Chairman 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.”
It comes as Shell’s quarterly results revealed the impacts of the coronavirus (COVID-19) pandemic and declining oil prices, albeit up until the end of March – so, before the most recent collapse and the brief spike into negative pricing.
Shell reported a US$24mln net loss attributable to shareholders for the first three months of 2020, versus a US$965mln profit for the preceding quarter and a US$6bn profit in the comparative period of 2019.
CCS earnings – Shell’s preferred profitability metric – was meanwhile marked at US$2.9bn versus US$871mln in Q4 2019 and US$5.29bn in Q1 2019.
Shell noted that its financials were impacted by lower realised prices for oil, gas, and LNG, along with weaker margins in its refining and chemicals businesses. Sales volumes overall were also lower, it added.
“In March, we took decisive actions to reduce our spending, increase our liquidity and position our business to manage the deteriorating macroeconomic and commodity price outlook,” said Ben van Beurden, Shell chief executive.
“Our integrated business model, the high quality of our assets and the resourcefulness of our people have allowed us to respond swiftly.
The Shell boss added: “Given the continued deterioration in the macroeconomic outlook and the significant mid and long-term uncertainty, we are taking further prudent steps to bolster our resilience, underpin the strength of our balance sheet and support the long-term value creation of Shell.”
Shell shares dropped 72p or 5% changing hands at 1,380p in Thursday morning’s deals.
“The company previously strongly implied it would do anything to keep paying the dividend, but continuing low oil prices have clearly left it with no choice,” said Rachel Winter, associate investment director at Killik.
Hargreaves Lansdown analyst Nicholas Hyett, in a note, said: “while this is very unwelcome news for income investors, given that Shell is one of the largest dividend payers on the entire stock market, it may be better news for the long-term health of the business.
“The need to service a cash hungry dividend has seen future investment sacrificed and assets sold.
“Essentially both Shell and BP have been slowly digesting themselves to keep the dividend ticking over. Removing that pressure allows the group to focus on the future and also secures the future of recently announced renewable energy investments.”
--UPDATE, added broker comment and share price detail--