Pandemic Crisis, Systemic Decline - Additional Warnings Against Investing in Oil & Gas - Center for International ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Pandemic Crisis, Systemic Decline
Additional Warnings Against Investing in Oil & Gas
Debt-Driven Dividends
& Asset Fire Sales
Key Findings
• For years, major oil and gas companies have attracted investors by paying them steady
dividends. But the practice has masked the industry’s financial frailty and inherent
instability.
• Following a decade of declining profits exacerbated by the COVID-19 pandemic, some
oil majors, such as Shell, have slashed dividends, while others, including ExxonMobil and
BP, are racking up debt to maintain their shareholder payments and sustain their image as
sound investments.
• Oil and gas companies are also writing-down and selling off their assets at heavily dis-
counted prices, in a move that reflects a desperate need for cash and growing skepticism
about the future value of fossil fuels.
• Petrochemicals and the plastic they produce do not offer oil and gas companies a way out
of their economic troubles. Dovetailing trends of lowered plastic resin prices, increased
plastic regulation, and decreased capital spending threaten the fundamentals of the petro-
chemical industry, on which many oil and gas companies have staked their future growth.
• Dwindling dividends, deepening debt, and decreasing assets are just the latest evidence
that the oil and gas industry is in an endgame that began well before COVID-19. Fiducia-
ries have a duty to re-evaluate the soundness of continued investments in a sector in long-
term decline, and policymakers have a duty not to pour public funds into companies that
are both economically unstable and environmentally destructive.
• The longer pension funds stay invested in fossil fuels despite stark warning signs about
financial precarity and climate exposure, the more fiduciary risks accrue.
Debt-Driven Dividends & Asset Fire Sales | 1 | Center for International Environmental Law
This briefing note follows on from CIEL’s April 2020 report, Pandemic Crisis, Systemic Decline: Why Exploiting
the COVID-19 Crisis Will Not Save the Oil, Gas, and Plastic Industries, which argued that the converging pub-
lic health, economic, and human rights crises triggered by the pandemic have magnified long-term structural
weaknesses in the oil, gas, and petrochemical sectors and accelerated the industry’s collapse. Through a closer
look at post-crisis trends with respect to dividends, debt, and asset sales in the oil and gas sector, this note high-
lights the latest signs of the industry’s underlying unsustainability and the related risks of investing private or
public funds in a sector in decline.
One of the main ways major oil and of oil and gas production used to top of suspending share buybacks
gas companies have attracted inves- make things like plastic*, pesticides, and issuing bonds for $5 billion.4
tors over the years has been by pay- and fertilizers. The petrochemical
ing steady dividends to shareholders. boom on which the oil and gas in- A week later, on April 30, Shell an-
This practice has masked their finan- dustry was staking its future looks nounced it too was suspending share
cial frailty and the industry’s inher- increasingly like a bust, and cer- buybacks and would cut its dividend
ent instability. For at least a decade, tainly not the economic salvation by nearly two-thirds.5 Shell was the
those payouts have been propped up fossil fuel producers sought.3 The first of the oil majors to reduce pay-
not by strong earnings, but by a pre- market meltdown has forced some ments to shareholders, marking the
carious combination of debt and as- of the major integrated oil and gas first time the company cut its div-
set sales. A report from the Institute companies to make unprecedented idends since World War II. Shell is
for Energy Economics and Finan- cuts to their dividends, while others also planning to cut capital expendi-
cial Analysis (IEEFA) reveals that accumulate debt and spin off assets ture in 2020 by at least 20% (from
the five oil majors — ExxonMobil, to fund continued payouts to share- $25 billion to no more than $20 bil-
Chevron, Shell, BP, and Total — holders. The former appears to be lion), and reduce operating expenses
have distributed more in dividends an overdue admission of financial by an additional $3-4 billion.6
and share buybacks since 2010 than strain; the latter, a further hit to the
they earned in free cash flow.1 This balance sheets of companies whose With the largest and best performing
discrepancy should have been cause revenues are plummeting. Both ap- companies in the sector in such dire
for concern among investors, espe- proaches should alert investment financial straits, it’s no surprise that
cially as the ongoing distributions managers and policymakers who are smaller cash-strapped oil and gas
did little to buoy stock prices. (En- accountable to beneficiaries and tax- producers are likewise ditching their
ergy has been the worst-performing payers, respectively, to the perils of dividends and digging themselves
sector of the S&P 500 since 2010.2) funneling more cash into oil and gas further into debt. US producer Oc-
The COVID-19 crisis has forced the companies. Dwindling dividends, cidental Petroleum Corporation has
industry to reckon with the funda- deepening debt, and decreasing as- cut its dividends twice in 2020, first
mental unsustainability of oil and sets are just the latest evidence that to 11 cents a share7 and then to one
gas company finances and exposed the industry is in its endgame. penny a share in late May, represent-
the steady decline behind the indus- ing a 91% drop and the largest re-
duction since the 1970s.8
try’s steady dividends. Slashed Shareholder
Oil and gas companies continue to Payouts Reduced payouts to shareholders
lose value as demand for their prod- compound significant loss of un-
On April 23, 2020, Norway’s derlying share value — a phenom-
ucts remains depressed amidst the
Equinor became the first interna- enon evident across the oil industry
COVID-19 pandemic and ensuing
tional oil company to cut its divi- due to a combination of demand
global recession. Fuel consumption
dend. The company reduced share- destruction, increased climate risk,
is down, as is the demand for pet-
holder payouts by two-thirds, on and mounting debt. Occidental is a
rochemicals, which are derivatives
*For the sake of simplicity, when this report refers to plastic, it refers to an array of polymers and products with different chemical compositions.
