LONDON--Royal Dutch Shell cut its dividend for the first time since World War Two on Thursday in a drastic step to preserve cash as it prepares for a protracted slump in demand for oil because of the coronavirus pandemic.
The Anglo-Dutch energy company also suspended share buybacks and said it would reduce oil and gas output by about a quarter after its net profit almost halved in the first three months of 2020 to $2.9 billion. The new measures combined with cuts in capital spending and planned cost reductions announced last month could save Shell almost $30 billion this year to help it weather the crisis and prepare for the transition to low-carbon energy.
"We are living through a crisis of uncertainty," Chief Executive Officer Ben van Beurden said. "If we had not cut the dividend ... we would have been left without options to reposition the company for the recovery and the future."
Shares in Shell had slumped 8.2% in London by 1201 GMT, underperforming rival BP which said on Tuesday it was maintaining its first-quarter dividend.
For years, Shell has taken pride in having never cut its dividend since the 1940s, resisting such a move even during the deep downturns in the oil market of the 1980s. Some investors had called on major oil firms to break the industry taboo around dividends because of the fallout from the health crisis, rather than taking on more debt to maintain payouts.
Shell said it would reduce its quarterly dividend to 16 cents per share from 47 cents, which would save it about $10 billion this year if it stays at that level. Shell last changed its dividend at the start of 2014, raising it from 45 cents.
Shell is the first of the five so-called Oil Majors to cut its dividend because of the coronavirus crisis. Besides BP, Exxon Mobil has also said it will maintain its first-quarter dividend while Total and Chevron have yet to report first-quarter results.
"Shell's dividend cut has thrown down the gauntlet to the supermajors. BP, Chevron, ExxonMobil and Total are due to pay out $41 billion of dividends in 2020," said Tom Ellacott, an analyst at Wood Mackenzie.
