Not entirely. The question hangs on the long term oil price.
1. In my view, there is not going to be a recovery to current levels of employment for some years, and the eventual new economy is not going to be nearly so consumer-oriented and wasteful. This is not just a recession, it's a depression. I don't see much demand-side improvement coming to help.
2. OPEC may yet want to force up the price, if they can, although they are getting into diminishing returns. If raising the price from $40 to $60 requires cutting OPEC production by 50%, then where's the benefit? So OPEC's potential help seems to me quite limited.
3. All the while, the work-horse oil fields are approaching, entering or continuing decline. Supply (or I should say, capacity) side is definitely headed downwards after current projects are completed, since new ones are being rejected and even some current ones are being postponed. We could see that effect by 2012.
So, I'd suggest it's safe this year - losing the divi would be a real political blow to Hayward. But after that, no, until there is the income to support it.
No - it cannot be safe unless prices rebound significantly. Let's do the maths.
Last year average realisation on crude was $97/Bbl roughly.
At present oil is at $43/Bbl year to date.
Each $1 / Bbl drop in price is about $400M to BP's bottom line. So today we have a shortfall of possibly $21 billion in income relative to 2008 if oil stays at $43 /BBl. The natural gas impact makes it worse (I haven't done the calculations yet) but refining margins are up.
Last year BP generated $38 Billion in cash flow. At todays prices that might be $17 bn (maybe better because production sharing agreements get less profitable / Bbl as prices get to, say $100. Last year BP paid out $11 billion in dividends. To maintain capital spending at today's rate they would have to generate $23 Bn in cash flow. In order to remain cash positive or neutral BP would have to cut costs (can't do it that quickly), cut capital spending (already doing that), increase borrowing or pray for price rise. They likely cannot cover the dividend at present levels if prices stay put and they will never borrow again to cover the dividend (as they did in early 90's). They might squeak it but it's precarious. That's my take on it.
Seems like it's safe for now BUT I personally would not be crushed if BP cut from the maybe-too-high 8% to a more reasonable 5-6% level. This would not be the end of the world and may be a good financial decision for the long term.
I believe it is safe. I think BP will maintain the dividend at all costs. It has been the only redeeming thing about this stock for 15 years. If there dividend were cut, there would be flight from this stock and the future of the company as a standalone entity would be in jeopardy.