Shell Slashes Dividend For The First Time Since World War II


Shares of Shell dropped to the bottom of the European benchmark during early morning deals, down more than 7%.

Oil giant Royal Dutch Shell on Thursday cut its dividend to shareholders for the first time since World War II, following a dramatic slide in oil prices amid the coronavirus crisis.

The board at Shell said it had decided to reduce the oil major’s first-quarter dividend to $0.16 per share, down from $0.47 at the end of 2019. That’s a reduction of 66%.

“Shareholder returns are a fundamental part of Shell’s financial framework,” Chad Holliday, chair of the board of Royal Dutch Shell, 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 also reported that net income attributable to shareholders on a current cost of supplies (CCS) basis and excluding identified items, which is used as a proxy for net profit, came in at $2.9 billion for the first quarter of 2020. That compared with $5.3 billion in the first quarter of 2019, reflecting a year-on-year fall of 46%.

Analysts polled by Refinitiv had expected first-quarter net profit to come in at $2.5 billion for the quarter.

Shares of Shell dropped to the bottom of the European benchmark during early morning deals, down more than 7%.

Last week, Norway’s Equinor became the first oil major to cut its dividend this earnings season. It raised concern that other energy giants may follow suit, although BP, which reported Tuesday, maintained its dividend.

Investors will now be watching U.S. oil majors Chevron and Exxon Mobil, which are both due to release results Friday.

Tamas Varga, senior analyst at PVM Oil Associates, told CNBC via email that Shell had taken the “same approach” as Norway’s Equinor by cutting its quarterly dividend by roughly two-thirds.

“As demand destruction bites, cash is king.” Varga said, adding that suspending share buybacks, slashing capital expenditure and reducing dividends were “becoming the norm.” Shell CEO Ben van Beurden described energy market conditions through the first three months of the year as “extremely challenging.”

“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,” he added.

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Alongside the cut to its dividend, Shell announced it would not continue with the next tranche of its share buyback program. Since the launch of the program, the oil major said it had bought back almost $16 billion in shares for cancellation.

“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,” David Barclay, senior investment manager at Brewin Dolphin, said in an email.

“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.”

The energy giant’s results come shortly after a historic plunge in oil prices.

The May contract of U.S. West Texas Intermediate plunged below zero to trade in negative territory for the first time in history last week. Trading volume was thin given it was the day before the contract’s expiration date, but, nonetheless, the move lower was extraordinary.

WTI futures had fetched more than $60 a barrel at the start of the year. A dramatic fall-off in demand as a result of the coronavirus outbreak has sent oil prices tumbling.

On Thursday, the June contract of WTI traded at $16.55 per barrel, almost 10% higher for the session, while international benchmark Brent crude stood at $23.81, up around 5%.

Earlier this week, BP reported first-quarter net profit had fallen 67% compared to the same period a year earlier.


Shell Aims To Become The World’s Largest Electricity Company

Shell aims to become the world’s largest electricity company without necessarily generating very much power…

The Anglo-Dutch company last month detailed its plans to transform into a cleaner business centered on selling electricity. Hoping to capture the most profitable part of the business, Shell’s power strategy will be light on assets and focus on trading electricity generated by others.

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Trading will sit at the heart of the integrated approach as a very important source of value,” Shell Chief Executive Ben van Beurden said at the company’s management day last month. “Of course we will be involved in generating electricity […] but we have a preference for being asset-light and balance our supply by providing electricity from other producers.”

Oil and gas will remain Shell’s core business, the company says, but it is aiming to be the world’s largest electric power company by the early 2030s.

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The shift presents challenges. Sizable companies already exist in the power industry, and generating power has historically produced smaller profits than oil-and-gas production, because utilities often carry more debt and are heavily regulated.

“The oil companies have always been used to high rates of returns with the production of crude oil,” said Paul Stevens, senior research fellow at Chatham House, a London-based think tank. “Those rates are just not available in power generation.”


Shell says it hopes to achieve equity returns of between 8% and 12% from its power business, lower than the 12% to 15% target for its traditional oil-and-gas business.

The company currently is the second-biggest power trader in the U.S., with a trading desk that predominantly buys and sells electricity that other companies generate. Shell, however, doesn’t disclose its trading profits or profit margin on its power-trading business.

“Many utilities are hopeless at trading and marketing their power, so it makes sense to let them operate the power plants and have Shell market their power more efficiently,” said Craig Pirrong, a professor of finance at the University of Houston.

Shell’s pivot is part of a broad movement among European oil giants to show they can help meet global goals to reduce fossil-fuel emissions while continuing to churn out profits. It also is an acknowledgment that demand for oil, its chief moneymaker, is expected to peak sometime in the early 2030s, according to a host of studies.

The company’s recent interest in Dutch energy provider Eneco could serve as an asset-light model for where Shell’s power business might be heading.

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Earlier this year, Shell announced a joint bid with Dutch pension-fund manager PGGM for Eneco, a firm that sold around three times more power than it produced last year. The size of the bid wasn’t disclosed but analysts have estimated the company to be worth about $3.4 billion.

As electricity rapidly makes its way into domestic heating, transportation and industrial processes, more than a quarter of global energy demand by 2030 will be for electric power, according to Shell forecasts. That compares with 18% today and Shell’s forecast of as much as 50% by 2060.

Shell could play a leading role in new businesses such as electric charging points in fuel stations, said Nick Stansbury, head of commodity research at Legal & General Investment Management, a shareholder in Shell.

“What I am not yet convinced by is whether—in order to be good at power-market trading, be good at making money—they necessarily need to own and have on the balance sheet the renewable assets,” Mr. Stansbury said.

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Many of the oil industry’s biggest companies are investing in clean energy projects. France’s Total SA owns a majority share in U.S. solar-system maker SunPower and acquired French battery manufacturer Saft Groupe.

In the U.K., BP PLC acquired electric-vehicle charging company Chargemaster last year for about $170 million and invested over $20 million in fast-charging battery company StoreDot. Norway’s state-backed oil company Equinor and Italy’s ENI also have committed to large investments.

Overall, European major oil companies are allocating a fraction of their budgets to low-carbon investments, which accounted for a combined 7% of capital expenditures last year, according to investment research firm CDP.

Shell’s acquisitions in power include German battery company Sonnen, retail energy providers First Utility and MP2 Energy, electric-vehicle charging companies NewMotion and Greenlots, and U.K. energy technology company Limejump Ltd.

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Shell also has outlined an ambitious plan to share profits with investors, with a plan to pay at least $125 billion in dividends and share buybacks between 2021 and 2025. Mr. van Beurden has told The Wall Street Journal that the payouts will come from returns on investments the company already has made.

In the long term, those generous dividends could be at risk if the world’s switch to cleaner forms of energy changes pace. Oil giants’ ability to make high profits remains dependent on their core industries, and failing to embrace the change means they’ll eventually be forced out of the business, according to Chatham House’s Mr. Stevens.

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“The energy establishment is grossly underestimating the speed and depth of the energy transition,” he said. “I think it’s going to happen a lot faster and be a lot deeper.”