The Board of Royal Dutch Shell plc has announced it will slash its dividend by 66 per cent, the first time the company has cut cash distributions to shareholders since World War II.
Shares will be reduced from the US$ 0.47 dividend for the same quarter last year to US$ 0.16 per share. The annual pay-out will fall from US$14.9 billion to US$5.1 billion, freeing up US$10 billion of capital.
The last time one of the supermajors cut the dividend was BP, in the immediate aftermath of the Macondo disaster.
Shell said the pace and scale of the societal impact of COVID19 and the resulting deterioration in the macroeconomic and commodity price outlook is unprecedented.
“The duration of these impacts remains unclear with the expectation that the weaker conditions will likely extend beyond 2020. In response, Shell has taken decisive actions to reduce our spending and position our businesses to compete in the current lower commodity price environment and uncertain demand outlook.
Therefore, the Board of Royal Dutch Shell has taken the decision to reset its dividend to provide financial resilience and further flexibility to manage the uncertainty.
“Shell is taking the steps necessary to ensure that we are well-positioned for the eventual economic recovery.”
Chair of the Board of Royal Dutch Shell Chad Holliday said given the risk of a prolonged period of economic uncertainty, weaker commodity prices, higher volatility and uncertain demand outlook, the Board believes that maintaining the current level of shareholder distributions is not prudent.
“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.”
Tom Ellacott, senior vice president with Wood Mackenzie’s corporate analysis team, said Shell’s move is a sensible and prudent action to preserve cash in the face of huge macro uncertainty.
“We estimate the cut reduces Shell’s cash flow 2020 cash flow breakeven from US$51/bbl to US$36/bbl.
“A permanent dividend reset could also accelerate the strategic pivot to ‘Big Energy’ through the reinvestment of more retained earnings in the youthful zero-carbon energy sector.
“Shell’s dividend cut has thrown down the gauntlet to the supermajors. BP, Chevron, ExxonMobil and Total are due to pay out US$41 billion of dividends in 2020. Combined pay-outs would fall by US$27 billion of they all cut by 66 per cent.”