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‘It’s amputation’: Shell cut its dividend for the first time since World War II, the latest sign of the brutal crisis decimating the oil industry


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‘It’s amputation’: Shell cut its dividend for the first time since World War II, the latest sign of the brutal crisis decimating the oil industry

REUTERS/Sergio Moraes Shell reduced its first quarter dividend by 67% from $0.47 to $0.16. It marks the first time since World War II that the Dutch oil giant has cut its dividend, the latest sign of the brutal reality of the oil market crisis. The dividend cut is “more evidence of the appalling damage the…

‘It’s amputation’: Shell cut its dividend for the first time since World War II, the latest sign of the brutal crisis decimating the oil industry

Ben van Beurden Royal Dutch ShellREUTERS/Sergio Moraes

  • Shell reduced its first quarter dividend by 67% from $0.47 to $0.16.
  • It marks the first time since World War II that the Dutch oil giant has cut its dividend, the latest sign of the brutal reality of the oil market crisis.
  • The dividend cut is “more evidence of the appalling damage the pandemic is doing to the world economy,” one analyst said, describing it as an “amputation.”
  • Demand for oil has plummeted in recent weeks as the coronavirus pandemic halts air travel and shuts down manufacturing.
  • Track Shell’s share price live on Markets Insider. 

Shell slashed its dividend for the first time since the Second World War on Thursday, cutting shareholder payments by 67% as coronavirus torpedoes demand for commodities and shatters the oil-producing industry. 

Shell said in a statement on Thursday that it was cutting its share dividend from $0.47 to $0.16 as it posted significantly lower quarterly earnings.

Shell’s current cost of supplies (CCS) earnings fell 47% compared to last year to $2.9 billion. CCS is used as a proxy for the net income after adjusting for its rise or fall in its expenses over the reporting period.

Shell chief executive Ben van Beurden, said: “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.

“Starting this quarter, the Board has decided to reduce our quarterly dividend to 16 US cents per share.”

Shell shares reacted negatively to the news, with the company’s A and B shares – which are both listed on London’s FTSE 100 – dropping around 6% as of 5.30 a.m. ET.

Royal Dutch Shell, chair of the board, Chad Holliday said: “As conditions allow, the Board will continue to evaluate our capital allocation priorities between ongoing investment in our business, maintaining a strong balance sheet and increasing returns to shareholders which remains our ambition.”

Oil prices have been extremely volatile over the past fortnight. US oil prices went negative for the first time in history last week as coronavirus slumps demand for the commodity and oil supplies exceed the amount of storage available. 

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Lack of storage options, particularly at a key storage facility in Cushing, Oklahoma, and the reduction in demand for the commodity during the ongoing coronavirus pandemic has tanked oil prices in recent days.

 Whataburger and Shell gas station sign shows coronavirus impacts on Alabaster, Alabama on March 22, 2020.Michael Wade/Icon Sportswire via Getty Images

Oil prices have recovered a little, but still remain volatile as fears mount that the June contract could also turn negative the closer contracts moves towards expiry. 

The price of West Texas Intermediate is currently trading 12% higher around $17 a barrel, meanwhile Brent, the international benchmark is 9% up around $24.83 a barrel as of 4:35 a.m ET. 

Analysts were also quick to react to Shell’s news. 

Neil Wilson, chief market analyst at Markets.com, said: “Shares in Shell slumped 7% as it cut its dividend and reported net income in the first quarter almost halved.

“Whilst BP chose to absorb a $6bn rise in net debt to $51bn and gearing above 36x in order to preserve its precious dividend, Shell seems to be taking a more prudent approach in cutting its dividend for the first time since the 1940s.

Wilson added: “Arguably BP is better placed to weather the storm, but Shell is taking the more sensible course of action.”

Oil giant BP reported a 66% drop in first-quarter profits on Tuesday as the impact of coronavirus pandemic bites companies across the globe, particularly in the energy sector.

“Our industry has been hit by supply and demand shocks on a scale never seen before,” Bernard Looney, BP’s CEO, said in a statement.

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Kit Atkinson of Link Group, said: “A two-thirds cut in its dividend (its first since WW2) is not surgical precision, it’s amputation, and is more evidence of the appalling damage the pandemic is doing to the world economy. With this move Shell has relinquished its position as the world’s largest dividend payer.”

If Shell’s dividend payment continues to remain this low, it could cost Shell shareholders £5.6 billion ($6.98 billion) in 2020 and even more next year, Atkinson warned.

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