Another day, another epic selloff in the energy sector.
The catalyst is twofold. The end of the commodities bull run has driven well below $40, and Friday announcement by pipeline operator Kinder Morgan that it was reviewing its dividend stoked new fears for energy investors.
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That dividend review is creating a second wave of panic above and beyond sliding oil prices. Chevron and ExxonMobil have increased the dividend every year for some 28 years. If Kinder Morgan can talk about cutting the dividend, could it happen to Chevron and ExxonMobil and the others?
For the moment, no. Right now, energy stocks are a one-trick pony. They are owned for their dividend, period.
Do you think John Watson, the chairman of Chevron, is going to be the guy who goes down in history as the CEO who cuts the dividend? Or Rex Tillerson at ExxonMobil?
No. However, the problem is the "lower for longer crowd" is now becoming the majority. That is, there is a substantial group who think oil could still be in the $40 range a year from now, going into 2017.
If that is the case, then all bets are off. It's not clear if the dividend is safe, even for a giant like ExxonMobil.
It is really expensive to keep the dividend, particularly for the big guys. Exxon pays $1 billion a month in dividends, and so does Shell. Chevron pays about $650 million a month, which is a lot of money, about 25 percent of the cash flow.
It's worse if you are just an exploration and production (E&P) company that operates in the U.S. The big multinationals are at least still profitable. But not a single oil company is making money pumping in the United States. Not one.
And if you're waiting for some rocket to bring oil back to $80 or $100, than you have not seen what happened in Vienna on Friday.
The epic collapse of the OPEC talks on Friday are another source of anxiety. The Saudis are saying, in effect, "If you are expecting $100 oil, you are in the wrong business." They don't want $100 oil because it will bring shale production back at much higher levels. They don't want higher oil prices to bail out the shale industry.
They are going to keep pumping, even if it means alienating every OPEC partner and non-OPEC partner.