Wed, April 24, 2024 at 9:35 AM EDT
Business
'Necessary evil': Shell cuts dividend for first time since World War Two – Financial Post
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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Business
Oil Firms Doubtful Trans Mountain Pipeline Will Start Full Service by May 1st
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Oil companies planning to ship crude on the expanded Trans Mountain pipeline in Canada are concerned that the project may not begin full service on May 1 but they would be nevertheless obligated to pay tolls from that date.
In a letter to the Canada Energy Regulator (CER), Suncor Energy and other shippers including BP and Marathon Petroleum have expressed doubts that Trans Mountain will start full service on May 1, as previously communicated, Reuters reports.
Trans Mountain Corporation, the government-owned entity that completed the pipeline construction, told Reuters in an email that line fill on the expanded pipeline would be completed in early May.
After a series of delays, cost overruns, and legal challenges, the expanded Trans Mountain oil pipeline will open for business on May 1, the company said early this month.
“The Commencement Date for commercial operation of the expanded system will be May 1, 2024. Trans Mountain anticipates providing service for all contracted volumes in the month of May,” Trans Mountain Corporation said in early April.
The expanded pipeline will triple the capacity of the original pipeline to 890,000 barrels per day (bpd) from 300,000 bpd to carry crude from Alberta’s oil sands to British Columbia on the Pacific Coast.
The Federal Government of Canada bought the Trans Mountain Pipeline Expansion (TMX) from Kinder Morgan back in 2018, together with related pipeline and terminal assets. That cost the federal government $3.3 billion (C$4.5 billion) at the time. Since then, the costs for the expansion of the pipeline have quadrupled to nearly $23 billion (C$30.9 billion).
The expansion project has faced continuous delays over the years. In one of the latest roadblocks in December, the Canadian regulator denied a variance request from the project developer to move a small section of the pipeline due to challenging drilling conditions.
The company asked the regulator to reconsider its decision, and received on January 12 a conditional approval, avoiding what could have been another two-year delay to start-up.
Business
Tesla profits cut in half as demand falls
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Tesla profits slump by more than a half
Tesla has announced its profits fell sharply in the first three months of the year to $1.13bn (£910m), compared with $2.51bn in 2023.
It caps a difficult period for the electric vehicle (EV) maker, which – faced with falling sales – has announced thousands of job cuts.
Boss Elon Musk remains bullish about its prospects, telling investors the launch of new models would be brought forward.
Its share price has risen but analysts say it continues to face significant challenges, including from lower-cost rivals.
The company has suffered from falling demand and competition from cheaper Chinese imports which has led its stock price to collapse by 43% over 2024.
Figures for the first quarter of 2024 revealed revenues of $21.3bn, down on analysts’ predictions of just over $22bn.
But the decision by Tesla to bring forward the launch of new models from the second half of 2025 boosted its shares by nearly 12.5% in after-hours trading.
It did not reveal pricing details for the new vehicles.
However Mr Musk made clear he also grander ambitions, touting Tesla’s AI credentials and plans for self-driving vehicles – even going as far as to say considering it to be just a car company was the “wrong framework.”
“If somebody doesn’t believe Tesla is going to solve autonomy I think they should not be an investor,” he said.
Such sentiments have been questioned by analysts though, with Deutsche Bank saying driverless cars face “technological, regulatory and operational challenges.”
Some investors have called for the company to instead focus on releasing a lower price, mass-market EV.
However, Tesla has already been on a charm offensive, trying to win over new customers by dropping its prices in a series of markets in the face of falling sales.
It also said its situation was not unique.
“Global EV sales continue to be under pressure as many carmakers prioritize hybrids over EVs,” it said.
Despite plans to bring forward new models originally planned for next year the firm is cutting its workforce.
Tesla said it would lose 3,332 jobs in California and 2,688 positions in Texas, starting mid-June.
The cuts in Texas represent 12% of Tesla’s total workforce of almost 23,000 in the area where its gigafactory and headquarters are located.
However, Mr Musk sought to downplay the move.
“Tesla has now created over 30,000 manufacturing jobs in California!” he said in a post on his social media platform X, formerly Twitter, on Tuesday.
Another 285 jobs will be lost in New York.
Tesla’s total workforce stood at more than 140,000 late last year, up from around 100,000 at the end of 2021, according to the company’s filings with US regulators.
Musk’s salary
The car firm is also facing other issues, with a struggle over Mr Musk’s compensation still raging on.
On Wednesday, Tesla asked shareholders to vote for a proposal to accept Mr Musk’s compensation package – once valued at $56bn – which had been rejected by a Delaware judge.
The judge found Tesla’s directors had breached their fiduciary duty to the firm by awarding Mr Musk the pay-out.
Due to the fall in Tesla’s stock value, the compensation package is now estimated to be around $10bn less – but still greater than the GDP of many countries.
In addition, Tesla wants its shareholders to agree to the firm being moved from Delaware to Texas – which Mr Musk called for after the judge rejected his payday.
Business
Stock market today: Nasdaq futures pop, Tesla surges after earnings with more heavyweights on deck
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Tech stocks rose on Wednesday, outstripping the broader market as investors welcomed Tesla’s (TSLA) cheaper car pledge and waited for the next rush of corporate earnings.
The Nasdaq Composite (^IXIC) rose roughly 0.6%, coming off a sharp closing gain. The S&P 500 (^GSPC) was up 0.2%, continuing a rebound from its longest losing streak of 2024, while the Dow Jones Industrial Average (^DJI) fell 0.1%.
Tesla shares jumped nearly 12% after the EV maker’s vow to speed up the launch of more affordable models eclipsed its quarterly earnings and revenue miss. That cheered up investors worried about growth amid a strategy shift to robotaxis and the planned cancellation of a cheaper model.
The results from the first “Magnificent Seven” to report have intensified the already high hopes for Big Tech earnings, that the megacaps can revive the rally in stocks they powered. The spotlight is now on Meta’s (META) report due after the market close, as the Facebook owner’s shares rose after the Senate voted for a potential ban on rival TikTok. Microsoft (MSFT) and Alphabet (GOOG) next up on Thursday.
Meanwhile, Boeing (BA) reported better than expected first quarter results before the opening bell with a loss per share of $1.13, narrower than the $1.72 estimated by Wall Street. Shares rose about 2% in morning trade.
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