Debt-Driven Dividends & Asset Fire Sales | 2 | Center for International Environmental Law
stark example, as its shares have lost
approximately half of their value
this year compared to the S&P 500,
which has recently recovered its
2020 losses.9 The company’s debt,
$23 billion of which is due in the
next nine years, exceeded its current
market value, estimated at $18.3
billion on June 23, 2020.10 Simi-
larly, as of that same date, shares of
Shell stock were down by more than
a third,11 and shares of Equinor by
nearly one-fifth.12
David Mark/Pixabay
Debt-Backed
Dividends
Other oil majors have kept their
dividends but only by taking on
additional debt, massively reducing
planned capital expenditures, or does not expect improvement in the and $17.5 billion in assets, up to
both. company’s rating over the medium 6% of its holdings.21 Those massive
term.17 layoffs and write downs confirm not
ExxonMobil exemplifies the lengths only how severe the current cash
that oil companies will go to deflect Paying shareholders more than the crunch is, but also that the company
attention from the sector’s structural company is currently earning is, at does not expect to see growth recov-
decline and stave off the industry’s best, a short-term fix that masks er anytime soon. Analysts already
end. ExxonMobil has so far main- long-term problems. With a compa- believe that dividend cuts may be
tained dividend payments, but at a ny-wide average breakeven price of coming as early as next quarter.22
steep cost. Like some of its peers, $75/barrel and growing debt,18 there
ExxonMobil cut spending and is little prospect of ExxonMobil get- The remaining oil majors, Total
raised debt to finance its dividend ting out of the red anytime soon — and Chevron, have kept their div-
this year.13 On April 7, ExxonMobil even if there is a temporary oil price idends for now, but only by prior-
announced it would reduce capital rebound. itizing them over capital spending.
expenditures by 30% and operating Total maintained its dividend,23 but
BP similarly maintained its div- cut capital expenditures by approx-
expenses by 15% in 2020, and as
idend, but only by boosting its imately 20%.24 Chevron similarly
of June, was reportedly planning to
borrowing because the company’s cut its capital spending by $2 billion
lay off 5-10% of its US workforce.14
spending cuts of 25% in 2020 were in April, after already reducing it by
Despite this massive reduction in
insufficient to cover the shareholder $4 billion in March.25 The $6 billion
outlays, the company added $8.5
payouts.19 The company overshot its cut amounts to approximately 30%
billion in debt.15 As of May 2020,
target debt-to-capital ratio of 30%, of the company’s planned capital ex-
ExxonMobil’s payout ratio (the ra-
hitting 36% as its debt climbed to penditure in 2020.26
tio of its dividends to net income)
$51.4 billion.20 And in June, BP an-
was 130.6%.16 Given that precari-
nounced that it would cut 10,000 Taking on more debt is all the riskier
ous position, it comes as no surprise
jobs, representing nearly 15% of its when the assets that will be used to
that both Moody’s and S&P Global
global workforce, to rein in spend- pay it back are themselves losing val-
downgraded ExxonMobil’s credit
ing. Shortly thereafter, the company ue, as is the case with hydrocarbon
ratings, with Moody’s noting that it
decided to write off between $13 reserves.
