A historic collapse in oil demand because of the coronavirus pandemic as well as oil prices hitting historic lows wiped out profits for the Royal Dutch Shell, forcing the company to slashed its dividend for the first time since World War I.
The company will be cutting down its quarterly dividend to 16 cents per share from 47 cents that it had announced previously, said the Anglo-Dutch oil major which is one of the largest oil companies of the world in a statement on Thursday.
For the first quarter of the current year, the company reported a net loss of $24 million. In the comparable period a year ago, the company had reported a profit of $6 billion.
The news resulted in a 8 per cent drop in the stock prices of the company.
“The world has seriously changed over the last few months,” Royal Dutch Shell CEO Ben van Beurden said in a video recorded from his home as the results of the company was posted on its website.
“The global economic decline and uncertain outlook may have significant impacts on our profitability, cashflow and balance sheet,” he added.
Van Beurden added that slashing the dividend will “reinforce our resilience, preserve the strength of our balance sheet and support value creation in the long term.”
The market mostly had expected to maintain its dividend since the company had obtained total credit facilities worth more than $20 billion since December last year. However the global demand for oil has been routed by the coronavirus pandemic because of the strict restrictions on travel imposed all across the globe, forcing grounding of planes and very limited use of private vehicles as more and more people were forced to stay indoors and work from home. Demand for fuel in factories also tanked because of closed factories on orders from governments intent on stopping the spread of the coronavirus pandemic among populations.
Any increase in demand for oil from India, a country with a population of 1.3 billion and the third biggest consumer of fossil fuel, will be wiped out by drop in global energy use this year, said the International Energy Agency in a report on Thursday. the report added that demand for oil, gas and coal had dropped significantly. The only resilience was being shown by renewable energy.
Additionally, there was a brief but very brutal price war between Saudi Arabia and Russia which resulted in an oil supply glut which has affected the global price of oil. And for the first time ever in history, US oil prices turned negative last week which forced traders to pay customers to take crude off their hands. This was because of a shortage of storage facilities and continued production.
Last week, a 67 per cent slashing in its dividend was announced by Norwegian oil company Equinor.
However its dividend was maintained at 10.5 cents per share by But BP even though the oil giant reported a 67 per cent drop in its first quarter profit on Tuesday.
(Adapted from CNN.com)