Major oil tanker Shell dividends for the first time since World War II

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

Shell’s board of directors announced in a statement that it had decided to cut the largest oil tanker’s first-quarter dividend to $ 0.16 per share, down from $ 0.47 at the end of 2019. That’s a 66% reduction.

“Shareholder returns are a fundamental part of Shell’s financial framework,” said Chad Holliday, chairman of the board of Royal Dutch Shell, in a statement.

“However, given the risk of a prolonged period of economic uncertainty, weaker commodity prices, increased volatility and uncertain demand prospects, the Board believes that maintaining the current level of shareholder distribution is not prudent.”

Shell also reported that net income attributable to shareholders based on current cost of supplies (CCS) and excluding identified items, used as a proxy for net profit, reached $ 2.9 billion for the first quarter of 2020. That compared to $ 5.3 billion in the first quarter of 2019, reflecting a 46% year-over-year drop.

Analysts surveyed by Refinitiv expected first-quarter net profit to be $ 2.5 billion for the quarter.

Shell shares fell more than 7% during the morning offers, falling to the bottom of the European benchmark.

Last week, the Norwegian Equinor became the first major oil tanker to cut its dividends this earnings season. He expressed concern that other energy giants may follow suit, although BP, which reported Tuesday, kept its dividend.

Investors will now be on the lookout for big US oil companies Chevron and Exxon Mobil, which are due to present the results on Friday.

Tamas Varga, a senior analyst at PVM Oil Associates, told CNBC by email that Shell had taken the “same approach” as the Norwegian Equinor by reducing its quarterly dividend by about two-thirds.

“As long as demand destruction bites, cash is king.” Varga said, adding that suspending share buybacks, cutting capital spending and cutting dividends were “becoming the norm.”

Shell CEO Ben van Beurden described conditions in the energy market during the first three months of the year as “extremely challenging”.

“Given the continuing deterioration of the macroeconomic outlook and significant uncertainty in the medium and long term, we are taking more prudent measures to strengthen our resilience, underpin the strength of our balance sheet and support Shell’s long-term value creation,” said. additional.

Along with cutting its dividend, Shell announced that it would not continue with the next tranche of its share buyback program. Since the program’s launch, the largest oil tanker said it had repurchased nearly $ 16 billion in shares for its cancellation.

“At first glance, the dividend cut and the cancellation of the share buyback may be seen by some shareholders as a negative move in the near term,” David Barclay, senior investment manager at Brewin Dolphin, said in an email.

“Looking ahead, however, may be the right step as Shell seeks to strengthen its financial position and cut costs during a very difficult time.”

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

The US Texas Intermediate West Texas contract May. USA It fell below zero to trade in negative territory for the first time in history last week. Trading volume was low given that it was the day before the expiration date of the contract, but nevertheless the downward movement was extraordinary.

WTI futures had reached over $ 60 a barrel earlier in the year. A dramatic drop in demand as a result of the coronavirus outbreak has caused a drop in oil prices.

On Thursday, WTI’s June contract traded at $ 16.55 a barrel, nearly 10% higher for the session, while internationally benchmark Brent crude stood at $ 23.81, an increase of around 5%.

Earlier this week, BP reported that first quarter net profit was down 67% compared to the same period a year ago.