Debt-Driven Dividends & Asset Fire Sales | 3 | Center for International Environmental Law
jqpubliq/Flickr
Asset Fire Sales rapidly becoming a reality, eroding
the long-term value prospects of oil
ed that, by midcentury, up to half
of the growth in oil demand could
Oil majors are also writing down and and gas assets. Since the bottom fell come from petrochemicals used
selling off their assets in “fire sales,” out of the market, companies have to produce plastic, fertilizers, and
according to an analysis by Rystad had trouble selling their holdings, pesticides.33 Throughout the last
Energy.27 The massive demand de- effectively leading to asset stranding decade, over $200 billion has gone
struction triggered by the pandem- in real-time.30 into petrochemical infrastructure
ic undermines oil and gas revenues, and plastic plants, much of it in the
putting downward pressure on div-
idends and accelerating companies’
Plummeting United States, where it was assumed
these facilities would have indefinite
efforts to sell off assets for cash. At Petrochemical access to cheap shale gas.34 As the
the same time, depressed oil and gas
prices and the uncertain outlook for
Prospects market falters under the global sup-
ply glut and shale companies fold,
the future of the market are foiling The oil majors have been betting on however, the economics of the pet-
efforts to monetize hydrocarbon petrochemicals, and plastic produc- rochemical expansion are beginning
holdings.28 tion, in particular, to be one of their to unravel.
significant engines of growth in the
Oil and gas majors’ asset twenty-first century.31 But 2020 has Prices for plastic resins were drop-
revealed the riskiness of this wager. ping before the COVID-19 crisis,35
fire sales reflect their need and they have continued to plum-
The same market instability and fi-
for cash today and skep- nancial uncertainty facing oil and met along with oil and gas prices.36
ticism about the value of gas production is affecting petro- The plastic market is saturated, and
fossil fuels tomorrow. chemicals as well. With an integrat- a short-term uptick in demand for
ed value chain, fossil fuels and plas- personal protective equipment will
The spate of write-downs by oil ma- tic rise and fall together.32 not change the long-term down-
jors in late 2019 and in June 2020, ward trajectory of plastic use. More-
when both BP and Shell reduced Declining fossil fuel consumption over, as oil becomes cheaper, the dif-
the value of their assets by tens of and the rising costs of extraction ferential in cost between gas-based
billions of dollars, does little to help have prompted oil majors to look and oil-based plastic feedstocks has
the companies fetch a higher price.29 to plastic as an economic crutch. narrowed, cutting into expected
In part, those write-downs reflect Before the pandemic, the Inter- margins and undermining the justi-
a recognition that climate risks are national Energy Agency predict- fication for the US gas and natural
Debt-Driven Dividends & Asset Fire Sales | 4 | Center for International Environmental Lawgas liquid (NGL)-based petrochem- cut its dividend puts investors on owe duties of prudence and loyalty
ical buildout.37 As noted in a recent constructive notice that similar cuts to their beneficiaries. As detailed in
Reuters analysis, the combination are likely coming from others in the CIEL’s 2016 report, Trillion Dollar
of a demand shock, increasing reg- industry, and that those companies Transformation,40 those obligations
ulation of plastic, low resin prices, continuing to pay their shareholders include the duty to monitor and re-
and decreased capital spending pose are doing so on borrowed money evaluate prior investment decisions
a combined significant threat to the and time. The other oil majors are in light of new information to en-
petrochemical industry.38 not on any more solid financial foot- sure they remain prudent,41 and the
ing than the Dutch-British giant. duty to act impartially toward pres-
According to IEEFA, ExxonMobil’s ent and future beneficiaries, balanc-
Petrochemicals and plastic
dividends and buybacks between ing long-term capital preservation
will not be how the oil and 2010 and 2019 exceeded its free and growth.42 The latest develop-
gas industry grows its way cash flow by $65 billion, and BP’s ments concerning dividend cuts are
out of this crisis or climbs by $50 billion, while Shell’s equiva- just the most recent of many clear
lent deficit over the same period was indications that the sector is in long-
its way out of debt.
$23 billion.39 term decline, making it a poor in-
The message of the market is clear: vestment for those with a long time
plastic and petrochemicals will not Debt-backed dividends and cuts to horizon.
save oil and gas — nor should they. shareholder payouts are just the lat-
Not only are the plastic and petro- est manifestation of deep, structural The fossil fuel sector’s fi-
chemicals sectors unable to com- weaknesses in the oil and gas sector.
