Analysts also probed on long-term capital needs to sustain the business, expressing concern that companies’ current low capex levels would compromise the achievement of their medium-term output and cash flow targets.
Throughout the calls, the macro environment and demand scenarios were overarching themes. Asset write-downs were based on the assumption that oil prices would return to more sustainable levels, but analysts wanted to know how companies would respond if oil continues to remain below US$40/barrel in the medium to long term.
Dividends and impairments
The recent crisis has triggered a wholesale reexamination of dividend policies across the industry, and the subject was front and center again in Q2 analyst calls. Some companies have overhauled dividend policies so that dividends track oil prices instead of remaining fixed, and analysts wanted to understand the factors that led to any changes.
In view of the dividend cuts made by several companies, analysts were skeptical about payouts that would be made over the medium term and whether companies would be able to return to a progressive dividend path. Ironically, companies that have been able to sustain high dividends were asked to defend them given the current market conditions.
On impairments, analysts were curious to get a view of the share of total impairments that were not triggered by COVID-19 and the reason why companies waited until this time to make those impairments.
On the strategic front, questions related to portfolio reshaping dominated. Portfolio high-grading was at the top of the agenda, with asset divestment and how to achieve a “fit-for-the-future” asset mix not far behind.
Diversification into alternative energy and the returns on those businesses continue to be areas of focus for analysts. For the first time, analysts asked multiple questions about hydrogen project plans and what role hydrogen is expected to play in company portfolios in the medium to long term.