|Largest Oil Companies' Debts Hit Record High -- Update
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Today : Thursday 25 August 2016
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By Selina Williams and Bradley Olson
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.
"They are just not spending enough to boost production," said Jonathan Waghorn, co-portfolio manager in London at Guinness Atkinson Asset Management Inc. who helps oversee more than $400 million across a range of energy funds, including shares in Exxon, BP, Chevron and Shell.
The oil companies say they have many tools to deploy to help defray debt, including selling assets and offering shareholders more shares instead of a cash dividend, as well as continuing to cut costs. Record-low interest rates are helping ease some of the pain.
They also say the steep levels of debt are temporary as the companies restructure, and the debt will fall when oil prices rise.
"We are in a transitional stage in 2016," said Shell Chief Executive Ben van Beurden during last month's earnings disclosures. The company reported a rise in net debt to over $75 billion at the end of the second quarter, in large part because of its acquisition of BG Group PLC.
BP has said it expects to be able to pay for its operations, make new investments and meet its dividend at an oil price of between $50 and $55 a barrel next year.
But analysts and investors say the oil slump is making it harder than ever for companies to raise money with asset sales to pay off debt. Handing out more shares to shareholders is only storing up the dividend problem for the future when the companies will need to pay up. Even the boost many companies got from bumper profits from their refining divisions -- which tend to do well when prices are low -- looks to be coming to an end as a glut of gasoline erodes fuel prices, say investors and analysts.
Still, some funds see BP, Shell Exxon and Chevron as big enough to weather problems for the next year and a half. Wilmington Trust has reduced its exposure to energy companies it deems more risky in favor of other corporate debt. But the firm remains invested in debt issued by BP, Chevron and Shell
"They're so big, they can diversity, they have more levers to push and pull in terms of shoring up their creditworthiness," said Wilmer Stith, senior fixed-income portfolio manager at Wilmington Trust, which has $73 billion in assets under management.
Only another long period of oil below $40 a barrel would pose a challenge that could prompt dividend cuts, said Iain Reid, senior oil analyst at Macquarie Capital. A Goldman Sachs report this week projected oil prices remaining between $45 and $50 a barrel for much of the next year.
"The question is, can they get through this year and next without doing something radical like cutting dividends?" said Iain Reid, senior oil analyst at Macquarie Capital.
The rise in net debt has helped push these companies' ratio of net debt to equity to the highest level in years, which influences the ratings given by credit agencies. S&P has already downgraded Shell, Chevron, Exxon and BP, though they all remain highly rated.
Shell's debt-to-equity ratio is at 28% and Chief Financial Officer Simon Henry said last month it could even reach its targeted maximum of 30%. BP's gearing is over 25%, while Chevron's is 20% and Exxon's is around 18%.
By comparison, in 2012, Shell's gearing was around 10%, and Exxon's was 1.2%. Back in 2005, when oil prices were climbing steadily, Exxon had no debt, and its profits were so high that its executives and those from other big oil companies were called to testify in front of the U.S. Senate about their so-called windfall profits.
Chevron's Chief Financial Officer Patricia Yarrington said in April that the company's higher levels of debt were expected. "We could handle that if it's temporary," she said.
Much of the new debt has been in corporate bonds. Exxon, for instance, issued $12 billion in debt in February. Two months later, the company was downgraded by S&P Global Ratings, losing the triple-A credit rating that it had held since 1930.
Exxon Chief Executive Rex Tillerson has assured investors that Exxon remains committed to paying its dividend.
The company has increased shareholder payments for 34 straight years, although those increases have been modest in the past two years. Mr. Tillerson and others have noted that Exxon has the ability to borrow further. If anything, the company has signaled a willingness to go further into debt for strategic opportunities, such as buying assets, including InterOil Corp., a small company focused on gas exports in Papua New Guinea that Exxon agreed to acquire for an estimated $2.5 billion in July
"We're not going to forgo attractive opportunities," said Jeff Woodbury, Exxon's vice president of investor relations, on an investor call last month.
--Heather Gillers in New York contributed to this article.
