What happened

Shares of integrated oil majors ExxonMobil (XOM -0.81%)Royal Dutch Shell (RDS.A) (RDS.B), and BP (BP -0.61%) lost more than 20% of their value in March, according to data provided by S&P Global Market Intelligence. Shell's A and B shares fell 20.8% and 26.7%, respectively, while Exxon shares tumbled 26.2% and BP shares plunged 22.1%.

All three companies underperformed the S&P 500, which was only down 12.5% for the month. But they also all handily outperformed the overall oil and gas industry, as measured by the SPDR S&P Oil & Gas Exploration and Production ETF, which was down 46.5% for the month.

A screen has the word oil on it, with a red arrow pointing down next to it

Image source: Getty Images.

So what

Unsurprisingly, the companies posted their biggest losses between March 6 and 9, after the collapse of the OPEC+ alliance, which consisted of Russia and the OPEC member countries, led by Saudi Arabia. An OPEC+ agreement limiting production was set to expire at the end of March, and  Russia refused to renew it, vowing instead to dramatically increase production. In response, Saudi Arabia announced that it, too, would increase production. Virtually all of the OPEC members followed suit, leaving the global oil markets awash in cheap fuel.

Oil prices tumbled instantly, and so did the share prices of oil companies, including the integrated majors. They continued trending downward as Brent crude prices slid from more than $45/barrel on March 6 to less than $27/barrel on March 18. 

On March 23, shares popped a bit thanks to announcements by Shell and French oil major Total that they were cutting their 2020 capital spending and suspending share buyback programs. Wall Street interpreted these moves as protecting against potential dividend cuts, especially comforting since Shell's yield had soared above 19%.

It extended the benefit of the doubt to ExxonMobil and BP despite prior comments from Exxon CEO Darren Woods that he was planning to increase, rather than decrease, capital spending in 2020. Woods issued a statement on March 16 but would only commit to "evaluating" significant expense reductions.

What else

The oil majors have been down this road before. After oil prices crashed from over $100/barrel in 2014 to around $30/barrel in 2015, they had to cut expenses, streamline their operations, add some debt to their balance sheets, and lean heavily on their downstream -- refining and marketing arms -- to keep enough cash coming in to fund their dividends.

All of them were successful in maintaining (Shell, BP) or increasing (ExxonMobil) their dividends through the price downturn, which lasted into 2017. BP and Shell offered an optional scrip dividend program, in which dividends were paid in new shares to help preserve cash. That could be an option for the oil majors this time around if cash flow gets dicey.

And it might get dicey indeed, because not only did oil prices fall to lower levels in March than they did between 2014 and 2017, but prices for refined products like fuel and petrochemicals have also tumbled thanks to high supply and weak demand. The oil majors were already reporting poor numbers from their downstream segments in their Q4 2019 earnings reports. That's only gotten worse as the coronavirus has shut down travel across the globe.

Now what

ExxonMobil, BP, and Shell are unlikely to cut their dividends, even in an economic climate as bleak as this one. They all have good credit ratings and plenty of levers they can pull -- including taking on debt or offering scrip dividends -- to preserve cash to keep those payouts coming. And with prices down, their dividend yields are looking quite attractive right now. 

At some point, the coronavirus pandemic will ebb, and air and automobile travel will resume. Also, at some point the oil market will settle upon a price and level of global production that's sustainable (at least, for a while). How long either of these things will take, though, is anyone's guess, and in the meantime, it's likely to be a volatile time for energy industry stocks, even the most stable ones. 

Dividend investors who are buying for the long term should seriously consider taking this opportunity to pick up shares of ExxonMobil, BP, or Royal Dutch Shell, if they can stomach the volatility and the possibility that share prices may fall even further in the short term.