Updated from 11:42 a.m. ESTBP ( BP) CEO Tony Hayward said Tuesday that he intends to continue paying dividends to BP's shareholders this year, bucking a trend by some smaller energy companies to tighten their belts on dividends during tough economic times. Hayward said at an investor conference that "at today's moment we believe we can continue to invest for the future and pay the dividend." While Hayward's comments about BP's dividend will certainly hold sway, BP's board of directors will have the final say regarding the size and timing of the firm's dividend payments, according to a company spokesperson. Hayward said that his company needs to sustain an average oil price of $60 a barrel in order to meet its capital expenditure goals and pay its investor dividend. If that doesn't happen, BP will have to borrow money to pay its dividend. As of Wednesday morning, the front month West Texas crude contract was trading at $44.50 a barrel, and the price doesn't reach $60 a barrel until the December 2011 contract. The front-month Brent contract was recently trading for $46.32 a barrel, and doesn't surpass $60 a barrel until spring 2012. Under current conditions, the likelihood that BP will realize $60 oil in 2009 is slim. "The commentary we are hearing from BP and peers like Total ( TOT) is that we should expect a significant pullback in their cost structure, but we probably won't see that fully for another 18 months to two years," said Blake Fernandez, equity analyst at Harold Weil in New Orleans.
"These companies will probably need to lever up to maintain their dividends. That is fine, but if BP becomes increasingly levered, the decision to maintain its dividend could prevent it from pursuing other investment opportunities," Fernandez said. Cash-laden companies like Exxon Mobil ( XOM) that can continue paying their dividends without incurring more debt may be better positioned to act on new drilling projects if competitors like BP are forced to incur more debt, Fernandez said. Shares of BP closed 4.9% higher Wednesday to $35.82. Among BP's peers in the integrated energy space, ConocoPhillips ( COP) gained 5.2% to $37.11; Chevron ( CVX) moved 2.7% higher to $59.28; Royal Dutch Shell ( RDS.A) was 6% higher at $41.12 a share, and Exxon Mobil was 2% higher at $65.68 a share.