So what do you do when the commodity you harvest and sell suddenly collapses by 50-60% and slashes your operating profit? If you said, raise a whole bunch of debt and continue spending on new capital projects to drill for even more supply in a collapsing market then you might be an oil CEO. The Wall Street Journal this morning pointed out that raising debt to cover cash burn is exactly what the largest oil companies in the world are doing. In fact, the 4 largest oil companies have doubled their net debt positions since 2014 when the oil sell-off started. 

Frankly, we're a little skeptical that raising debt to add supply to an already over-supplied market is the right idea. That said, certain investors and CEOs, whose bonuses are tied to production in many cases, disagree.

“They are just not spending enough to boost production,” said Jonathan Waghorn, co-portfolio manager in London at Guinness Atkinson Asset Management Inc. who helps oversee more than $400 million across a range of energy funds, including shares in Exxon, BP, Chevron and Shell.

But as Michael Hulme of Carmignac Commodities Fund noted, “eventually something will give"..." these companies won’t be able to maintain the current dividends at $50 to $60 oil—it’s unsustainable” Well given that, per the chart below, the largest 4 oil companies are burning nearly $80BN per year we would tend to agree with Hulme.

Though, prudence isn't necessarily a quality that oil investors like in their CEOs so things like temporarily cutting dividends probably wouldn't go over well.