ROYAL Dutch Shell Plc cut its dividend for the first time since the Second World War as the oil slump triggered by the coronavirus pandemic reshapes the energy industry.
The surprise move is the latest illustration of how the global spread of the deadly disease is causing the biggest upheaval for generations. Energy consumption is undergoing a historic plunge, as is GDP growth in many countries. The global economy that emerges from the other side of the crisis may look very different, with lasting changes to patterns of fuel demand.
This is a big moment in the history of Shell and the oil industry. The company was by far the biggest payer in the FTSE-100, providing a reliable income to millions of pension fund investors. The two-thirds reduction in its dividend will shock investors, but also underscores the gloomy outlook for the year.
Weak earnings in the first three months of the year are expected to be followed by an even tougher second quarter as lockdowns all over the world cause a historic slump in demand. Shell warned that it may need to curtail production of oil or natural gas due to lack of demand or infrastructure constraints.
BP Plc and Eni SpA already reported big drops in profit and growing financial stress. Exxon Mobil Corp. has frozen its dividend for the first time in 13 years, but until Thursday only Norway’s Equinor ASA had gone as far as cutting its payout.
"Shareholder returns are a fundamental part of Shell’s financial framework,” Chairman Chad Holliday said in a statement. "However, given the risk of a prolonged period of economic uncertainty, weaker commodity prices, higher volatility and uncertain demand outlook, the board believes that maintaining the current level of shareholder distributions is not prudent.”
Shell’s board decided to reset the level of the first quarter 2020 dividend to 16 cents a share, from 47 cents previously, Holliday said. The company will continue to evaluate its "capital allocation priorities,” while increasing shareholder returns "remains our ambition.”
Shell’s adjusted net income was $2.86 billion in the first quarter, down 46% from a year earlier but exceeding the average analyst estimate of $2.29 billion. Estimates have been revised significantly down since March, when the pandemic began to accelerate.
The Anglo-Dutch company’s shareholder returns were already looking unaffordable before the virus hit. The company said in January that it had slowed the pace of its share buyback program and was unlikely to hit its $25 billion target this year. In March, it announced the cancellation of the next tranche of purchases as the severity of the pandemic became clear. - Bloomberg
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