This new data has direct financial
nancial frailty and climate
pensate for the poor financial fun-
damentals mentioned earlier, but and legal implications for fiducia- exposure spell fiduciary
these sectors are also themselves ries. Investment managers subject to risk for pension funds.
vulnerable to the same frailties. In- fiduciary obligations, such as trust-
ees of public sector pension funds, As evidence continues to mount
vestors should not be misled into
that the oil, gas, and petrochemical
thinking that plastic will be how the
industry grows its way out of this
crisis or climbs its way out of debt.
Such a strategy is as economically
unsound as it is environmentally
unsustainable.
Red Flags for Fund
Fiduciaries
The inability of so many oil and gas
companies to sustain their dividends
or to cover the costs of shareholder
payouts, despite massive reductions
in capital spending, is a red flag that
investors should heed. Not only does
it bespeak problems for the specific
companies highlighted above, but it
Mike Benna/Unsplash
adds more evidence to the growing
case against investing in fossil fuels.
Given the systemic weaknesses across
the sector, Shell’s historic decision to
Debt-Driven Dividends & Asset Fire Sales | 5 | Center for International Environmental LawJames Armbruster/Pixabay
sectors are facing financial calamity, disqualify those companies from Investing taxpayer money
fiduciaries have a duty to reevaluate receiving public subsidies. In the in the oil and gas industry
whether continued investment in wake of the pandemic, however, the
oil and gas companies is in the best opposite has been true. Oil and gas is a path to public risk, not
interest of those whose funds they companies, together with the plastic recovery.
manage. The financial hardships industry,43 have sought — and in
that have been brought into stark re- some cases received — financial,44 Policymakers have a duty to pro-
lief by the pandemic compound the regulatory45 and legal relief,46 divert- tect workers and communities, not
risks that the climate crisis poses to ing taxpayer resources from pressing polluters and their shareholders.
fund assets in fossil fuels — impact, public needs, including investment Governments should recognize that
carbon asset, transition, and litiga- in the clean-energy transition. the instability of the oil, gas, and
tion risks — further eroding the petrochemical sectors predates the
business rationale for investing in A former member of the Board of current crisis and reject the indus-
oil and gas. The case for continued Governors of the Federal Reserve try’s calls for financial, regulatory,
fossil fuel investment is especially echoed this concern in a New York and legal relief. Such subsidies serve
weak for long-term investors, such Times op-ed in late May 2020.47 As only to transfer the risk of under-
as pension funds, that must balance she notes, federal support for the performing companies from private
the interests of current generations long-floundering oil and gas indus- balance sheets to the public budget
against future ones. The longer they try sends distortionary market sig- and to foist the costs of unabated
stay invested in fossil fuels despite nals, is ripe for abuse without proper pollution and avoided cleanup onto
stark warning signs about financial restrictions on how taxpayer dollars local communities and the public at
precarity and climate exposure, the should be spent, and runs counter to large.
more fiduciary risks accrue. the emerging consensus that recov-
ery should focus on supporting resil- Conclusion
ient and sustainable industries, not
Alarm Bells for Public propping up already failing ones. Just as fiduciaries have a duty to the
Policymakers Research published in June 2020 investors whose money they man-
by Influence Map suggests that the age, policymakers have a duty to
The payment of debt-driven divi- Federal Reserve’s purchase of cor- the public whose taxes they spend.
dends, and the underlying system- porate bonds of fossil fuel compa- Both should heed the warnings and
ic weakness in the sector that those nies, which were in secular decline steer clear of funding an industry
payments mask, should not only before the pandemic, may pose un- facing economic decline and fueling
discourage private investment in oil tenable and unnecessary risks to US environmental disaster.
and gas companies, but should also taxpayers.48
Debt-Driven Dividends & Asset Fire Sales | 6 | Center for International Environmental LawEndnotes
1. See Clark Williams-Derry, Tom Sanzillo 10. See Carroll & Crowley, supra note 8; Occidental result, expects non-cash impairments and write-
& Kathy Hipple, Institute for Energy Petroleum Corporation (OXY), Yahoo! offs (June 15, 2020), https://www.bp.com/
Economics and Financial Analysis, Beyond Finance, https://finance.yahoo.com/quote/ en/global/corporate/news-and-insights/press-
Their Means: Oil Majors Pay More to OXY?p=OXY&.tsrc=fin-srch (last visited June releases/bp-revises-long-term-price-assumptions.
