(Bloomberg) — When the boss of Royal Dutch Shell Plc slashed his dividend on Thursday, he didn’t just shock investors. He tore up the industry’s financial playbook.
For decades Big Oil has used the strength of a large balance sheet to borrow money when the going gets tough and keep investors sweet until the next upward cycle.
As the coronavirus pandemic potentially causes lasting damage to energy demand, Europe’s largest oil company asked whether this strategy is sustainable.
“I would say no,” said Shell Chief Executive Officer Ben van Beurden. “It’s also not wise and prudent, nor even responsible, to pay out a dividend if you know for sure you have to borrow for it.”
Oil majors had no problem borrowing to pay shareholders during previous downturns. Over the years, Shell has weathered recessions, wars, nationalizations, and deep price slumps.
So why is this time different?
The coronavirus pandemic has delivered an unprecedented hit to demand through global lockdowns and it’s hard to say if it will ever return to 2019 levels. Shell doesn’t expect a recovery in consumption or oil prices in the medium term, the 62-year-old Dutchman said in a Bloomberg TV interview.
“I think a crisis like this has the potential to catalyze society into a different way of thinking,” van Beurden said.
It is a view that was shared by his BP Plc counterpart, Bernard Looney, earlier this week. As business travel is replaced by video conferences and employees work remotely, some shifts in behavior may stick for longer, Looney said.
The long-term trends in energy consumption that determine company’s financial decisions — such as air travel — may change permanently and put many other oil majors’ dividends in doubt.
“Shell’s cut will also put pressure on other majors to revisit distributions,” Redburn said in a note. BP’s decision earlier this week to ride out the downturn with the usual spending cuts and debt increases “now risks being cast in an imprudent light.”
Shell can’t put all the blame on the virus. While van Beurden said the dividend cut was an unavoidable decision due to an unforeseen pandemic, his critics have long warned that the company had been over leveraged since its 2016 acquisition of BG Group, a big natural gas producer. The board approved a $25 billion share buy back in July 2018 that further strained the company’s balance sheet.
“The problems have been building for a while,” said Alastair Syme, oil analyst at Citigroup. “All roads lead back to the high price paid for BG and the burden that this acquisition put on the company’s financial structure.”
BP’s ratio of net debt to equity is even higher than Shell’s. Looney said this week that the company’s board would review the payout on a quarterly basis, potentially opening the door for a cut later this year. Exxon Mobil Corp. has just frozen its dividend for the first time in 13 years as its financial underpinnings feel the strain of the downturn.
Shell’s CEO said again and again on Thursday what a tough decision it was to cut the dividend, but it could make sense in the longer term.
European oil majors have promised to slash their carbon emissions over the next 30 years, requiring big increases in spending on renewables. Even before the pandemic, many analysts and shareholders were questioning whether Shell and BP could maintain their generous payouts, while also investing enough in both their core oil and gas businesses and clean energy.
The dividend cut gives Shell “the ability to allocate incremental capital to high-value barrels as demand recovers and accelerate its energy transition agenda to net zero carbon by 2050,” said Christyan Malek, head of oil and gas research at JP Morgan.
Shell made no promises about how it will spend the $10 billion a year removed from the dividend. Van Beurden said he would update the market on plans in the second half of the year.
“We will have to see what the response of our investors is going to be” to those plans, Van Beurden said.
Their verdict on Thursday, as shares dropped 11% in London, was clear: Sell.
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Telus skips Huawei, picks Ericsson and Nokia to build 5G network – Vancouver Sun
Telus has opted to go with Ericsson and Nokia — skipping Chinese tech giant Huawei — to build its 5G network.
The Vancouver-based company announced Tuesday it had signed a deal with Sweden’s Ericsson and Finland’s Nokia to provide the components for its 5G network. No figures were given on how much the deal cost.
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“Telus has a successful track record of building globally leading networks with amazing speeds, robust quality and extensive coverage that are consistently recognized as the best in the world,” Telus president Darren Entwistle said in a statement.
“Our team is committed to rolling out superior network technology from urban to rural communities, fuelling our economy and driving innovation as we power Canadians into the 5G era through an unparalleled network experience.”
Entwistle promised in his statement the 5G boost would support post-pandemic economic recovery, virtual health, remote work and other practices now common as a result of COVID-19.
Bell inks 5G equipment deal with Ericsson; leaves door open to Huawei – BNNBloomberg.ca
MONTREAL – Huawei Technologies Inc.’s ambitions to be a player in Canada’s 5G network took a major hit Tuesday as two of the country’s three largest telecom companies announced partnerships with the Chinese tech giant’s European rivals.
