Oil Majors Sacrifice Production To Protect Dividends
The French oil company Total released a downward revision to its production forecast, lowering its target from 2.8 million barrels per day (mb/d) in 2017, to 2.6 mb/d, a sign that low oil prices continue to cut into long-term oil production for even the largest companies.
Total’s CEO said part of the reason for the more modest target was spending cuts, amid falling oil prices. Lower investment will lead to lower output in the future. The other part of the problem is delays to projects that the company already has in the works.
It is no secret that low oil prices are eating into the resources that major oil companies have to use at their disposal. Less revenue from lower oil prices leaves less capital to invest. But, the oil majors do have choices, and for now they are choosing to find savings in their capital spending budgets in order to protect their dividend policies. Dividends are seen as sacred, something that cannot be touched for fear of losing their sterling reputation with major investors. That means that even profitable oil projects get the axe in order to protect payouts to shareholders.
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There are few exceptions to this approach, save for Italian oil giant Eni, which became the first oil major to slash its dividend in March of this year. “We are building a much more robust Eni capable of facing a period of lower oil prices,” CEO Claudio Descalzi said at the time, explaining the company’s decision to trim its dividend. Eni’s share price plummeted in the days following the news, but has not performed noticeably worse than its peers in the intervening months.
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