Shell has opted to cut its dividend by two-thirds in response to the recent slump in oil prices and “significant” mid and long-term market uncertainty. The Anglo-Dutch giant will pay out 12.8p (16c) in the first quarter, down from 37.7p a year ago. Shell insisted shareholder returns were a “fundamental part” of its financial framework, but said it had to take “decisive action” to ensure it is well-positioned for the “eventual economic recovery”.
It hadn’t cut its dividend since World War Two, until today. The company also warned that it may need to reduce oil and gas production, LNG liquefaction and utilisation of refining and chemicals plants.
Last month, the company said it would halt its share buyback programme and look for billions of pounds worth of savings in response to the oil price collapse, which was sparked by the collapse of a production cuts deal between Opec and its allies and drop in demand due to the Covid-19 lockdown. And at the start of April, Shell delayed several UK North Sea projects, including its Shearwater-Fulmar gas line re-plumb and the final investment decision for its Jackdaw development.
Revenues for the first quarter totalled £48 billion, down 28% as a result of lower oil, gas and LNG prices and weaker realised refining and chemicals margins. But the company managed to stay in the black during the first three months of 2020, posting pre-tax profits of £500m. That figure does pale in comparison to the £7.5bn surplus achieved in Q1 2019.CCS earnings attributable to shareholders excluding identified items, Shell’s preferred performance measure, came in at £2.3bn, down 46% year-on-year. The company’s “B” shares fell 7.39% to £13.44 in London on Thursday morning.
Shell CEO Ben van Beurden
Chief executive Ben van Beurden said: “Given the continued deterioration in the macroeconomic outlook and the significant mid and long-term uncertainty, we are taking further prudent steps to bolster our resilience, underpin the strength of our balance sheet and support the long-term value creation of Shell.
“Starting this quarter, the board has decided to reduce our quarterly dividend to 16 US cents per share.”
David Barclay, head of office at Brewin Dolphin Aberdeen, said: “Shell’s decision to cut its dividend for the first time since World War Two reflects the unprecedented economic impact of Covid-19.
“The share buyback programme has also been discontinued for now. There was a great deal of speculation about what the energy company would do leading up to these results and the market was braced for bad news.
“On the face of it, the dividend cut and cancellation of share buybacks may be seen by some shareholders as a negative move in the short term.
“However, looking further ahead it could well prove to be the right step as Shell looks to strengthen its financial position and cut costs during a very difficult time.”
Biraj Borkhataria, analyst at RBC Europe, said: “The big story is Shell moving on the dividend and cutting it by 66%. The company is not defining this as a temporary pause with intentions to move back to its prior base.
“This is the new normal. Shell looks to be preparing for a prolonged downturn and wants to maintain its financial health.
He added: “Clearly the decision would have not been taken lightly by the board, however this is a positive move over the long term in our view.
“The move will allow Shell to pivot more easily through the energy transition, and not be tied to a $15bn dividend to service each year.”
Two weeks ago, the company revealed plans to become a net-zero emissions business by 2050.
