Page 10 - Euroil Week 18 2020

EurOil INVESTMENT EurOil
Shell takes axe to dividend for first time since 1940s
GLOBAL
The move has won praise, even though other majors are taking a different course.
ROYAL Dutch Shell has cut its dividend for the first time since the Second World War, it said on April 30, in the face of the unprecedented oil market turmoil.
Oil and gas demand has tanked as a result of coronavirus (COVID-19) lockdowns, and efforts by OPEC+ and other producers to rebal- ance the market have failed to make a significant dent in the supply overhang, with Brent currently trading at only $25-26 per barrel.
Shell said it had slashed its dividend for the firstquarterfrom$0.47persharetojust$0.16,to protect its cash reserves.
“We are living through a crisis of uncertainty,” CEO Ben van Beurden told investors. “If we had not cut the dividend, we would have been left without options to reposition the company for therecoveryandthefuture.”
Shares in Shell slumped 12.8% on April 30, underperforming BP and ExxonMobil, which have both said they will maintain their first-quarter dividends in spite of the pandemic and the collapse in oil prices.
“The move is a sensible and prudent action to preserve cash in the face of huge macro uncer- tainty,” Wood Mackenzie’s Tom Ellacott said in a research note
The cut means Shell’s annual pay-out will drop from $14.9bn to just $5.1, freeing up around $10bn in cash flow. This will reduce Shell’s cash flow breakeven point in 2020 from $51 to $36 per barrel, Wood Mackenzie estimates.
“A permanent dividend reset could also accel- erate the strategic pivot to ‘Big Energy’ through reinvestment of more retained earnings in the youthful zero-carbon energy sector,” Ellacott says.
Shell set itself a 2050 deadline for generating net-zero emissions from the manufacture of its products in mid-April, offering one of the sec- tor’s most extensive strategies for achieving this
reduction.
BP, Chevron, ExxonMobil and France’s Total
are due to pay out a total of $41bn in dividends in 2020. Were they all to follow Shell’s example and cut the payments by 66%, this would generate $27bn in extra cash flow.
Hargreaves Lansdown analyst Nicholas Hyett agreed in a note that while the trimmed dividend was “very unwelcome news for income investors, given that Shell is one of the largest dividend pay- ers on the entire stock market, it may be better newsforthelong-termhealthofthebusiness.”
“The need to service a cash-hungry dividend has seen future investment sacrificed and assets sold,” Hyett continued. “Essentially both Shell and BP have been slowly digesting themselves to keep the dividend ticking over. Removing that pressure allows the group to focus on the future and also secures the future of recently announced renewable energy investments.
Into the red
Shell swung to a $24mn net loss attributable to shareholders in the first quarter, from a $965mn net profit in the previous three months and a $5.29bn income in the first quarter of 2019.
The company’s cost of current supplies (CCS) earnings – its preferred measure of profitability – slumped 48% at $2.76bn, on the back of a 28% decline in revenues to $60bn.
Oil and gas production was more or less sta- ble year on year at 3.72mn barrels of oil equiva- lent per day in the first quarter, versus 3.75mn boepd a year earlier. But Shell’s upstream CCS warnings nevertheless plunged to $291mn, from $1.65bn, as a result of much weaker prices.
Earnings from Shell’s integrated gas segment fell to $2.14bn, from $2.57bn, while earnings from oil products dropped to $1.36bn from $1.45bn. Earnings from chemicals slumped to $148mn from $451mn a year earlier. ™
P10
w w w . N E W S B A S E . c o m
Week 18 07•May•2020