Shareholders Than They Earn by Selling 23, 2020). html; Hanna Ziady, BP Warns of $17.5 Billion
Oil and Gas (2020), https://ieefa.org/wp- Hit as Pandemic Accelerates Move Away From
11. See Royal Dutch Shell plc (RDS-A), Yahoo!
content/uploads/2020/04/Oil-Majors-Beyond- Oil, CNN (June 15, 2020, 12:31 PM), https://
Finance, https://finance.yahoo.com/quote/
Their-Means_April-2020.pdf. www.cnn.com/2020/06/15/business/bp-oil-
RDS-A?p=RDS-A&.tsrc=fin-srch (last visited
demand-coronavirus/index.html (noting that
2. See Kathy Hipple, IEEFA Update: The Terrible, June 23, 2020).
the impairment could be as high as 6% of BP’s
Horrible, No Good, Very Bad Year for Oil and 12. See Equinor ASA (EQNR), Yahoo! total holdings).
Gas, Institute for Energy Economics and Finance, https://finance.yahoo.com/quote/
Financial Analysis (Jan. 21, 2020), https:// 22. See John Stepek, Watch Out Income Investors –
EQNR?p=EQNR (last visited June 23, 2020).
ieefa.org/ieefa-update-the-terrible-horrible-no- BP Looks Likely to Cut its Dividend in the Near
good-very-bad-year-for-oil-and-gas/. 13. See Guarav Sharma, ExxonMobil Follows Future, MoneyWeek (June 15, 2020), https://
BP In Maintaining Dividend But Shell Cuts moneyweek.com/investments/investment-
3. See Joe Brock, Pandemic Exposes Cracks in As Oil Crash Bites, Forbes (Apr. 30, 2020, strategy/income-investing/601505/-bp-
Oil Majors’ Bet on Plastic, Reuters (June 4, 2:57 AM), https://www.forbes.com/sites/ dividend-cut.
2020, 3:25 AM), https://uk.reuters.com/ gauravsharma/2020/04/30/exxonmobil-follows-
article/us-health-coronavirus-plastic-analysis/ 23. See Press Release, Total, Total Announces the
bp-in-maintaining-quarterly-dividend-despite-
pandemic-exposes-cracks-in-oil-majors-bet- First 2020 Interim Dividend of €0.66/Share,
oil-slump/#73d7279b617e.
on-plastic-idUKKBN23B0UT. In June 2020, Stable Year on Year (May 5, 2020), https://
BP exited the petrochemicals sector altogether. 14. See Press Release, ExxonMobil, ExxonMobil www.total.com/media/news/press-releases/
See Jasper Jolly, BP sells petrochemical business to reduces 2020 capex by 30%, cash opex by total-announces-first-2020-interim-dividend-
Ineos for $5bn, The Guardian (June 29, 2020, 15%; maintains long-term outlook (Apr. 7, eu066share-stable-year-year.
12:40 EDT), https://www.theguardian.com/ 2020), https://corporate.exxonmobil.com/
24. See Press Release, Total, Total Announces
business/2020/jun/29/bp-sells-petrochemical- News/Newsroom/News-releases/2020/0407_
Immediate Action Plan in Context of Sharp
business-to-ineos-for-5bn-jim-ratcliffe-plastics. ExxonMobil-reduces-2020-capex-by-30-
Decrease in Oil Prices (Mar. 23, 2020), https://
percent-cash-opex-by-15-percent; see also
4. See Press Release, Equinor, Equinor reducing www.total.com/media/news/press-releases/
Julianne Geiger, ExxonMobil Readies To Make
quarterly cash dividend for first quarter 2020 total-announces-first-2020-interim-dividend-
Major Job Cuts, OilPrice.com (June 26,
by 67% (Apr. 23, 2020), https://www.equinor. eu066share-stable-year-year. See also Andy
2020, 5:30 PM CDT), https://oilprice.com/
com/en/news/2020-04-23-reducing-quarterly- Ryle, Slashing Capital Spending May Save
Latest-Energy-News/World-News/ExxonMobil-
dividend-1q2020.html. Total’s Dividend, Nadaq (Apr. 14, 2020,
Readies-To-Make-Major-Job-Cuts.html.
6:32 AM), https://www.nasdaq.com/articles/
5. See Dividend Announcement, Royal Dutch 15. See Stephen Cedric Jumchai, Moody’s slashing-capital-spending-may-save-totals-
Shell plc, First Quarter 2020 Interim Dividend Downgrades Exxon on Negative Free Cash Flow, dividend-2020-04-14.
