Exxon Mobil and Chevron may soon be seeing European sights. The two US oil giants, with a combined market value of $500 billion, experienced even bigger drops in profit than were expected in the second quarter, pushing dividend yields closer to those of rivals across the Atlantic. Shell and BP have been more aggressive on cutting capital expenditures and jobs. If prices tumble further, Exxon and others could follow.
Before the precipitous profit declines of about 50 per cent and 90 per cent reported on Friday, respectively, Exxon and Chevron had dividend yields of 3.5 per cent and 5.6 per cent. By contrast, Shell and BP's London-listed shares both yield well over six per cent.
Of the four companies, only BP came close to offsetting the quarter's shareholder payouts and spending on big projects with cash from operations. With Shell pursuing a $70 billion deal for natural gas producer BG Group, and smaller UK rival, BP, only just working out the final toll from its 2010 Gulf of Mexico oil spill, investors arguably have good reason to feel more confident that their US counterparts will be better situated to find ways to keep dividends flowing.
And yet the European companies also have done more to prepare for a potentially extended slump in the price of oil. Shell is slashing 6,500 jobs and axing $3.5 billion more from an already-shrunken 2015 capital spending budget. Overall spending will be 20 per cent lower than last year. Exxon and Chevron plan to invest only about 13 per cent less, similar to what BP was planning - before announcing another small cut to its capex guidance this week.
The drop in both Exxon's and Chevron's share prices on Friday, and the subsequent rises in their dividend yields, suggests a more European approach would be welcome. The price of Brent crude has fallen another 18 per cent since July 1. More cost savings may well be necessary. Diversified operations and strong balance sheets provide many levers for Exxon and its US peers to preserve their coveted dividends. It may be time to start pulling them.
