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.

Big Oil had a second quarter it would definitely like to forget.

Of ExxonMobil, Chevron, Royal Dutch Shell, BP and Total, three missed earnings estimates, according to data compiled by Bloomberg.

Worse, the two that beat -- Chevron and Total -- can hardly crow because earnings barely matter right now. More than ever, cash flow is king -- and cash flow is abysmal.


Three charts tell the story:

Burning Down
Free cash flow after capital expenditure has collapsed and shows little sign of improving
Source: Bloomberg, the companies

Notice how, for the past 12 months, only Exxon's free cash flow is positive, and even then only just. What's more, even Exxon's free cash flow dips sharply into the red once you factor in the thing that really counts for investors: paying dividends.

You Can't Spend 'Earnings'
All the majors are failing by a wide margin to cover dividend payouts with operating cash flow
Source: Bloomberg, the companies

Naturally, balance sheets have taken a lot of the strain. Big Oil is borrowing heavily to fund shareholder payouts.

Pressure Pumping
Leverage has risen sharply for most of the oil majors over the past year
Source: Bloomberg, the companies
Note: Leverage defined as net debt divided by net debt plus shareholders' equity.

Leverage has jumped, yet remains manageable for now. But the faltering oil-price recovery and a persistent glut in inventories are keeping the pressure on. Moreover, while oilfield services contractors have taken a lot of the strain so far by cutting fees, they are at a breaking point. Big Oil shouldn't expect the third and fourth quarters to be keepers, either.

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

To contact the editor responsible for this story:
Mark Gongloff at