* Investors say long crisis would trigger dividend cuts
* Investors don't want to see debt rising further
* Oil majors dividend yield soars after oil price collapse
* GRAPHIC-Big Oil's dividend yield: https://tmsnrt.rs/2U73Jit
* FACTBOX on oil company spending cuts:
By Ron Bousso
LONDON, March 25 (Reuters) - The world's biggest oil and gas
firms should break an industry taboo and consider cutting
dividends, rather than taking on any more debt to maintain
payouts as they weather the fallout from the coronavirus
pandemic, investors say.
The top five so-called oil majors have avoided reducing
dividends for years to keep investors sweet and added a combined
$25 billion to debt levels in 2019 to maintain capital spending,
while giving back billions to shareholders.
The strategy was designed to maintain the appeal of oil
company stocks as investors came under increased pressure from
climate activists to ditch the shares and help the world move
faster towards meeting carbon emissions targets.
Now this strategy is at risk. Oil prices have slumped 60%
since January to below $30 a barrel as demand collapsed because
of the pandemic and as a battle for customers between Saudi
Arabia and Russia threatened to flood the market with crude.
"Long term, it is appropriate to cut the dividend. We are
not in favour of raising debt to support the dividend,"
said Jeffrey Germain, a director at Brandes Investment Partners,
whose portfolio includes several European oil firms.
The combined debt of Chevron, Total, BP
, Exxon Mobile and Royal Dutch Shell
stood at $231 billion in 2019, just shy of the $235 billion hit
in 2016 when oil prices also tumbled below $30 a barrel.
Chevron was the only one to reduce its debt last year.
The latest collapse in oil prices has sent energy companies
reeling, just as they were recovering from the last crash, which
saw crude plummet from $115 a barrel in 2014 to $27 in 2016.
Companies from Exxon to Shell have announced plans to cut
spending and suspend share buyback programmes to balance their
books and prevent already elevated debt levels from ballooning.
None has announced any plans to cut dividends so far.
PRIDE AND PAYOUTS
Shell, which paid $15 billion in dividends last year, prides
itself for having never cut its dividend since the 1940s. This
week it announced plans to slash capital spending by $5 billion.
But with the highest debt pile among rivals of $81 billion
at the end of 2019 and an elevated debt-to-capital ratio, known
as gearing, some investors say Shell might have to halve its
dividend to balance its books.
"The measures taken by Shell seem to be sufficient but, over
time, if Shell (for instance) does not spend enough capital
expenditure then production will start to fall and the
underlying cash flow will not be sufficient to sustain the
dividend long term," said Jonathan Waghorn, co-manager of the
Guinness Global Energy Fund.
A Shell spokeswoman declined to comment.
NO DOWNSIDE
Even if oil prices recover to the low $40s a barrel, oil
majors' debt would rise to levels that are too high by 2021,
said Morgan Stanley analyst Martijn Rats.
"Much remains uncertain, but if commodity markets evolve as
expected, we think European majors will start to reduce
dividends in the second half of 2020," Rats said.
BP, which last cut its dividend in the wake of the 2010
Deepwater Horizon rig explosion, has yet to announce a detailed
plan to weather the crisis. BP declined to comment.
"Given all the negatives, I see no long-term downside to
cutting the dividend temporarily and, once circumstances change,
raise it accordingly," said Darren Sissons, portfolio manager at
Campbell, Lee & Ross, speaking about major oil companies.
The dividend yield - the ratio of the dividend to the share
price - on oil company stocks has soared in recent weeks
following the collapse in crude prices, hitting levels not seen
in decades.
A high dividend yield can imply that investors are assigning
a higher degree of risk to a company's dividend but the big oil
companies won't want to reduce payouts, said Alasdair McKinnon,
portfolio manager at The Scottish Investment Trust.
"Oil majors will be extremely reluctant to cut dividends.
They have historically defended them through some very tricky
periods," McKinnon said.
(Reporting by Ron Bousso; Editing by David Clarke)