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'Necessary evil': Shell cuts dividend for first time since World War Two – Financial Post

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LONDON — Royal Dutch Shell cut its dividend for the first time since World War Two on Thursday as the energy company retrenched in the face of an unprecedented drop in oil demand due to the coronavirus pandemic.

Shell also suspended the next tranche of its share buyback program and said it was reducing oil and gas output by nearly a quarter after its net profit almost halved in the first three months of 2020.

Shell’s shares in London had slumped 7 per cent by 0753 GMT, sharply underperforming rival BP which was down 2.2 per cent.

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, however, had called on major oil firms to break an industry taboo and consider cutting dividends, rather than taking on more debt to maintain payouts.

“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,” Shell Chairman Chad Holliday said.

He also said the cut in Shell’s payout was a long-term “reset” of the company’s dividend policy.

Shell said it would reduce its quarterly dividend by two-thirds to 16 cents per share from the 47 cents it paid each quarter in 2019. If maintained for 2020 as a whole, Shell would save about US$10 billion.

Shell is the first of the five so-called Oil Majors to cut its dividend because of the fallout from the coronavirus crisis. BP and Exxon Mobil have said they will maintain their first-quarter dividends while Total and Chevron have yet to report first-quarter results.

‘Necessary Evil’
The dividend cut also comes after Shell this month laid out the oil and gas sector’s most extensive strategy yet to reduce greenhouse gas emissions to net zero by 2050.

“The 66 per cent dividend cut is a necessary evil to reinforce Shell’s capital frame and position it for the offence on the energy transition,” JP Morgan analyst Christyan Malek said.

Shell paid about US$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 per cent of the 75 billion pounds (US$94 billion) in total paid out by companies in the FTSE 100 index of leading shares.

Following years of deep cost cuts after its acquisition of BG Group for US$53 billion in 2016, Shell had previously planned to boost payouts to investors through dividends and share buybacks to US$125 billion between 2021 and 2025.

Outside the Oil Majors, Norway’s Equinor became the first large oil company to cut its dividend in response to the current downturn, reducing its first-quarter payout last week by two-thirds.

Global energy demand could slump by 6 per cent 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 US$20 billion at most from a planned level of about US$25 billion and also cut an additional US$3 billion to US$4 billion off operating costs over the next 12 months.

Its first-quarter net income attributable to shareholders based on a current cost of supplies and excluding identified items, fell 46 per cent from a year earlier to US$2.9 billion, above the consensus in an analyst survey provided by Shell.

Shell’s fourth-quarter net income was also US$2.9 billion.

The company said it cut activity at its refining business by up to 40 per cent in response to the demand shock.

Shell said it expected to cut production of oil and gas 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’s gearing, or its debt-to-capital ratio, inched down to 28.9 per cent in the first quarter from 29.3 per cent in the fourth quarter, but was up from 26.5 per cent in the same period a year earlier.

© Thomson Reuters 2020

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Canadian Dollar Price Outlook: USD/CAD Grinds Around Big Fig Support – DailyFX

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Canadian Dollar, CAD, USD/CAD Price Analysis

  • This morning brought a Bank of Canada rate decision, this Friday’s economic calendar brings Canadian jobs numbers to be released at the same time as US Non-Farm Payrolls.
  • The bank held rates, and given the change in leadership the big question is forward-looking strategy at the bank.
  • USD/CAD broke down from a descending triangle formation, and is now finding support around the 1.3500 big figure. But sellers haven’t yet been able to establish any significant trends around that support, leading to the prospect of short-term pullback.

BoC Leaves Rates Flat, USD/CAD Remains Around 1.3500

Earlier this morning we heard from the Bank of Canada as the BoC left rates flat; but the prospect of change in leadership atop the BoC does highlight potential changes in the future after outgoing Bank of Canada Governor Stephen Poloz had previously stated that rates were as low as they could go. Taking over at the bank this week is Tiff Macklem, and as noted by our own Thomas Westwater earlier today, this morning’s statement likely had little input from the newly-installed BoC Governor. This does, however, point to the possibility of change on the horizon given how aggressively the coronavirus slowdown has hit global economies.

In USD/CAD, the pair has largely clung on to support around this rate decision, temporarily testing below the big figure of 1.3500 but, so far, failing to establish any continued bearish trends below that level. And this comes on the heels of an earlier-week breakdown, as USD/CAD had built into a descending triangle formation, with a series of lower-highs from late-March into mid-May, combined with horizontal support around the 1.3850 area on the chart.

USD/CAD Four-Hour Price Chart

USDCAD Four Hour Price Chart

Chart prepared by James Stanley; USDCAD on Tradingview

Can USD/CAD Bears Drive Through Psychological Support?

Of recent, commodity currencies have been on a tear against the US Dollar, USD/CAD included. AUD/USD has been on a similar display of recent and the same can be said for NZD/USD.

The trouble at this point for USD/CAD bears is the fact that the short-side move is already fairly well-developed; and prices are showing continued support around the 1.3500 big figure. Can USD/CAD bring sellers in at sub-1.3500 prices to continue pushing lower? Or, will the pair need a retracement first before continuing that bearish trend?

Change in Longs Shorts OI
Daily-2%-5%-3%
Weekly-9%-13%-10%

On the chart is a nearby area of interest for resistance potential. As looked at in yesterday’s webinar, the space around the 1.3600 area seems especially interesting, as there are two very recent Fibonacci levels within close proximity of each other. This is the 61.8% retracement of the 2020 major move, and the 78.6% retracement of the March major move. At this point, that zone hasn’t yet been tested for resistance and a show of sellers here could re-open the door for bearish continuation strategies in the pair.

