With most large U.S. oil companies reporting declining fourth-quarter earnings this week, some have also had to question whether they can sustain their dividend payouts to shareholders.
A combination of oversupply and low demand drove oil prices down 68% over the past year to just over $30 per barrel Thursday. The plunge led to a 46% decline in oil and gas drilling stocks in the past year. Some energy experts, such as Boone Pickens, have forecast a bottom for oil stocks and a spike in prices by the end of the year.
But the disruption in the industry has begun to take a toll on some investors holding shares for income. The largest U.S. oil entity to reduce its dividend to date is the third-ranking ConocoPhillips (COP, Financial). On Thursday, the exploration and production company announced a reduction in its quarterly dividend to 25 cents per share, from its amount last quarter of 74 cents. The cut interrupted growing dividends the company had paid since for at least 20 years and reduced the payout to the lowest point since 2004.
“The decision to reduce the dividend was a difficult one. The dividend has been, and will continue to be, a top priority. We still intend to provide a competitive dividend, while significantly lowering the breakeven price for the company and substantially reducing the level of borrowing in 2016," said Ryan Lance, Conoco chairman and chief executive officer.
The company made the decision to shore up its balance sheet after its fourth-quarter revenues declined 41.8% from the previous year to $7.5 billion, and it reported a net loss of $4.4 billion, or $3.58 per share, for 2015. The lowered dividend also helped lower the company’s breakeven price from $60 per barrel to $45 per barrel of oil.
But the two U.S. oil companies larger than ConocoPhillips, Exxon Mobil (XOM, Financial) and Chevron (CVX, Financial), did not decrease their dividends in the fourth quarter. Exxon reported a 78-cent dividend per share, increased 5.8% from the fourth quarter 2014, as revenue fell 31.5% and earnings 58% over the same periods.
Chevron, the second largest oil company in the U.S., maintained its dividend per share at $1.07 from the previous year, amid cost-saving measures as reported a 58% drop in revenue and net loss of $588 million, versus a $3.5 billion net gain in the fourth quarter last year.
Of the next three largest companies below ConocoPhillips, Occidental (OXY, Financial) also maintained its dividend stable, and Valero (VLO, Financial) and Phillips 66 (PSX, Financial) – Buffett’s favorite oil refiner – both increased their dividends.
The next largest oil company, Anadarko (APC, Financial), also reported potential dividend trouble in its fourth quarter business results. A need to preserve balance sheet strength forced the company to recommend to its board a 50% reduction to its budget for 2016. CEO Al Walker also said on a conference call Feb. 2 that he halving of its share price over the past year and dividend payment of 27 cents had possibly pushed its yield too high. The board would discuss the prospective cut at its meeting next week, he said.
Anadarko’s quarterly dividend has wavered over the past 20 years and reached its historical high of 27 cents in 2014.
Of investors tracked by GuruFocus, a net 54 reduced their positions in oil and gas exploration and production companies, the largest selling of any sector, according to the latest data available. Seventy-nine gurus have purchased stocks from the sector, while 133 sold or reduced.
The most purchased energy stocks in the S&P 500 were Exxon, Schlumberger (SLB, Financial), Chevron (CVX, Financial), Halliburton (HAL, Financial), National Oilwell Varco (NOV, Financial) and Apache (APA, Financial).
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