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Shell cuts dividend for first time since Second World War



Royal Dutch Shell cut its dividend for the first time since the Second World War 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 US.

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,” CEO 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 had slumped 8.2 per cent in London, underperforming rival BP,which said on Tuesday it was maintaining its first-quarter dividend.

Dividend slashed to 16 cents

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 the company 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.

‘Ripping off the Band-Aid’

Van Beurden said the dividend cut was 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 per cent so far this year and was trading at about $25 a barrel on Thursday.


Shell has cut its dividend for the first time since the Second World War. (Reuters)


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 make up almost one quarter of all the dividend income paid out by companies on London’s benchmark stock index, the FTSE 100.

Global recession

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

Global energy demand could slump by six 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 $20 billion US at most from a planned level of about $25 billion US 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 that would extend into 2023.

Shell’s 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 $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 per cent 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 45,000 filling stations, said its fuel sales could fall up to 54 per cent in the second quarter.


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Alberta exempts energy companies drilling wells or building pipelines from property taxes for three years – Edmonton Journal



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But the Rural Municipalities of Alberta (RMA) warned that the models under considerationwould cause “potentially devastating impacts on rural Alberta” and could cost rural municipalities more than $290 million in 2021 alone.

Allard said Monday the government would not be choosing any of those previous models.

Instead the government estimates its three-year plan will save the industry between $81 and $84 million.

“These measures are intended to provide much needed certainty to industry investors, municipalities, and other taxpayers for the next three years,” Allard said.

Meanwhile, Allard said the government will be startinga longer-term review of the system, including the ongoing issue of energy companies’ unpaid property taxes.

Tim McMillan, president and CEO of Canadian Association of Petroleum Producers, said the property assessment values being used under the current system are not accurate so he doesn’t view the changes for the next three years as a tax break.

“This is an interim measure, as we’re working to correct a broader system issue that has built up over a very long period of time,” he said.

RMA president Al Kemmere said he hasn’t crunched the numbers yet to see exactly how much municipalities will lose under this plan but said it will be “nowhere near what we were looking at under the proposals.” He said he believes members of the association are willing to do their part.

Kemmere saidunpaid taxes continues to be his organization’s top priority and that some members are on the cusp of not being able to pay their bills. Municipalities estimate they are owed approximately $173-million.

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OPEC Is On The Brink Of A Crisis –



OPEC+ Is On The Brink Of A Crisis |

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently, he holds several advisory positions with international think tanks in the Middle…

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    The OPEC+ member countries are on the brink of a financial crisis if the latest assessments of the International Monetary Fund (IMF) are accurate. The IMF has presented a very bleak outlook for an economic recovery in the Middle East and Central Asia, predicting a 4.1% contraction for the region. The main driving factor behind this bearish outlook is the IMF’s forecast that oil prices will remain in the $40 to $50 range in 2021. An extension of the current low oil price environment for another year would badly hurt oil and gas exporting countries, which includes all of the OPEC+ members. In its statement, the IMF predicted an economic contraction of 2.8% in April for the Middle East and Central Asia. IMF director Jihad Azour highlighted a large disparity in the projected economic loss of oil-importing and exporting countries, forecasting a negative 6.6% growth for oil-exporting countries, compared to a contraction of 1.3% for oil-importing countries. With many of the OPEC+ members being rentier-states, the need for higher oil prices cannot be overstated. A vast part of the government budgets of OPEC member states depends on oil and gas-related revenues. As such, all OPEC countries are looking at significant budget deficits this year, especially Saudi Arabia, the UAE, Bahrain, Iraq, Iran, and Kuwait. Former OPEC member Qatar is in a similar situation, even as it tries to mitigate the damage by increasing its LNG exports. As both oil and gas demand has seen significant demand destruction this year, prices for both have plunged. At present, Brent oil prices are still 40% below their pre-COVID levels.  There is little hope of a significant rise in prices any time soon as global oil and gas storage volumes are still at historically high levels, and demand looks set to dip again due to new COVID-related lockdowns and a further economic recession. The frequently cited breakeven price for the Saudi government budget is $80 per barrel, although Saudi government budget discussions seem to revolve around an oil price of $50. Iraq has also stated that it expects price levels of $50 per barrel for 2021. These optimistic predictions seem to be based solely on Chinese post-Covid economic figures, which have proven to be highly untrustworthy and don’t take into account the fact that global demand for Chinese products will also need to pick up. The impact of the second wave of COVID cases in Europe and America will undoubtedly hurt this demand for Chinese goods. Related: Biden’s $2 Trillion Energy Plan Could Crush Natural Gas

    But of all the parties that will suffer from low oil prices and the continued impact of a global pandemic, OPEC+ members will suffer the most. Some oil and gas producers were already in a dire financial situation before COVID, including Libya and Venezuela. The major oil market contango and storage glut has been largely overlooked recently, but it still very much exists. Reports of demand recovery in some markets appear to be more wishful thinking spurred by multi-trillion-dollar cash injections rather than a viable economic recovery. OPEC and the IEA both agree that demand is still fledgling, having both cut world oil demand forecasts. The IEA cut its outlook for worldwide oil demand to 91.7 million barrels per day this year while OPEC brought its forecast down to 90.2 million in 2020. OPEC reiterated that future cuts could still be made.

    With the financial environment outlined above, OPEC+ members can no longer afford to base their economic stability and future on hydrocarbons alone. Economic diversification has to be put in place, even if the effects won’t be felt for years. Government budget cuts are imminent and could destabilize the region if not done prudently. OPEC+ discussions on stabilizing the market should not be focused at present on price levels or market share only. The real question is how to create a market that is resilient enough to cope with Black Swan events without toppling the current ruling elite. Instability is not only increasing in the Arab producer regions, but also in Russia where sanctions and low oil prices are taking their toll.

    OPEC+ members cannot simply bet on the death of U.S. shale as it is an industry that has proven incredibly hard to kill over the years. U.S. shale will almost certainly reemerge, possibly in a different form, but it is reasonable to assume the sector itself is far from dead. Leaders in Riyadh, Abu Dhabi, Moscow, and Kuwait City now have to find a way to survive. With oil at $50 per barrel in 2021, some OPEC members will be in a real crisis. With that in mind, a conventional OPEC+ JMMC statement today or tomorrow will be seen by some as a white flag.

    By Cyril Widdershoven for

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      Stay Safe and Follow Public Health Advice This Halloween | Ontario Newsroom – Government of Ontario News



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