Oil stand-off threatens dividends at BP and Shell

DIVIDENDS at BP and Shell are set to come under threat as fears grow that a deal to prop up oil prices is about to collapse.

The two oil giants yesterday reported better-than-expected results – and gave a boost to their millions of small shareholders by protecting payouts.

But they have only been able to keep their dividends after slashing billions of pounds in costs following a collapse in the oil price from $112 a barrel in 2014 to less than $30.

Oil is currently around $50 a barrel and the industry is pinning hopes on it being lifted further if oil producing nations – Opec – agree to cut supply at a meeting later this month. Unless it stays at this level, or above, producers will find it almost impossible to make a profit.

But leading analysts don’t believe the Opec countries will strike a deal and agree to scale back production. This is likely to put BP and Shell under fresh pressure to wield the axe again – or cut precious shareholder payments.

Neil Wilson, at analysts ETX Capital, said: ‘The meeting of Opec later this month will be key – failure to agree a cut could rock the market and send oil prices lower, which will further hit the likes of BP and Shell.’

He said the modest recovery in oil prices in recent months looked ‘precarious’.

‘It’s been driven by a belief that Opec and Russia will cut output – but this is far from a done deal. They may have to cut costs even more, or they may even have to slice a little from those prized dividends.’

Goldman Sachs became the latest bank to cast doubt on Opec’s ability to cut production. If it fails, then Goldman said prices were likely to fall from their current mark to somewhere in the low $40s.

‘The lack of progress on implementing production quotas and the growing discord between Opec producers suggests a declining probability of reaching a deal on November 30,’ Goldman said in a note.

Dividends at BP and Shell are critical to British investors. As well as 650,000 ordinary shareholders, millions of savers hold its stock in pensions and private investment plans.

But their future performance hinges on the oil price improving.

Both firms surprised analysts yesterday with better-thanexpected results.

Shell revealed its £35bn integration with former rival BG Group in February was ahead of schedule. It reported an 18pc rise in thirdquarter profit to £2.4bn and maintained its dividend of $0.47 a share.

It had been under pressure from shareholders to cut spending to ensure it could maintain the dividend, and revealed capital expenditure next year would be £20bn, the bottom end of the range.

BP reported a near halving of third-quarter profit – from £1.5bn a year earlier to £763m – hit by lower oil prices and one-off payments. But it maintained its dividend for the quarter of $0.10 a share.

But this came at the cost of slashing an extra £800m from investment next year as well.

Brian Gilvary, BP chief financial officer, said: ‘We continue to make good progress in adapting to the challenging price and margin environment.

‘We remain on track to rebalance organic cash flows next year at $50 to $55 a barrel, underpinned by continued strong reliability and momentum in resetting costs and capital spending.’

The differing set of results sparked mixed reactions among investors. Shell shares closed up 4pc, or 84p at 2199p. BP closed down 4.5pc, or 21.65p at 462.05p.