(Apr. 30, 2020), https://www.shell.com/ Rising Debt Levels, S&P Global (Apr. 2, 2020),
investors/dividend-information/historical- 25. See Press Release, Chevron, Chevron
https://www.spglobal.com/marketintelligence/
dividend-payments/first-quarter-2020-interim- Announces First Quarter 2020 Results (May
en/news-insights/blog/essential-energy-insights-
dividend.html. 1, 2020), https://chevroncorp.gcs-web.com/
june-11-2020. See also Nick Cunningham,
news-releases/news-release-details/chevron-
6. See Ron Bousso & Shadia Nasralla, Shell Cuts The Oil Giant Drowning In Debt, Oilprice.
announces-first-quarter-2020-results; Jonathan
Dividend for First Time since World War Two, com (Apr. 5, 2020, 4:00 PM), https://oilprice.
Garber, Chevron Slashes Costs to Protect Dividend
Reuters (Apr. 30, 2020, 2:22 AM), https:// com/Energy/Energy-General/The-Oil-Giant-
from Coronavirus, Fox Business (May 1, 2020),
www.reuters.com/article/us-shell-results/shell- Drowning-In-Debt.html.
https://www.foxbusiness.com/markets/chevron-
cuts-dividend-for-first-time-since-world-war- 16. See Thomas Niel, Why the Dividend Freeze Is coronavirus-dividend-earnings-q1-2020.
two-idUSKBN22C0TK. Bad News for ExxonMobil Stock, InvestorPlace
26. See id.
7. See Press Release, Occidental Petroleum (May 20, 2020, 12:25 PM), https://
Corporation, Occidental Reduces Dividend investorplace.com/2020/05/despite-stable- 27. See Rystad Energy, COVID-19 Fuels Fire Sale Of
and Capital Spending (Mar. 10, 2020), dividend-stay-sidelines-exxon-mobil-stock/. Oil & Gas Assets, Oilprice.com (June 2, 2020,
https://www.oxy.com/News/Pages/Article. 1:30 PM), https://oilprice.com/Latest-Energy-
17. See Jumchai, supra note 15.
aspx?Article=6220.html. News/World-News/COVID-19-Fuels-Fire-Sale-
18. See Jennifer Hiller, Exxon, Chevron Slam Brakes Of-Oil-Gas-Assets.html.
8. See Press Release, Occidental Petroleum on Shale as Oil Demand Tumbles, Reuters
Corporation, Occidental Announces Dividend 28. See id. See also Kathy Hipply & Tom
(May 1, 2020, 11:26 AM),https://www.reuters.
(May 29, 2020), https://www.oxy.com/ Sanzillo, Institute for Energy Economics
com/article/us-energy-results/exxon-chevron-
News/Pages/Article.aspx?Article=6260.html; and Financial Analysis, ExxonMobil’s
slam-brakes-on-shale-as-oil-demand-tumbles-
Joe Carroll & Kevin Crowley, Occidental Planned Assets Sales: Another Strategic
idUSKBN22D5RE.
Cuts Dividend to a Penny With Debt Woes Misstep (2020), https://ieefa.org/wp-content/
Mounting, Reuters (May 29, 2020, 1:34 19. See Ron Bousso & Shadia Nasralla, BP Hikes uploads/2020/04/ExxonMobil-Planned-Assets-
PM), https://www.bloomberg.com/news/ Debt, Keeps Dividend as Coronavirus Hammers Sales-Another-Strategic-Misstep_April-2020.
articles/2020-05-29/occidental-petroleum- Profits, Reuters (Apr. 28, 2020, 2:49 AM), pdf.
slashes-dividend-by-91-to-one-penny. https://www.reuters.com/article/us-bp-results/
29. See BP, supra note 21; Sarah McFarlane, Shell
bp-hikes-debt-keeps-dividend-as-coronavirus-
9. See Occidental Petroleum Corp OXY, NYSE, Takes $22 Billion Write-Down, Expecting Lower
hammers-profits-idUSKCN22A0S5.
https://www.nyse.com/quote/XNYS:OXY(last Oil and Gas Prices, Wall Street Journal
visited June 23, 2020); Niv Elis, S&P Erases 20. See id. (June 30, 2020, 10:27 AM), https://www.
2020 Losses as Stocks Soar, The Hill (June 8, 21. See Press Release, BP, Progressing strategy wsj.com/articles/shell-takes-22-billion-
2020, 4:31 PM), https://thehill.com/policy/ development, bp revises long-term price write-down-expecting-lower-oil-and-gas-
finance/501712-sp-erases-2020-losses-as-stocks- assumptions, reviews intangible assets and, as a prices-11593504718.
soar.
