Adds detail on 2Q production cuts in paragraphs 8-9
Shell has become the first oil and gas major to cut its dividend in response to the oil price crash and the Covid-19 pandemic. And Shell expects a sharp drop in its second-quarter output because of a combination of Opec+ cuts and other constraints.
In Shell's first such move since the 1940s, it cut its first-quarter dividend by 66pc to 16¢/share, compared with the fourth quarter.
In January-March, Shell paid $3.5bn worth of dividends to its shareholders and completed a tranche of the share buyback programme. The firms has already said it will not continue with the next tranche.
"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 today. "As conditions allow, the board will continue to evaluate our capital allocation priorities between ongoing investment in our business, maintaining a strong balance sheet and increasing returns to shareholders which remains our ambition."
BP, which suspended and then cut its dividend in the wake of the 2010 Macondo oil spill, said on 28 April it was maintaining its dividend this quarter despite a jump in its net debt. Shell, by comparison, has cut its shareholder payout even though it reduced its net debt by $4.7bn in the first three months of this year. Its net debt gearing stood at 28.9pc at the end of the first quarter, down from 29.3pc in December.
Shell's first-quarter profit — excluding inventory effects — halved to $2.76bn from a year earlier. It said it experienced lower realised oil, gas and LNG prices, weaker realised refining and chemicals margins and lower sales volumes compared with the year-earlier period, which were only partly offset by favourable movements in deferred tax positions and lower operating expenses.
The firm's oil and gas output averaged 3.719mn b/d of oil equivalent, down by 1pc from a year earlier mainly because of divestments, field decline and lower production in the NAM joint venture with ExxonMobil, which operates the Groningen gas field in the Netherlands.
Shell expects output to be much lower this quarter, in the 2.59mn-3.14mn boe/d range. About 40pc of the reduction from the January-March quarter will come from the effect of production cuts by Opec and some other producing nations on Shell's equity participation in various projects, chief financial officer Jessica Uhl said. The remainder is "a combination of choices being made to shut in assets either for economic reasons or logistics reasons or other circumstances that are requiring it", she said.
"On the whole, the production numbers reflect the current circumstances and the dynamics of the current circumstances, rather than anything fundamental from an operational perspective. Because of that, on balance, we do not expect any of these to be permanent," Uhl said.
Shell's refinery runs dropped by 10pc in the first quarter from a year earlier, to 2.397mn b/d. It sees its second-quarter refinery utilisation at 60-70pc, compared with 81pc in the first quarter.
The firm cautioned that either regulatory requirements or infrastructure restraints could force it to curtail or reduce production, LNG liquefaction and utilisation of refining and chemicals plants, and said this would have a consequence for sales volumes.
Shell reiterated it is cutting its 2020 cash capital expenditure (capex) to "$20bn or below" from $25bn. The firm expects to reduce its underlying operating expenses by $3bn-4bn/yr over the next 12 month compared with 2019.
