Dividends and Oil industry faces a diminished future after a painful year

For generations or ever since the mass production of the Model T by Ford, an easy and profitable investment was in the oil companies. In the early days of the oil business, John D Rockerfeller through Standard Oil controlled the oil industry from production to refining and made himself the richest person in America. For those who own Standard Oil and then the company was split in the 7 sisters, it was an easy investment in your portfolio. The biggest portion of Standard Oil eventually became Exxon and it was the largest generator of dividends in the world. BP or British Petroleum made 7% of dividends in the UK. The wealth that came from the oil companies was great and return on investment was terrific. Then can the pandemic.

The world is slowly moving to non fossil fuels, but slowly and in some places kicking and screaming, but change is coming. In an article by Clifford Krauss of the New York Times News Service, the first change is Exxon – the company reported it lost $22.4 billion compared with a profit of $14.3 billion the year before. Much of the loss came from a write down of assets of $19.3 billion. Exxon bought lands that have natural gas at a higher price, the price dropped and the write down reflects the lower price of natural gas.

BP reported it lost $5.7 billion, its first lost in a decade. (the last time it lost money it had to made payments for the oil spill in the Gulf of Mexico). The company is cutting jobs and selling $25 billion in assets.

Exxon offers hope for the 2021, as chief executive Darren Woods says there is opportunity. Exxon’s share price has climbed from the $31 in November to the mid $40s because oil prices have increased. Oil prices have increased due to winter conditions and demand for oil and natural gas for heating and Goldman Sachs is predicting the price could increase another $10 a barrel to $65 in July. That is much lower than the $140 a barrel a decade ago.

It has to be noted, President Biden will be passing the Green New Deal and GM will try to be on batteries by 2030 ish. The $140 barrel is not likely to come back.

Linking to dividend paying stocks, big oil has a role to play in the economy, most of us who heat our homes with oil or natural gas still need oil or natural gas. Most vehicles are more fuel efficient than a decade ago, but they are still the internal combustion engines, it will take time before the big change over. Big oil was an easy investment for dividend paying investors, they will still make money just not like before, alternatives include utilities to ensure the power to drive the batteries.

There are more questions than answers, till the next time – to raising questions.

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