It is no secret that the oil and gas industry has had a very hard time with lower commodity prices and demand. The pandemic crushed global oil demand, and the continued move toward renewable and alternative energy adds long-term caution for any business that is tied to fossil fuels. Exxon Mobil Corp. (NYSE: XOM) posted operating quarterly losses of $1.38 billion in June and $764 million in March. It now appears that its shareholders may have to brace for more operating losses.

Exxon released data on its quarterly earnings considerations Thursday morning. This was not a formal earnings release, but it is what Wall Street analysts and other investors use for some of their underlying earnings assumptions.

The big question is how exactly Exxon can continue to maintain its massive dividend beyond 2020. Given the yield of 10%, the market has more long-term questions about how sustainable that yield is. This is certainly not the first time this high payout was questioned, and it likely will not be the last time. Exxon had been raising that dividend year after year, but the $0.87 per share quarterly payment has now been the same payout for six consecutive quarters.

Again, the company’s filing with the U.S. Securities and Exchange Commission (SEC) should not be viewed as a formal earnings announcement, and there was no mention of the dividend or balance sheet data. That said, the oil and gas giant’s filing offers perspective on the company’s units, and the company noted market dynamics, seasonal patterns and planned activities. It also noted that it may not account for all the charges and adjustments that fully reflect industry conditions.

Higher average oil prices did boost the numbers in production, with liquids prices adding $1.4 billion to $1.8 billion in the third-quarter upstream business. Lower gas prices are weighing on the results, with a $100 million to $500 million loss range offered from changes in gasoline prices.

Exxon’s filing also showed North American crude logistics differentials would create a break-even to a loss of $200 million range, and downstream refining margins would contribute a loss ranging from $200 million to $600 million. The change in chemical margins would contribute a range of negative $100 million to positive $100 million. And the change in mark-to-market derivatives would be in a range of break-even to a gain of $400 million.

It was in estimated changes in sales volumes that showed positive results, and this includes the impacts from the reversal of COVID-19 demand destruction in the quarter. These gains were shown as break-even to $200 million in upstream, $200 million to $400 million downstream and $100 million to $300 million in chemicals.

Before thinking about the dividend risk as a near-term issue, note that one more quarterly disappointment is not likely to wreck the dividend. It’s what happens to oil prices and oil demand in the future.

Exxon had a Refinitiv consensus estimate of −$0.06 in earnings per share for the quarter that ends on September 30. The consensus estimate calls for a positive report of $0.12 per share in the fourth quarter. With an expected loss of $0.18 per share for all of 2020, even the positive $1.48 consensus earnings per share estimate for 2021 is not enough to cover its dividend from earnings alone.

Also note that interest payments on debt compete for the available capital, and the ratings agencies will not endorse strong credit ratings if the books become too leveraged with industry trends seeing secular woes. Exxon had $26.3 billion in long-term debt and $25.6 billion in non-current deferred liabilities as of June 30. Those long-term debt levels have not changed much, but the near-term liabilities crept higher through the end of 2019.

Exxon has said in the past that it wants to defend its dividend. Most companies fund dividends through income, and Exxon has committed to selling assets and even using other sources of capital if needed. Unfortunately, asset prices are lower than they were before the pandemic. Many nations already are operating on lower production to keep the prices higher, and there might not be adequate storage to keep filling up the tanks to be sold in the future.

On top of the current woes, the secular demand issues will almost certainly persist. The world’s auto fleet will not be fully electrified by 2030 and maybe not even be in 2040, but that trend is not going away, and auto giants like GM and Ford have expansive plans to catch up to Tesla in the electric vehicle market.

To show both sides of the coin, note that not everyone agrees that Exxon’s dividend is at risk. The big concerns do look as though they are long term rather than short term, particularly if Exxon can cut costs further and can keep making selective portfolio changes with additional asset sales.

A sector report from BofA Securities noted that Exxon recently added about $18 billion in liquidity. The firm still has a Buy rating and $77 price objective, and it has defended it as the stock has slid this year. BofA also noted that the company retains significant cash on hand to bolster near-term liquidity, fund project spending and maintain its dividend. In short, it’s not a universal bet that Exxon’s dividend is in jeopardy any time soon.

A recent update from independent research firm CFRA noted that the 30% cut in Exxon’s spending budget was a means of protecting that dividend, with the reminder that the current dividend chews up about $15 billion per year. That said, CFRA further noted that the company could sustain its dividend in 2021, as long as crude oil prices do not relapse to lower levels.

Exxon has a very long history and is likely to be a survivor over time, even if it cuts this super-high dividend. 24/7 Wall St. even featured Exxon as one of the top oil survivors out to 2030.

Exxon’s dividend yield was 10.1%, based on the $34.33 share price before Thursday’s bad news, and its 52-week trading range of $30.11 to $73.12 should signal how bad 2020 has been. The drop of 3% to $33.30 on Thursday takes the dividend yield closer to 10.25%.

Exxon may be able to sustain its dividend for some time. It still seems safe to assume that the market will not blindly trust the dividend perpetually, if operating earnings and cash flow from operations do not eventually cover the payments.

It is also hard to forget that this oil and gas giant recently was ejected from the Dow Jones industrial average.

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