Fresh fears for divi as Shell takes £18bn hit

ROYAL Dutch Shell warned it will take a one-off hit of up to £18bn as it admitted the coronavirus crisis could permanently dent demand for fossil fuels.

Shell said it would need to slash the value of assets across the company in its secondquarter results after cutting its outlook for oil and gas prices.

The writedowns will fuel fears that Shell’s dividend will stay significantly lower.

And it will also raise worries that rival BP, which will write down its assets by £14bn, will cut its shareholder payout.

The announcement spooked investors, with Shell’s share price falling 3.7pc, or 46.8p, to 1224p. It now thinks oil prices will average at $35 a barrel for the rest of this year, $40 in 2021 and $50 in 2022 – then $60 in the longer term.

This is down sharply from an average of $60 between now and 2022 that it put out just three months ago.

After starting the year at $66, Brent crude prices crashed between February and April, falling as low as $19.

The pandemic wiped out demand for oil as lockdown brought transport and industry to a halt, first in China – the world’s largest importer of oil – and then globally.

Shell had already introduced cuts to save around £8bn this year. And by lopping off 66pc of its dividend payout in the first quarter, it saved £2bn, which would add up to £8bn if kept the same throughout 2020.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: ‘The real question is whether Shell’s fairly downbeat expectations are downbeat enough. Oil prices have spent a large part of the last five years under $60 a barrel and while the collapse of large US shale names might reduce global supply, the outlook for demand is hardly robust.’

Shell said its gas business will take the biggest hit, of up to £7.3bn.

Analysts have warned there could be more pain to come in that area of the business too, as falls in gas prices can take several months to materialise. Its oil and gas exploration arm’s value is down almost £5bn.

Shell will unveil how much the crisis has wiped off its turnover and profit on July 20.

The hit from the pandemic almost halved its profits during the first quarter.

Analysts are now braced for BP to potentially cut its dividend in August, though it got a surprise cash boost of £4bn this week by selling its petrochemicals arm to Ineos.

Helal Miah, analyst at The Share Centre, said: ‘It is clear that medium and longer term energy price assumptions have been dropped by most oil majors and BP’s dividend policy therefore is unsustainable.’