Cash cache
Shell cuts dividend for first time since Second World War
LONDON — Royal Dutch Shell cut its dividend for the first time since the Second World War Thursday in a drastic step to preserve cash as it prepares for a protracted slump in demand for oil because of the coronavirus pandemic.
The Anglo-Dutch energy company also suspended share buybacks and said it would reduce oil and gas output by about a quarter after its net profit almost halved in the first three months of 2020 to $2.9 billion.
The new measures combined with cuts in capital spending and planned cost reductions announced last month could save Shell almost $30 billion this year to help it weather the crisis and prepare for the transition to lowcarbon energy.
“We are living through a crisis of uncertainty,” Chief Executive Officer Ben van Beurden said. “If we had not cut the dividend … we would have been left without options to reposition the company for the recovery and the future.”
For years, Shell has taken pride in having never cut its dividend since the 1940s, resisting such a move even during the deep downturns in the oil market of the 1980s.
Some investors had called on major oil firms to break the industry taboo around dividends because of the fallout from the health crisis, rather than taking on more debt to maintain payouts.
Shell said it would reduce its quarterly dividend to 16 cents per share from 47 cents, which would save it about $10 billion this year if it stays at that level. Shell last changed its dividend at the start of 2014, raising it from 45 cents.
Shell is the first of the five so-called Oil Majors to cut its dividend because of the coronavirus crisis. Besides BP, Exxon Mobil has also said it will maintain its first-quarter dividend while Total and Chevron have yet to report first-quarter results.
“Shell’s dividend cut has thrown down the gauntlet to the supermajors. BP, Chevron, ExxonMobil and Total are due to pay out $41 billion of dividends in 2020,” said Tom Ellacott, an analyst at Wood Mackenzie.
LONGER RECESSION
Van Beurden said the dividend cut was a part of a longterm resetting of the company that would also play a core part in Shell’s shift away from fossil fuels.
Oil and gas companies have come under increasing pressure from investors worried about climate change and Shell this month laid out the sector’s most extensive strategy yet to reduce greenhouse gas emissions to net zero by 2050.
“Ripping off the band-aid always hurts but if Royal Dutch Shell’s move today allows more room for alternative energy investments, and facilitates a lower cost of equity, it could be just what the company needs to ensure its long-term health,” said Tal Lomnitzer, a senior investment manager at Janus Henderson Investors.
Wood Mackenzie said the cut meant Shell would be able to generate cash with oil at $36 a barrel. Brent crude has fallen 65 per cent so far this year.
Shell paid about $15 billion in dividends last year making it the world’s biggest payer of dividends after Saudi Arabia’s national oil company Saudi Aramco. Dividends paid by Shell and BP last year also represented 24 per cent of the $94 billion paid out by FTSE 100 companies.