## As Crude Fades, Big Oil Must Borrow to Pay Investors Oil and gas companies have long relied on their cash flow from operations to pay dividends to shareholders. But with crude prices languishing, many of these companies are now having to borrow money to meet their obligations. In the first quarter of 2020, the world's largest oil and gas companies borrowed a combined $65 billion to pay dividends, according to a report by Rystad Energy. This is a significant increase from the $25 billion that these companies borrowed in the same period last year. The borrowing spree is being driven by a number of factors, including the collapse in oil prices, the rising cost of production, and the increasing demand for dividends from shareholders. **The collapse in oil prices** The collapse in oil prices has had a devastating impact on the oil and gas industry. In April 2020, the price of Brent crude fell to a 21-year low of $19.33 per barrel, due to the decrease in demand due to the Covid-19 pandemic and a price war between Saudi Arabia and Russia. The low oil prices have made it difficult for oil and gas companies to generate enough cash flow to cover their operating costs and capital expenditures. This has forced many companies to borrow money to meet their obligations. **The rising cost of production** The cost of producing oil and gas has been rising in recent years, due to factors such as the increasing complexity of drilling operations and the need to explore in more remote and challenging areas. The rising cost of production has made it even more difficult for oil and gas companies to generate enough cash flow to pay dividends. This has forced many companies to borrow money to meet their obligations. **The increasing demand for dividends from shareholders** Shareholders in oil and gas companies have been demanding increasing dividends in recent years. This is due to the low interest rates that have made it difficult for investors to find other income-generating investments. The increasing demand for dividends has put pressure on oil and gas companies to maintain their dividend payments, even if it means borrowing money to do so. **The consequences of borrowing** The borrowing spree by oil and gas companies is having a number of consequences. First, it is increasing the debt levels of these companies, which could make them more vulnerable to financial distress if oil prices remain low. Second, it is diverting money away from investment in new projects, which could slow down the growth of the industry. Third, it is putting pressure on governments to provide financial support to oil and gas companies, which could lead to higher taxes or subsidies. The borrowing spree by oil and gas companies is a sign of the challenges facing the industry. The collapse in oil prices, the rising cost of production, and the increasing demand for dividends from shareholders are all putting pressure on these companies. It remains to be seen how these companies will cope with these challenges in the long term.
