The world’s largest oil companies have a plan to weather the worst market in over a decade: borrow more money.
Major oil companies faced with the lowest crude prices since 2003, capital spending budgets with little left to cut and strong commitments to their dividends will have to take on billions in debt this year as they await a market rebound.
Take BP PLC, whose net debt rose by almost US$5 billion last year. After reporting a record annual loss on Tuesday, CEO Bob Dudley said he would borrow billions more if it was needed to sustain investor dividends.
“We know how important the dividend is to our shareholders,” he told analysts in London. “We’re not going to drop the company off a cliff, but I think the balance sheet is strong right now.”
BP on Tuesday said it would cut 3,000 more jobs by next year, while Exxon Mobil Corp reported its lowest drilling budget in 10 years.
Still, the two companies continue to spend more than they earn. Royal Dutch Shell PLC, Europe’s largest producer, had its credit rating cut on Monday to the lowest-ever by Standard & Poor’s Financial Services LLC (S&O), and downgrades of several other companies are probably to follow as debt levels rise.
“They’re all hoping if we can ride this out for another 12 months, then the tide will hopefully turn and lift the pressure,” said Philip Lawlor, a strategist at Smith & Williamson Investment Management LLP in London, which owns BP shares.
If that does not happen, “then they have to ask the uncomfortable question: Can we really afford the dividend?” he added.
While investors do not see a dividend cut as inevitable, a 10 percent drop in BP shares following fourth-quarter earnings shows they think it is possible, according to Lawlor.
BP’s one-year forward dividend yield, which reflects current share prices and expected future payouts, rose to greater than 9 percent last month.
Shell, which has not cut dividends since the World War II, also saw its yield surge to the highest in two decades.
“The companies are walking up a down escalator, oil prices are dropping so fast,” said Iain Armstrong, an analyst with Brewin Dolphin Ltd in London, which owns shares in BP and Shell. “Though they seem unconcerned about a potential credit rating cut, that’s additional pressure on the companies at these difficult times.”
S&P cut Shell’s long-term credit rating on Monday by one level to “A+,” the fifth-highest investment grade, from “AA-.” They also placed the company on watch for another possible reduction. BP, Eni SpA, Repsol SA, Statoil ASA and Total SA were also assigned a negative outlook.
At the end of last year, BP’s net debt rose to US$27.2 billion from US$22.6 billion the year before. This occurred as the company sold bonds to bridge a gap between income from operations and asset sales on one side, and capital spending and dividends on the other.
BP now carries an average borrowing cost of about 2 percent. A credit rating cut by one level would raise that by 10 to 15 basis points, chief financial officer Brian Gilvary said.
BP is to become the most leveraged of the world’s super-major oil companies, with gearing of 30 percent by the end of next year, Jefferies Group LLC analysts said in a note to clients.
Total debt at Chevron Corp, the second-largest US oil producer, rose to US$38.6 billion at the end of last year, US$10.8 billion higher than a year earlier, the company said on Friday last week.
It expects its debt levels to be reviewed by credit-rating agencies in the coming months, according to chief financial officer Patricia Yarrington.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day
Thousands of parents in Singapore are furious after a Cordlife Group Ltd (康盛人生集團), a major operator of cord blood banks in Asia, irreparably damaged their children’s samples through improper handling, with some now pursuing legal action. The ongoing case, one of the worst to hit the largely untested industry, has renewed concerns over companies marketing themselves to anxious parents with mostly unproven assurances. This has implications across the region, given Cordlife’s operations in Hong Kong, Macau, Indonesia, the Philippines and India. The parents paid for years to have their infants’ cord blood stored, with the understanding that the stem cells they contained