Shell slashes dividends, oil prices rally on hopeful economic outlook
Oil prices have rallied on a slower-than-expected rise in oil storage demand and hopes that the global economy is starting to inch its way towards a recovery. Still, the era of big oil dividends may be over.
Supermajor Shell has slashed its dividend by two-thirds to 16 cents per share, the first time it has done so since World War Two, after announcing a 46 per cent fall in first quarter net income to £2.9bn ($4.46bn).
The move will free up $US10bn in capital, which Wood Mackenzie estimated would cut the energy giant’s 2020 cash flow breakeven point from $US51 per barrel to $US36 per barrel.
“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,” Woodmac corporate analysis team senior vice president Tom Ellacott said.
While fellow supermajor BP maintained its dividend earlier this week despite reporting a two-thirds drop in first quarter profit, Shell’s decision puts pressure on the rest of its peers such as ExxonMobil, Chevron and Total to do the same.
Concerns have also been raised about global oil companies cutting spending to alleviate the impact of the low oil prices.
The news comes as the West Texas Intermediate benchmark rose 3 per cent to $US19.38 per barrel while the international Brent crude benchmark climbed 12.11 per cent to $US25.27 per barrel.
Several major countries are already starting to lift strict COVID-19 lockdown measures with several US states and European countries reopening non-essential stores.
This has created expectations that oil demand will increase in the coming weeks.
It adds the US Energy Information Administration’s latest report showing that oil inventories rose by 9 million barrels last week, less than the 10.6 million barrel forecast by analysts.
However, the International Energy Agency (IEA) warned that global energy demand will fall 6 per cent in 2020, seven times more than it did after the global financial crisis in 2008.
“It is still too early to determine the longer-term impacts, but the energy industry that emerges from this crisis will be significantly different from the one that came before,” IEA executive director Dr Fatih Birol said.
Jupiter Energy (ASX:JPR) has extended the voluntary suspension it entered into earlier this week to allow further time to work with corporate regulators and other relevant parties to better understand what led to irregular trading in its shares earlier this month.
Shares in the Kazakhstan-focused oil producer sky-rocketed after securing a more attractive prepayment proposal from a local trader last week.
The company had said that the new contract and further cost cutting measures would enable production from the Akkar North and West Zhetybai oil fields to continue.