Bell Canada announced Tuesday morning that Sweden-based Ericsson will be its second supplier of the radio access network equipment that has been Huawei’s main product line in Canada since entering the market in 2008. Earlier this year, Bell signed its first 5G wireless network supplier agreement with Nokia, a rival of Ericsson and China’s Huawei.
Later Tuesday, Telus Corp. announced that it had also selected Ericsson, as well of Nokia of Finland, as suppliers for its 5G networks.
Neither Bell nor Telus provided details on how much their contracts with Ericsson and Nokia were worth.
Huawei’s participation in the construction of Canada’s 5G network has become a major sticking point between Ottawa and Washington. The U.S. has warned Canada, the United Kingdom and other allies that it will limit intelligence sharing with countries that have Huawei equipment in their 5G networks – citing the potential for spying by China, an allegation Huawei denies.
“Huawei has worked closely with Bell in Canada for many years, helping them build one of the world’s leading 4G LTE networks,” Huawei Canada spokesman Alykhan Velshi said in a statement.
He added that Huawei’s remains committed to Canada and looks forward to the federal government completing its 5G review and its decision about Huawei’s role in Canada.
“We continue investing more than a quarter of a billion dollars a year in R&D in Canada. We continue building new research partnerships with Canada’s world-class universities. As we have for more than a decade, we continue to work with our Canadian telecom partners to help them build and support state-of-the-art networks that connect Canadians,” Velshi said.
Ericsson, already a supplier of 4G LTE wireless and other technology to Bell and the main supplier for its rival Rogers Communications, also has a major research and development presence in Montreal.
Bell said Ericsson will also support its rollout of 5G-enhanced fixed wireless home internet service to rural areas, which generally have less access to land-based fibre optics networks.
On Tuesday, Bell indicated the door remains open to partnering with Huawei, depending on the outcome of the federal government’s review.
“We’re working with multiple vendors to build our 5G network – as we did with our successful buildout of 4G LTE, which included Cisco, Ericsson, Huawei, Nokia and others,” said Bell spokesperson Marc Choma in an email to BNN Bloomberg. “Huawei has been a reliable and innovative partner in the past and we would consider working with them in 5G if the federal government allows their participation.”
A spokesperson for Telus did not respond to BNN Bloomberg’s question about whether it is also open to partnering with Huawei on its 5G network if permitted by the government.
Prior to the arrest of Huawei Technologies chief financial officer Meng Wanzhou in Vancouver in December 2018, the Chinese company wasn’t a household name in Canada.
Since Meng’s arrest, which has sparked a major rift between China and Canada and focused worldwide attention on Huawei, the federal government has been undecided about whether the Chinese company will be allowed in Canada’s 5G networks – which are currently being assembled.
Analysts have said Bell and Telus use Huawei extensively in their fourth-generation networks and would be more affected by a Huawei ban than their rival Rogers Communications, which has predominantly used Ericsson network gear.
Besides Huawei, Ericsson and Nokia, there are other companies that want a piece of the 5G network upgrades.
Samsung Electronics has announced a deal to supply equipment for Videotron’s wireless network in the province of Quebec and the Ottawa region of Ontario.
With files from BNN Bloomberg
BNN Bloomberg is a division of Bell Media, which is owned by BCE.
Telus selects Nokia, Ericsson as 5G suppliers – Yahoo Canada Finance
Vancouver-based national carrier Telus has selected Nokia and Ericsson as its 5G vendors, a press release from the company said.
The news comes the same day that Bell announced it too would use Ericsson to provide radio access network (RAN) equipment.
“Our team is committed to rolling out superior network technology from urban to rural communities, fueling our economy and driving innovation as we power Canadians into the 5G era through an unparalleled network experience,” Telus’ CEO Darren Entwistle said in the release.
“Our 5G deployment will support economic growth and diversity that will be essential for the virtualization of health, education, teleworking, and stimulating the economic growth and recovery given the impact of COVID-19.”
During its Q1 2020 earnings, CFO Doug French said its focus right now is to help its customers during the COVID-19 crisis.
In its Q4 2019 earnings, the carrier said it was not going to pre-announce its 5G launch plans but that its initial module, or the first phase of the 5G rollout, would be with Huawei until the government approves its RFP.
Bell and Telus use Huawei’s network equipment in some areas. The federal government is still reviewing whether or not it intends to ban the Chinese telecommunications manufacturer from participating in Canada’s 5G rollout.
Rogers also uses Ericsson as a 5G vendor.
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