Debt-Driven Dividends & Asset Fire Sales | 7 | Center for International Environmental Law30. In addition to the oil majors, shale companies uploads/2016/12/Trillion-Dollar- Fuel Companies and Utilities eligible for
are writing off billions in assets. According to Transformation-CIEL.pdf. the Federal Reserve’s Coronavirus Bond
Deloitte, US shale producers could write off 41. See id. at 12-13. Purchase Program (2020), https://www.ran.
up to $300 billion in assets in 2020. See Derek org/wp-content/uploads/2020/05/Fossil-Fuel-
Brower, US Shale Companies Face $300bn in 42. See id. at 15-16. Cos-Eligible-for-Fed-Bond-Purchase-Program_
Writedowns in Q2, Financial Times (June 22, 43. See Letter from Tony Radoszewski, President May-2020.pdf.
2020), https://www.ft.com/content/0a91a723- and CEO, Plastics Industry Association 45. See Exec. Order No. 13,924, 85 C.F.R.
abf2-4905-a370-a9ab1e33ba33. (PLASTICS), to Alex Azar, Secretary, U.S. 31,353 (2020), https://www.federalregister.
31. See, e.g., BP, BP Energy Outlook: 2019 Department of Health and Human Services gov/documents/2020/05/22/2020-11301/
Edition 35 (2019), https://www.bp.com/con- (Mar. 18, 2020), https://www.politico.com/ regulatory-relief-to-support-economic-recovery
tent/dam/bp/business-sites/en/global/corpo- states/f/?id=00000171-0d87-d270-a773- (“Executive Order on Regulatory Relief
rate/pdfs/energy-economics/energy-outlook/ 6fdfcc4d0000 (asking Secretary Azar to to Support Economic Recovery”); Nadja
bp-energy-outlook-2019.pdf; ExxonMobil, explicitly support the use of single-use plastic Popovich et al., The Trump Administration
2020 Investor Information 71-82, https:// bags as prudent COVID-19 prevention Is Reversing 100 Environmental Rules. Here’s
corporate.exxonmobil.com/-/media/Global/ strategy and oppose plastic bag bans); Ivy the Full List., N.Y. Times, https://www.
Files/investor-relations/investor-presentation. Schlegel, How the Plastic Industry Is Exploiting nytimes.com/interactive/2020/climate/trump-
pdf?la=en&hash=5300E8E624C721F916E9A9 Anxiety About COVID-19, Greenpeace (Mar. environment-rollbacks.html (last updated
02EA4FF02F4249CB46 (last updated June 26, 2020), https://www.greenpeace.org/usa/ May 20, 2020); Memorandum from Susan
2020). how-the-plastic-indus-try-is-exploiting-anxiety- Parker Bodine, Assistant Administrator for
about-covid-19/ (identifying industry efforts to Enforcement and Compliance Assurance,
32. See Callum O’Reilly, Petrochemical Sector promote plastic during the COVID-19 crisis). U.S. EPA, COVID-19 Implications for EPA’s
Braced for Uncertainty, Hydrocarbon
44. See Lukas Ross, Friends of the Earth, Enforcement and Compliance Assurance
Engineering (May 11, 2020, 8:35 AM),
https://www.hydrocarbonengineering.com/ Cashing in on COVID: Tax Breaks, Program (Mar. 26, 2020), https://www.epa.
Royalties and Stimulus Loans (2020), gov/sites/production/files/2020-03/documents/
petrochemicals/11052020/petrochemical-
https://foe.org/news/new-report-reveals- oecamemooncovid19implications.pdf.
sector-braced-for-uncertainty/.
big-oils-covid-lobby-bonanza/. See also Reid 46. See Press Release, U.S. Congressman Jamie
33. See International Energy Agency, The Frazier, Oil and Gas Companies Asked, then Raskin, Raskin Leads 60 Members in Opposing
Future of Petrochemicals (2018), Received Changes to Fed Coronavirus Stimulus Climate Change “Immunity Grabs” by Fossil
https://www.iea.org/reports/the-future-of- Program, StateImpact Pennsylvania (May Fuel Industry in COVID-19 Legislation (May
petrochemicals. 11, 2020, 5:38 AM), https://stateimpact.npr. 5, 2020), https://raskin.house.gov/media/press-
34. See Press Release, American Chemistry Council, org/pennsylvania/2020/05/11/oil-and-gas- releases/raskin-leads-60-members-opposing-
U.S. Chemical Industry Investment Linked companies-asked-then-received-changes-to- climate-change-immunity-grabs-fossil-fuel.
