When the oil price is rising, energy company executives are happy to take the credit for all the clever investment decisions they have made. When it falls, they turn their palms up and blame the commodity markets. This week European oil majors BP, Royal Dutch Shell and Total reported second-quarter earnings to a jaded market. All emphasised cost cutting. One day, this discipline may well deliver a fantastic return for shareholders. If it does not, dividends will have to come down.

Shell on Thursday became the latest to point the finger at weak energy prices to explain surprisingly poor earnings. missed analysts’ modest expectations by half. In the division which actually produces the oil and gas, (upstream) losses of $1.3bn were twice as large as expected, leading to a 4 per cent drop in the shares. The added depreciation charges from its new acquisition, BG Group, compound the effect from lower energy prices.

But Shell’s costs remain too high. While its upstream production costs are over $10 a barrel, notes Société Générale, those of French rival Total are well below that figure. The higher break-even drags on earnings. More important for dividend purposes, it reduces cash flow.

All of the majors struggle to cover their capital expenditures using the cash they generate from operations (before any asset sales), never mind paying for dividends. As a result, BP, Statoil and Total all hinted this month that their will slip further. But Shell looks especially weak. Even if one adds back a $6.4bn increase in working capital, it did not have enough cash flow to cover its capex in the first half of the year.

Granted, one should not read too much into a single quarter or a half. But with , the cash flows that finance payouts are again threatened. Dividends at Shell — the main reason many investors hold the shares — still do not look safe.

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