Write to Selina Williams at email@example.com and Bradley Olson at Bradley.Olson@wsj.com
(END) Dow Jones Newswires
August 24, 2016 16:57 ET (20:57 GMT)|
|PIVOT UP TO 2075 OR PIVOT DOWN AT 1975 TO 1875|
|LONDON—Crude oil prices fell Monday because of traders and money managers cashing in while the market was still in bull mode and fading hope for any unilateral agreement on production cuts from major producers.
On the ICE Futures exchange, the October contract for global benchmark Brent was down 1.71% at $50.02 a barrel while U.S. counterpart West Texas Intermediate fell 1.67% to $47.71 for September deliveries.
Last week's uptick in prices has been welcomed by all producers, but many market observers believe that Brent's rise to $50 a barrel won't last that long.
The New York-based Morgan Stanley said in a note that the rise has been down to technical rather than fundamental reasons. The bank said short covering, a market term for buying back oil contracts that were previously sold for a higher price, had given the market a tailwind, but this wasn't likely to last through the coming week.
The U.K.'s Barclays agreed, stating that prices will likely experience another short-term dip in the coming weeks. In a note, analysts said there should be a correction that would see the market fall back again. However, despite the bearish forecast for the third quarter, the bank added that prices should sustainably move to the $50 mark by the fourth quarter.
The prospect of the Organization of the Petroleum Exporting Countries agreeing with other major producers to cut or freeze production in September is now starting to fizzle out with most observers now convinced that there is little chance of a consensus being reached. Any tailwind this may have given to prices over the past week won't be there in the coming five days.
"It seems like the producers are just paying lip service," said Vyanne Lai, the energy analyst at the National Australia Bank.
Meanwhile in the U.S., the oil-field services company Baker Hughes announced Friday that the oil rig count rose by 10 to 406 for the week ending August 19 with implied shale rigs rising by 7, primarily in Texas. This means 32 shale rigs have been added in August alone.
The rebound in shale drilling activity has led Bjarne Schieldrop from Sweden's SEB Bank to forecast that the 32 rigs will add 200,000 barrels a day of supply if they are brought onstream immediately.
Nymex reformulated gasoline blendstock for September—the benchmark gasoline contract—fell 153 points to $1.4976 a gallon, while September diesel traded at $1.5038, 158 points lower.
ICE gas oil for September changed hands at $440.75 a metric ton, down $0.75 from Friday's settlement.
Jenny W. Hsu contributed to this article.
Write to Kevin Baxter at Kevin.Baxter@wsj.com
(END) Dow Jones Newswires
August 22, 2016 05:55 ET (09:55 GMT)|
|Oil report | Fri Aug 19, 2016 6:03pm BST
U.S. oil drillers add rigs for eighth week in row -Baker Hughes
Aug 19 U.S. drillers this week added oil rigs for an eighth consecutive week, the longest recovery streak in the rig count in over two years, as crude prices rebounded toward the key $50-a-barrel mark that makes the return to the well pad viable.
Drillers added 10 oil rigs in week to Aug. 19, bringing the total rig count to 406, compared with 674 a year ago, energy services firm Baker Hughes Inc said on Friday. RIG-OL-USA-BHI.
The oil rig count has risen by 76 since the week ended July 1, the most weekly additions in a row since April 2014, after U.S. crude prices touched $50.
Energy companies kept adding rigs despite prices dipping below $40 earlier this month but analysts have revised down rig count growth forecasts.
Crude futures, however, have surged nearly $10 a barrel, or more than 20 percent, in just over two weeks on speculation that Saudi Arabia and other key members of the Organization of the Petroleum Exporting Countries will agree next month to a production freeze deal with non-OPEC members led by Russia.
On Friday, U.S. crude hovered at $48 a barrel, versus its 2016 peak of $51.67.
The two-month long hike in the rig count has reinforced worries of some analysts that higher oil prices could spur more output and undercut efforts to balance supply-demand in a glutted market.
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"The U.S. production factor has taken on a more bearish appearance as the oil rig counts have increased appreciably and weekly EIA (Energy Information Administration) production estimates have shown a surprising uptick," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.
"We are maintaining a theme that the magnitude of the rig increases that have been primarily developing within the Permian will prove sufficient to force leveling into lower-48 output, with U.S. crude production likely to post an increase from next month into October."
