X22 Report Spotlight

X22 Report News Flash

US Debt

national debt

X22 Report

The Consequences Of Big Oil’s Exploding Debt

Original newz story - Click here

Submitted by Tsvetana Paraskova via OilPrice.com,

How do you ride out low oil prices and still pay dividends and CEO salaries? You double down on debt, apparently.

All oil majors posted plunging profits or accumulated losses in the second quarter, blaming low crude prices and weak refining margins for these results that missed estimates—in some cases by wide margins. All saw cash flows shrinking, and yet, all kept dividends intact and vowed to continue investing in their respective major projects.

Quite naturally, all these factors have led to supermajors amassing more and more debt since crude oil prices started slumping in 2014.



Estimates by Bloomberg have shown that oil majors have doubled their combined debts to US$138 billion since 2014. That’s also a staggering tenfold jump from the 2008 total oil major debts.

Looking at the Q2 balance sheets of some oil majors, we see debts rising, cash flows dropping, capex diminishing, but dividends firmly held, and in Exxon’s (NYSE:XOM) case, even raised by 2.7 percent compared with the second quarter of 2015—the same quarter in which Exxon’s earnings plunged 59 percent annually.

Another U.S. oil major, Chevron – which swung to a US$1.47-billion net loss in the second quarter—reported a total debt of US$ 45.085 billion as of June 30, 2016, up from US$38.549 billion at the end of December 2015, while cash and cash equivalents dropped to US$8.764 billion from US$11.022 billion. Cash flow from operations shrank to US$3.7 from US$9.5 billion. Capex declined to US$12 billion from US$17.3 billion. But interim dividends were diligently kept unchanged, lest shareholders be disappointed by their returns.

Dividends were also held steady at BP, whose second-quarter profit plunged to US$720 million from US$1.3 billion for the second quarter of 2015. In the group’s own words, “refining margins were the weakest for a second quarter since 2010.”

BP’s US$1.9-billion proceeds from divestments in the first half of 2016, and organic capex reduced to US$7.9 billion from US$8.9 billion, were not sufficient to offset the lower operating cash flows amid the challenging environment. And BP saw its net debt rise to US$30.9 billion at end-June from US$24.8 billion a year earlier. Net debt ratio jumped to 24.7 percent from 18.8 percent.

It would appear that BP’s CEO Bob Dudley, is not terribly concerned about borrowing money to keep on paying dividends. “Money is so cheap right now,” Dudley told Bloomberg in an interview after the group announced its second-quarter figures. “I’m not at all uncomfortable in the 20 percent to 30 percent range,” the manager added, commenting on BP’s much higher gearing.

Indeed, money is cheap these days, with interest rates and borrowing costs at historic lows, as central banks are trying to spur economic growth and investments. The question is, will it be cheap for BP to continue amassing debt when the time comes to pay…