Royal Dutch Shell announced on Thursday it will cut its shareholders dividend by 66% to bolster resilience as it forecasts long-term uncertainty, Kallanish Energy reports.
CEO Ben Van Beurden said that the decision to reduce the quarterly dividends from 47 cents to 16 cents was driven by the “continued deterioration in the macroeconomic outlook and the significant mid and long-term uncertainty.”
The Anglo-Dutch supermajor said it’s taking further “prudent steps” to underpin the strength in its balance sheet and support its long-term value creation.
“In an environment like this, a strong company like Shell needs to stay resilient, prudent and act responsibly and it needs to take decisive action to preserve the long-term health of the company, which is crucial for staff, customers, the communities we operate in, our debt holders and shareholders,” van Beurden told a press conference.
Shell’s chairman Chad Holliday said in a statement shareholder returns are a fundamental part of Shell’s financial framework, but maintaining the current level of distributions “is not prudent.” He also said the next tranche of the share buyback program has been suspended.
According to Tom Ellacott, senior VP with Wood Mackenzie’s corporate analysis team, the move is a “sensible and prudent action to preserve cash in the face of huge macro uncertainty.”
It’s the first time Shell cuts cash contributions to shareholders since the World War II. But the decision will now free up $10 billion of capital, with an annual pay-out of $5.1 billion instead of the previous $14.9 billion.
Ellacott estimates the cut reduces Shell’s 2020 cash flow breakeven from $51 a barrel to $36/Bbl.
The group reported a $24 million loss in income attributable to shareholders during the first quarter of 2020, compared with a $6 billion profit a year earlier.
The results reflect lower oil, gas and liquefied natural gas (LNG) prices; weaker realized refining and chemicals margins; and lower sales volumes.
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