If you think back to John D Rockerfeller, the creator of Standard Oil, the company developed so much so fast that when it was broken up the companies became part of the 7 sisters which ruled the oil markets of the world. The companies which ruled the oil fields of the middle east and around the world and were called Anglo-Iranian Oil which became BP; Royal Dutch Shell; Standard Oil of California – Chevron; Gulf Oil which belongs to Chevron; Texaco which became Chevron; and Standard Oil of New Jersey which became ExxonMobil. For generations the big oil companies have been profit machines and paid out billions in dividends. In many dividend portfolios big oil company shares can be found.
One of the reasons is not many companies can write off $17.5 billion in assets and still be profitable to pay the dividends, but British Petroleum or BP can. In articles by Reuters and Eric Reguly, BP’s dividend accounts for 7% of the dividends paid by the FTSE (the British equivalent of Dow Jones) 100 companies.
BP is lowering the Brent oil price forecasts to $55 a barrell until 2050 down from $70. New Chief Executive Officer Bernard Looney cut about 15% of the workforce; writing down $8 to $10 billion in early stage development projects and $8 to $11 billion in existing property plant and equipment.
With natural gas playing a greater role in producing electricity, it is less expensive than coal, finding and producing natural gas is at the forefront.
BP has since sold off its chemical division for $5 billion to Ineos a British based chemicals company.
Linking to dividend paying stocks, with the COVID we have seen low demand for gasoline as commuters stayed home. As the economy begins to open up in phases, demand will see some pick up, not as much as before but some. Will commuters still commute or work from home more often, we do not know, but companies have to make predictions what are the expectations for what was normal to be normal or is it something else and they have to make money for it? With large companies they have the cash reserves to try to figure it out and still earn profits to pay dividends.
There are more questions than answers, till the next time – to raising questions.