to Shale Gas Reaches $200 Billion (Sept. 11, fed-coronavirus-stimulus-program/; Jennifer
47. See Sarah Bloom Raskin, Why Is the Fed
2018), https://www.americanchemistry.com/ Dlouhy & Ari Natter, Fed Changes Open Door
Spending So Much Money on a Dying Industry?,
Media/PressReleasesTranscripts/ACC-news- for More Drillers to Get Loans, Bloomberg (Apr.
N.Y. Times (May 28, 2020), https://www.
releases/US-Chemical-Industry-Investment- 30, 2020, 2:12 PM), https://www.bloomberg.
nytimes.com/2020/05/28/opinion/fed-fossil-
Linked-to-Shale-Gas-Reaches-200-Billion.html; com/news/articles/2020-04-30/fed-opens-
fuels.html.
Shale Gas Is Driving New Chemical Industry door-for-oil-company-loans-after-lobbying-
Investments in the U.S., American Chemistry campaign; Sal Christ, Occidental’s Lobbying 48. Influence Map, Necessary Intervention or
Council, https://www.americanchemistry. Pays Off as it Stands to Benefit From Coronavirus Excessive Risk? Corporate Bond Risk Before and
com/Policy/Energy/Shale-Gas/Fact-Sheet-US- Bailout, Global Witness (May 13, 2020), After COVID-19 Amid the Fed’s Buying Program
Chemical-Investment-Linked-to-Shale-Gas.pdf https://www.globalwitness.org/en/campaigns/ (June 2019), https://influencemap.org/report/
(last visited June 23, 2020). oil-gas-and-mining/occidental-lobbying-pays- Necessary-Intervention-or-Moral-Hazard-5e4
off-stands-to-benefit-from-coronavirus-bailout/. 2adc35b315cc44a75c94af4ead29c. For more
35. See Weekly Resin Report: Historically Low Resin
For a list of fossil fuel companies eligible for information about fossil fuel bailouts in the
Prices Ring in New Year, PlasticsToday (Jan.
US Federal Reserve bond purchases program, United States, see Bailout Watch, https://
7, 2020), https://www.plasticstoday.com/resin-
see Rainforest Action Network, Fossil bailoutwatch.org (last visited June 23, 2020).
pricing/weekly-resin-report-historically-low-
resin-prices-ring-new-year/167894244362176.
36. See Market Update: June 12, 2020,
ThePlasticsExchange.com (June 12, 2020),
1101 15th Street NW, #1100
http://www.theplasticsexchange.com/Research/
WeeklyReview.aspx (select “June 12, 2020”
Washington, DC 20005
from “Past Reports” drop-down menu). E: info@ciel.org | P: 202.785.8700
www.ciel.org
37. See Weekly Resin Report: Eroding Demand and
Epic Plunge in Oil Prices May Lead to Rationing
of Resin Production, PlasticsToday (Apr. 28,
2020), https://www.plasticstoday.com/resin- Debt-Driven Dividends & Asset Fire Sales follows CIEL’s April 2020 report, Pandemic
pricing/weekly-resin-report-eroding-demand- Crisis, Systemic Decline: Why Exploiting the COVID-19 Crisis Will Not Save the Oil,
and-epic-plunge-oil-prices-may-lead-rationing- Gas, and Plastic Industries.
resin-production/51681784162921.
38. See Brock, supra note 3. Debt-Driven Dividends & Asset Fire Sales by The Center for International Environ-
39. See Williams-Derry et al., supra note 1. mental Law is licensed under the Creative Commons Attribution-NoDerivs-Non-
40. See Center for International Commercial 1.0 Generic License. To view a copy of this license, visit http://creative-
Environmental Law, Trillion Dollar commons.org/licenses/by-nd-nc/1.0/ or send a letter to Creative Commons, 444 Castro
Transformation: Fiduciary Duty, Divestment, Street, Suite 900, Mountain View, California, 94041, USA.
and Fossil Fuels in an Era of Climate Risk
(2016), https://www.ciel.org/wp-content/ Cover image: skeeze/Pixabay
Debt-Driven Dividends & Asset Fire Sales | 8 | Center for International Environmental LawYou can also read
