How Will US Energy Firms Cope with the Oil Crash?

The oil industry has been hit hard by the COVID-19 pandemic, with companies scrambling to adjust to the ‘new normal’ which has seen prices plummet to historic lows. In response, two of the biggest energy giants in the United States, ExxonMobil and Chevron, have unveiled major cutbacks designed to help the companies stay afloat without compromising dividends.

Majors slash capital spending, secure dividends

In 2020 Exxon will be slashing capital spending by 30%, bringing the total down to around US$23 billion. Chevron is following suit, with capital spending for 2020 now estimated at around US$14 billion. Both companies have agreed that while cuts to capital spending will be made, shareholder dividends won’t be touched. Ideally, this will allow the companies to stay afloat while oil prices remain low and simultaneously keep investors happy.

“The dividend is secure,” asserts Chevron CEO Mike Wirth. The strategy is markedly different from Royal Dutch Shell, which says it will drastically reduce shareholder payments as part of its plan to shift its focus from fossil fuels in the long term. Exxon CEO Darren Woods doesn’t agree with Shell’s approach, saying that while times are tough shareholder payouts are key and this philosophy will never change. “I don’t look to what Shell is doing to decide our dividend policy,” he says. He maintains dividends are “an important part of the value proposition” and without them, the company’s integrity would be at risk.

Trump administration pledges support to US oil industry

US oil companies have also been thrown a potential lifeline by the Trump administration. As oil prices flail, US Secretary of Energy Dan Brouillette says funds from the Federal Reserve’s Main Street Lending Program could be used to support oil companies during the recession triggered by the COVID-19 pandemic. Brouillette says the steps taken to bolster the US oil industry will be “very aggressive” and could likely include financial support from the government.

“We will never let the great U.S. Oil & Gas Industry down,” tweets President Trump. “I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!”

While the COVID-19 pandemic has crippled some industries, it’s opened new doors for other sectors. Find out more with ‘Coronavirus Creates a New Dawn for the Lubrication Oil Sector.’