Once making a fortune daily, now tightening belts! Will the weakening oil prices bring an end to the "dividend feast" for oil giants?

In the context of weakening oil prices, energy giants are being forced to face a series of difficult decisions. In the coming months, the once lucrative shareholder returns are expected to face severe pressure. Recently, European and American oil giants, including Exxon Mobil Corporation (XOM.US), Chevron Corporation (CVX.US), Shell (SHEL.US), and BP p.l.c. Sponsored ADR (BP.US), have taken measures to cut costs and streamline operations by laying off employees. In the downward cycle of the industry, these companies are seeking to tighten expenses and weather the storm. This move contrasts sharply with the industry trends of a few years ago. In 2022, after the Russia-Ukraine conflict erupted, fossil fuel prices soared, and the top five oil companies in the West collectively reaped nearly $200 billion in profits. With ample cash flow, companies such as Exxon Mobil Corporation, Chevron Corporation, Shell, BP p.l.c. Sponsored ADR, and TotalEnergies (TTE.US) chose to return the profits described by UN Secretary-General Antnio Guterres as "windfall profits" to shareholders through increased dividends, stock buybacks, and other means. In fact, according to data from Maurizio Carulli, global energy analyst at Quilter Cheviot, in recent quarters, many energy companies have allocated up to 50% of their operating cash flow to shareholder returns. However, Carulli points out that in the current environment of weak oil prices, this high-return policy carries hidden risks - companies may take on new debt beyond the "healthy" range of their balance sheets. Currently, BP p.l.c. Sponsored ADR has taken the lead in adjusting its strategy, and TotalEnergies also recently announced plans to reduce the size of shareholder returns. Carulli believes this is a "wise shift in direction" and expects other oil giants to follow suit. Thomas Watters, Managing Director and Head of Oil & Gas Industry at S&P Global, Inc., also agrees with this view. In an email, he said, "With softening oil prices, oil companies are under pressure. As OPEC continues to release excess production capacity, global oil inventories continue to increase, and oil prices could fall to the $50 per barrel range next year. Faced with the challenge of maintaining shareholder returns in a low oil price environment, many companies will cut costs and capital expenditures as much as they can." Dividend cuts "will make Wall Street tremble" Clark Williams-Derry, Energy Finance Analyst at the non-profit Institute for Energy Economics and Financial Analysis (IEEFA), points out that for oil giants, reducing stock buybacks may be the easiest option. He explained, "In the past few years, oil companies have returned cash to investors and supported stock prices through stock buybacks. Compared to cutting dividends, reducing buybacks is a better choice - buybacks are like 'icing on the cake' for investors, while dividends are the 'core income.' Once dividends are cut, it will make Wall Street tremble." Earlier this year, Saudi Aramco cut the world's largest dividend due to uncertain oil price prospects. Williams-Derry believes that this move is closely related to the continued weak stock price performance of Saudi Aramco this year, and other private oil giants are clearly reluctant to follow suit. In conclusion, Williams-Derry points out that as the oil price boom triggered by the Russia-Ukraine conflict comes to an end, oil giants now need to face three core issues: "To continue to take on debt to maintain shareholder returns? Or to cut back on stock buybacks (which will lose one of the key factors supporting stock prices)? Or to reduce drilling activity (which means future production will decline)? Each choice comes with risks, and regardless of the decision, some investors will inevitably be unhappy." Outlook for oil giants According to some analysts, the current situation of oil giants is not as bad as expected. Peter Low, Co-Head of Energy Research at Rothschild & Co Redburn, said, "Earlier this year, the market was generally pessimistic. Since President Trump announced tariffs in April, the market has been worried that oil prices will end up in oversupply and sharply decline by the end of the year. But the actual situation has exceeded expectations - oil prices have shown strong resilience, stabilizing at around $65 to $70 per barrel." However, oil prices have now fallen below this range. As of the time of writing, the international benchmark Brent crude oil futures price for December delivery was $63.63 per barrel; the November delivery price for U.S. West Texas Intermediate crude oil (WTI) futures was $59.28 per barrel. Low pointed out, "Compared to the third quarter, the core issue in the fourth quarter may be to what extent companies need to cut shareholder returns (especially stock buybacks) to adapt to the environment of weakening commodity prices. Considering that the third-quarter performance was still decent, these companies may choose to observe the market trends in the coming weeks and months, with the fourth quarter being a better time for them to re-evaluate their shareholder return policies." It is reported that TotalEnergies and Shell plan to release their third-quarter financial reports on October 30, Exxon Mobil Corporation and Chevron Corporation will follow suit with their performance announcements on October 31, and BP p.l.c. Sponsored ADR is scheduled to disclose its quarterly financial report on November 4th.