USD/CAD Hourly Price Chart

USDCAD Hourly Price Chart

Chart prepared by James Stanley; USDCAD on Tradingview

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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Canadian trade plummets amid global shutdowns – BNNBloomberg.ca

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Canadian exports and imports plunged by the most ever in April amid a shutdown of global trade.

Exports plunged 30 per cent during the month, more than offsetting a 25 per cent drop in imports. The nation’s trade deficit widened to $3.3 billion ($2.4 billion), from $1.5 billion in March. The median estimate of economists surveyed by Bloomberg had called for a $3 billion shortfall.

The report illustrates the extent to which global trade has collapsed amid pandemic-related lockdowns and travel restrictions. In Canada’s case, the economy is facing a double whammy from the pandemic and tanking oil prices. Combined imports and exports at $68.6 billion were the lowest since 2010.

Energy exports dropped 44 per cent in April, as the value of crude oil shipments fell 55 per cent on lower prices and lower volumes due to weaker global demand.

In volume terms, total exports were down 20 per cent in April, with imports falling 25 per cent.

-With assistance from Erik Hertzberg.

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The biggest banks in Canada are seeing a surge in energy loans – BNNBloomberg.ca

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Canadian banks’ exposure to oil-and-gas loans has surged to a record as energy firms tapped credit lines to combat plunging oil prices.

Energy loans at the country’s six largest lenders jumped 23 per cent to $71.6 billion (US$52.9 billion) in their fiscal second quarter from the prior period, disclosures show. Toronto-Dominion Bank had the largest increase at 29 per cent, while Bank of Nova Scotia remained the biggest lender with $21.6 billion in loans.

The banks’ rising exposure comes as impaired energy loans almost doubled, topping $2 billion. Energy firms have been hard hit this year as global oil prices plummeted, with some grades even briefly turning negative in April as measures to combat the spread of the coronavirus hammered worldwide demand.

“We’re clearly seeing the impact of price wars and supply-demand considerations, storage considerations beginning to play havoc on some producers,” Toronto-Dominion Chief Financial Officer Riaz Ahmed said in a May 28 interview. “In the last few weeks we’re watching prices recover with some degree of hope that things will continue to get better here.”

Royal Bank of Canada$9.4 billion1.30%
Toronto-Dominion Bank$12.2 billion1.60%
Bank of Nova Scotia$21.6 billion3.30%
Bank of Montreal$15.0 billion3.00%
Canadian Imperial Bank of Commerce$10.5 billion2.50%
National Bank of Canada$2.9 billion1.80%

With the price plunge making much of their output unprofitable, Canadian oil and gas producers have taken steps to conserve cash. They’ve reduced production, cut operating costs, slashed at least $8.5 billion in planned capital spending and tapped credit lines to help them weather the downturn.

Those drawdowns were the main reason for the 22 per cent increase in energy lending at Royal Bank of Canada, according to CFO Rod Bolger.

“The growth was driven by higher draws on existing facilities and we did make select new lending facilities to existing investment-grade clients where the risk-return was appropriate given the low oil prices,” Bolger said in a May 27 interview.

Signs of Stress

Most of Royal Bank’s exposure is to exploration and production companies and loans are secured by the value of proven and producing reserves, Bolger said. Still, the Toronto-based lender had the highest gross impaired loans among the Canadian banks, at $664 million.

Bank of Montreal posted the second-highest total for impaired energy loans, at $616 million.

“In our oil and gas portfolio we do have some signs of stress just given the weaker price of oil that we’ve seen over the last few months — it’s not totally new and we’re managing through it,” CFO Tom Flynn said in an interview. “We’ve done this before as a bank and we’re confident in our ability to manage through this stress that the industry is in.”

Canadian Imperial Bank of Commerce CFO Hratch Panossian said he is seeing more downgrades and impairments in the oil-and-gas sector, reflecting price weakness, but called the bank’s energy portfolio “relatively stable”.

“Only about half of it is in the exploration and production space and our clients do have some hedging as well that protects them in the short term,” Panossian said in a May 28 interview. “We remain comfortable with the space. Our clients are strong and managing through this and we’re committed to continuing to support them.”

Scotiabank’s Chief Risk Officer Daniel Moore said on a May 26 earnings call that exploration and production and oilfield services — which are most sensitive to weakness in oil prices — account for 1.7 per cent of total loans. More than 40 per cent of those energy loans are investment grade and the majority of non-investment grade exposure is to secure reserve-based loans or sovereign-controlled entities, he said.

While bank figures show increased borrowing, many producers are seeing the total amount of credit available reduced. That’s particularly true of producers’ reserve-based credit lines, which are tied to the value of their oil-and-gas reserves and are adjusted regularly to account for current prices.

This year’s first adjustment period, known as redetermination, is going on now, and early results show banks have been shrinking those credit lines in response to falling prices.

At least five Canadian oil-and-gas producers have announced results of their redeterminations, and all have had their credit lines cut. Notably, oil-sands producer Athabasca Oil Corp. had its credit facility reduced by 65 per cent to $42 million, while natural gas driller NuVista Energy Ltd. saw its line cut by 14 per cent to $475 million.

At least seven producers have extended the date on their redetermination processes to June 30 because of volatile prices. Five of those have had their available credit reduced on an interim basis before the final evaluation is competed.

“The best-case scenario for our junior E&P companies this year is likely a small reduction in credit capacity, a slightly higher cost to borrow, and the ability to continue to act autonomously from the influence of its banks,” Stifel FirstEnergy analyst Cody Kwong said in a note.

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