Oil giant Shell’s eight-decade run of not cutting dividends ends

Oil giant Royal Dutch Shell has decided to cut its shareholder dividend for the first time since the end of the Second World War following an unprecedented fall in both the value and purchase of petroleum due to the Covid-19 pandemic.

It said the move would ‘provide financial resilience and further flexibility to manage the uncertainty’ that has engulfed them and the broader industry in the last couple of months and has caused tremendous financial harm.

Shareholders are to receive around a two-thirds cut in their dividend payments covering the last three months of 2019, from 47 cents per share to 16 cents.

Shell is the first of the five oil ‘supermajors’ to reduce their dividend payouts because of the recent plunge in the demand and cost of oil that has happened as a result of the coronavirus pandemic and the Russia-Saudi oil price war.

BP declared on Tuesday that it would pay out a higher dividend to shareholders despite experiencing an $800million contraction in its first-quarter profits. Fellow oil and gas companies Chevron and Exxon Mobil will publish their results tomorrow.

Shell’s chairman Chad Holliday remarked that sustaining the current level of dividend payments would be wrong ‘given the risk of a prolonged period of economic uncertainty, weaker commodity prices, higher volatility and uncertain demand outlook.’

The firm has also cancelled the next portion of its stock buyback programme. These cost-cuts come on top of the planned $5billion decrease in capital expenditure and $3-$4billion savings in underlying operating expenses.

It also announced last month that it would not go ahead with a proposed liquefied natural gas project in Lake Charles, Louisiana, which was initially a joint project between Shell and the Texan firm Energy Transfer.

Chief executive Ben van Beurden said the business had taken ‘decisive actions to reduce our spending, increase our liquidity and position our business to manage the deteriorating macroeconomic and commodity price outlook.’

He added: ‘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.’

Russ Mould, investment director at AJ Bell, said the smaller dividend payout would be ‘devastating to investors across the country as so many people own its shares directly or through their pension as an important source of income.’

Pensioners,’ he added, ‘have relied on names such as Shell for a very long time in order to help pay the bills during retirement. They will be particularly devastated at the news that dividend cheques will be significantly smaller.

‘While a cut is better than no dividend at all, many people thought Shell would never go down this path given its long track record of holding or raising the payment.’

Oil markets have undergone an unparalleled time in the last four months, with the price of US oil, known as Texas Light Sweet, even crashing into negative territory this month after traders rushed to offload oil futures.

In layman’s terms, the problems has been one of over-supply and under-demand.

The coronavirus is causing a steep fall in demand as fewer people travel in cars and on planes.

Saudi Arabia and Russia also failed to agree on production cuts at an OPEC meeting in March. Both countries then decided to jack up their oil output, leading to a major glut in the market. Prices inevitably tanked.

Shares in Shell fell 6.9 per cent following their statement.