(Reporting by Barani Krishnan; Editing by Marguerita Choy)|
|kiwi2007 - "30 per cent of global government debt is at negative yields, a situation whose unintended consequences are impossible to predict"
Well I am just a humble private investor who will never have £2.5bn so these words do have some impact. Where are we heading ? I don't know but it could get nasty, perhaps with luck armageddon will not happen until I've departed this mortal coil ha ha. I should say that I've never been particulary lucky ha ha.|
|JPMorgan playing with other peoples money.
Lord Rothschild seems to disagree and is pulling in HIS horns. The veteran investor has reduced the equities exposure of RIT Capital Partners, HIS family’s £2.5bn London-quoted vehicle, from 55 to 44 per cent. He has cut sterling-denominated positions to 25 per cent and raised outlay on gold and precious metals to 8 per cent.Lord R underpins these moves at RIT, described in half-year results this morning, with bearish comments on monetary policy, which he calls “the greatest experiment…in the history of the world”. He estimates 30 per cent of global government debt is at negative yields, a situation whose unintended consequences are impossible to predict|
|(ShareCast News) - JPMorgan Cazenove said on Monday that it was maintaining its 'overweight' stance on UK equities, which it believes should continue to outperform even in the aftermath of the Brexit vote.
JPM said the UK is a defensive play with very high dividend yield and the FTSE 100 is one of the key plays on emerging markets.
In addition, it pointed out that the UK is a big beneficiary of the weaker pound, with 72% of FTSE 100 sales derived abroad. "UK earnings per share revisions are outright positive for the first time in four years, which is to a large extent the result of weakening GBP."
JPM said UK equites have been underperforming global for a few years now, and the region is still under-owned, having seen outflows before the Brexit referendum.
"UK is cheap versus other regions, trading at a one standard deviation discount to the MSCI World on price-to-book relative," it said.
The bank - which expresses its 'overweight' on UK stocks mainly through a long in in the FTSE 100 - said that while Brexit negotiations are unlikely to be all smooth sailing, if political uncertainty spikes again, continental equities stand to lose more than UK ones.
JPM recommended investors stay OW the FTSE 100 versus the 250.
"While FTSE250 has underperformed FTSE100 by 8% this year, this follows years of strong outperformance. FTSE250 valuations are unattractive in our view, and it has more cyclical and domestic composition than the FTSE100."
In terms of sectors, the bank said its 'overweight' in energy was worth revisiting, as the sector has lost ground in the last month amid weaker oil prices. "This might be a good entry point into the year-end," it said.
JPM said utilities should also regain leadership as the recent cyclical rotation fades, while financials are likely to struggle again.|
|Gazprom And Partners Withdraw Merger Plan For Nord Stream Pipeline
August 13, 2016
Russian energy giant Gazprom and its European partners have withdrawn their application for merger approval in Poland, but they insist that their Nord Stream 2 pipeline project remains alive.
Gazprom, Anglo-Dutch group Shell, Austrian OMV, and German Uniper and Wintershall plan to build a pipeline under the Baltic Sea, bypassing Ukraine to deliver natural gas directly to Germany from Russia.
Ukraine has strongly objected to the project, and Germany's participation in such a joint venture with Russia's controversial gas monopoly has also drawn criticism.
In July, Poland's antitrust authority said that it opposed a planned merger, as it could lead to unfair competition while unduly strengthening Gazprom, which already plays a "leading role" in gas delivery to Central Europe.
The Nord Stream partners said they withdrew their merger plans on August 12 in light of the regulator's objections.
"This decision does not affect implementation of the project, which continues as planned," they said in a statement.
Based on reporting by AFP and TASS|
|With targets 2097 and 2144|
|Well as soon as 2020 is broken I'm in|
|supermarky - "Struggling with 2020 break at the moment"
I think it will get there soon, the informal OPEC meeting is just a few weeks away, and my experience of working in the KSA is that pretty much everything is decided 'informaly' and then announced 'formaly' through the usual channels :-)|
|Struggling with 2020 break at the moment|
|Suspect further weakness in sterling had a part to play in today's rise which especially helps share price where dividends are declared in dollars (or euros in case of Unilever which was also a strong market today).|
|Downside prevails as long as 2021 resistance. Impressive days performance for shell though given xdPoo having a surge.Markets looking overheated to me but it is August. September on its way!|
|Yes fantastic turnaround imp13 and dividend as well ;-))|
|Nice turnround today.|