Energy

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Mighty Exxon, as I pointed out previously, is showing signs of strain as it juggles growth plans, dividends and buybacks with oil at about $30 a barrel. But it isn't alone.

The chart below shows how Exxon's capital spending has jumped compared with its cash flow per share, leading the oil major to borrow more to fund its shareholder payouts.

Don't Cross the Streams
Exxon's cash flow per share has deteriorated while its capex bill has jumped, leading to rising leverage
Source: Bloomberg, company publications

Yet Exxon is hardly in the worst shape on this score -- far from it. Take a look at the same chart, but this time including four of Exxon's competitors, too: Chevron, Royal Dutch Shell, BP and Total.

Oh, You Crossed Them Anyway
The big five oil majors aren't earning enough collectively to fund their spending
Source: Bloomberg, company publications

As you can see, the group as a whole hit an unwelcome milestone last year, with both capex and net debt per share rising higher than cash flow. Given Exxon hasn't quite reached that point yet, at least in terms of capex, clearly some rivals are doing worse. 

First up is Chevron:

Gorgon Grinder
Chevron's massive, multi-year development projects such as Gorgon LNG have sent free cash flow sharply negative and leverage higher
Source: Bloomberg, company publications

Then Shell:

Shelling Out
Shell has been the biggest spender of the group, with capex of almost $300 billion, even higher than Exxon's.
Source: Bloomberg, company publications

Next up is BP:

Volatile Nature
BP's relatively lower level of integration and the impact of the Macondo disaster have made its cash flow volatile, and leverage is rising again
Source: Bloomberg, company publications

And finally, Total:

Total Recoil
Total's free cash flow has turned sharply negative, pushing scrip payments up as a proportion of the company's dividend and leading to higher leverage
Source: Bloomberg, company publications

To untangle those lines, all the majors are taking an ax to investment budgets. Exxon and Chevron have made or announced the deepest cuts, percentage-wise, relative to 2013, with the latter company helped by the roll-off of some large LNG projects as they are completed.

Looking ahead to the rest of 2016, Exxon looks best positioned out of the group to withstand low oil prices:

The Break Down
Average oil price required in 2016 to fund capital expenditure and dividend
Source: Tudor, Pickering, Holt

Even so, with Brent futures implying an average price this year of more like $36 a barrel, none of the majors are close to paying their way in 2016 if oil doesn't rally meaningfully. And having slashed investment to protect their dividends, they will likely need to get active on the deal-making front if they want to refill their reserves.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in San Francisco at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net