leave more oil in the
ground.
Columnist
Emily Schwartz Greco is the managing editor of OtherWords, a non-profit
national editorial service run by the Institute for Policy Studies. OtherWords.org.
