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* Shell cuts quarterly dividend by two-thirds
* Shell cuts output by about a quarter
* Chairman says dividend cut is part of a 'reset'
* First-quarter profits slump 46%
* GRAPHIC-Big Oil slashes spending: https://reut.rs/39u1Dh3
(Updates throughout)
By Ron Bousso and Shadia Nasralla
LONDON, April 30 (Reuters) - 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 fell as much as 8% in London and were down
5.2% by 1000 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.
LONGER RECESSION
Van Beurden said the dividend cut was a part of a long-term
resetting of the company that would also play a core part in
Shell's shift away from fossil fuels.
Oil and gas companies have come under increasing pressure
from investors worried about climate change and Shell this month
laid out the sector's most extensive strategy yet to reduce
greenhouse gas emissions to net zero by 2050.
"Ripping off the band aid always hurts but if Royal Dutch
Shell's move today allows more room for alternative energy
investments, and facilitates a lower cost of equity, it could be
just what the company needs to ensure its long-term health,"
said Tal Lomnitzer, a senior investment manager at Janus
Henderson Investors.
Wood Mackenzie said the cut meant Shell would be able to
generate cash with oil at $36 a barrel, down from $51
previously. Brent crude has fallen 65% so far this year and was
trading at about $25 a barrel on Thursday.
Shell paid about $15 billion in dividends last year making
it the world's biggest payer of dividends after Saudi Arabia's
national oil company Saudi Aramco. Dividends paid by
Shell and BP last year also represented 24% of the 75 billion
pounds ($94 billion) paid out by FTSE 100 companies.
Following years of deep cost cuts after its acquisition of
BG Group for $53 billion in 2016, Shell had previously planned
to boost payouts to investors through dividends and share
buybacks to $125 billion between 2021 and 2025.
Outside the Oil Majors, Norway's Equinor was the
first large oil company to cut its dividend in response to the
current downturn.
Global energy demand could slump by 6% in 2020 due to
coronavirus lockdowns and travel restrictions in what would be
the largest contraction in absolute terms on record, the
International Energy Agency (IEA) said on Thursday.
Shell last month said it would reduce capital expenditure
this year to $20 billion at most from a planned level of about
$25 billion and cut an additional $3 billion to $4 billion off
operating costs over the next 12 months.
Van Beurden said he expected the impact of the drop in oil
demand to be more severe in the second quarter while Chief
Financial Officer Jessica Uhl said the company was bracing for a
deeper and longer recession which would extend into 2023.
LOWER OUTPUT
Shell's first-quarter net income attributable to
shareholders based on a current cost of supplies and excluding
identified items fell 46% from a year earlier to $2.9 billion,
above the consensus in an analyst survey provided by Shell.
The company said it cut activity at its refining business by
up to 40% and expected to cut oil and gas production in the
second quarter to between 1.75 million and 2.25 million barrels
of oil equivalent per day (boed) from 2.7 million boed in the
first quarter. Shell said it did not expect the cuts to be
permanent and it would still invest in oil and gas projects.
Shell, the world's largest fuel retailer with over 40,000
filling stations, said its fuel sales could drop by up to 54% in
the second quarter.
Shell's gearing, or its debt-to-capital ratio, inched down
to 28.9% in the first quarter from 29.3% in the fourth quarter,
but was up from 26.5% in the same period a year earlier.
($1 = 0.8021 pounds)
(Reporting by Ron Bousso and Shadia Nasralla; Editing by David
Clarke)
