The Anglo-Dutch firm, one of the world’s largest oil companies, said in a statement on Thursday that it would cut its quarterly dividend to 16 cents a share from 47 cents a share previously. It posted a net loss of $ 24 million for the first quarter of 2020, compared to a profit of $ 6 billion for the same period a year ago.
The company’s shares fell 8% in London on Thursday morning.
“The world has changed dramatically in the past few months”, Royal dutch shell (( CEO Ben van Beurden said in a video recorded from his home and posted on the company’s website. “The global economic decline and the uncertain outlook can have a significant impact on our profitability, cash flow and balance sheet,” he added. )
The reduction in the dividend “will strengthen our resilience, preserve the strength of our balance sheet and support the creation of long-term value”, added Mr. Van Beurden.
Shell had been furiously trying to avoid cutting its dividend – a key attraction for investors – but the coronavirus pandemic has made it crucial for the company to conserve money, while demand for oil from airlines, factories and motorists evaporates.
The International Energy Agency said in a report Thursday that the decline in global energy consumption this year it’s like wiping out demand from all of India, a country of 1.3 billion people and the world’s third largest consumer. Demand for oil, gas and coal has been hampered, he added. Only renewable energy has proven to be resistant.
This dynamic – combined with the glut of supply that resulted from a brief but brutal price war between Saudi Arabia and Russia – has punched the oil markets. Oil prices in the United States last week turned negative for the first time, as traders paid people to take the crude off.
The lower dividend from Shell will free up about $ 10 billion, Wood Mackenzie analysts said in a note. If dividends are reduced in the longer term, it would free up cash to invest in the zero carbon energy sector, added senior vice president Tom Ellacott.
Shell has announced plans to switch to renewable energy as it aims to achieve zero net carbon emissions from its own operations by 2050. It also said it would target emissions of the products it sells to customers are fully compensated.
“These are tough and extraordinary times, but we have to stay focused on the long term,” said Van Beurden on Thursday.
Norwegian oil company Equinor cut its dividend by 67% last week. But BP ((, which announced a 67% drop in first-quarter profits on Tuesday, maintained its dividend at 10.5 cents a share while saying it would keep it under control. )
The decision to pay a dividend was based on the company’s performance in the first quarter and “subsequent decisions will be made based on the context at the time”, BP CEO Bernard Looney told analysts.
ExxonMobil (( and )Chevron ((, which publishes its results on Friday, are committed to defending their dividends. )
“The lower dividend from Shell threw the glove at the supermajors,” said Ellacott. “BP, Chevron, ExxonMobil and Total (( are expected to pay $ 41 billion in dividends in 2020. Combined payments would drop by $ 27 billion if they all decreased 66%. ” )
Norway cuts production
Oil prices have recovered somewhat in recent days but remain at very depressed levels and producers are under enormous pressure to cut production to absorb the oversupply.
OPEC and its allies, including Russia, have agreed to cut production by a record 9.7 million barrels a day over the next two months, starting on Friday. Norway said Wednesday it would also cut production by 13% in June, or 250,000 barrels a day. It will also delay the start of production in several fields until 2021.
“We are currently facing an unprecedented situation in the oil market,” said Norwegian Minister of Petroleum and Energy Tina Bru in a statement.
Oil companies face grim longer-term prospects, with analysts warning that demand may never return to its record level of 2019 as the crisis accelerates changes that were already underway in the energy markets, such as switching to renewable energy, and has a lasting impact. about how people work and travel.
If governments delay lifting quarantine rules or a second wave of coronavirus strokes, demand for oil will remain depressed longer and behavioral changes will become more entrenched, says Jim Burkhard, chief researcher of crude oil at IHS Markit, a research firm.
– Julia Horowitz and Matt Egan contributed to this report