Chevron Corporation (NYSE:CVX) paid out $8 billion in dividends in fiscal 2015, and ~$30 billion on capital expenditures. To make up the difference in cash flow from operations and capital needs, Chevron divested assets and issued new debt.
Source: Chevron Q4 2015 Presentation, slide 5
Chevron’s total capital needs including all expenses and dividends in 2015 was $69 billion. The company is expecting to need around $60 billion in 2016. Here’s where this money will come from under different oil price scenarios:
– Planned ~$4 billion in asset divestments
– Downstream net revenue of ~$10 billion
– Upstream revenue @ $30 oil prices of $29 billion
– Upstream revenue @ $40 oil prices of $38 billion
– Upstream revenue @ $50 oil prices of $48 billion
– Upstream revenue @ $60 oil prices of $57 billion
If oil prices average $50 or above in 2016, Chevron will not have a cash shortfall.
Cash shortfalls that must be funded by new debt issuances or the company’s cash on hand at different oil price levels are shown below:
– $8 billion shortfall at $40 oil prices
– $17 billion shortfall at $30 oil prices
Chevron currently has around $11 billion in cash on its balance sheet. The company has is carrying $38.5 billion in debt as well. Chevron has an AA credit rating from S&P and an Aa1 rating from Moody’s. Chevron should have little problem issuing new debt at favorable interest rates in 2016 if oil prices remain low.
It is likely that Chevron will have to raise some money through debt issuances in 2016 – probably in the range of $5 billion (expecting around $40 average oil prices for the year and the company not using all its cash reserves).
Chevron has the ability to continue paying its dividend in 2016. The company’s balance sheet and credit rating are still strong. Additionally, the company’s management appears committed to paying steady or increasing dividends. It is very unlikely Chevron has a dividend cut in 2016. With that said, if oil prices stay in their current range for years then Chevron would eventually be unable to pay its dividend.
Exxon Mobil Corporation (NYSE:XOM)
Exxon Mobil Corporation (NYSE:XOM) is the largest oil corporation in the world based on its market cap. The company is also a Dividend Aristocrat with 33 years of consecutive dividend increases. ExxonMobil and Chevron are the only 2 oil corporations that are also Dividend Aristocrats.
ExxonMobil’s power and influence on a geopolitical scale should not be underestimated. The company’s close ties with both the United States government and international governments combined with its enormous size give it a strong and durable competitive advantage.
Despite steep declines in oil prices, ExxonMobil is still profitable thanks to its diversified operations. The company’s chemical and downstream operations generated $2.3 billion in profits in the company’s most recent quarter. Even with ultra-low oil prices, ExxonMobil’s upstream division generated $0.8 billion in profits in the same quarter. The image below breaks down earnings changes for the company in the fourth quarter of 2015 versus the fourth quarter of 2015:
Source: ExxonMobil Q4 Earnings Presentation, slide 7
