Shell Faces 'Crisis of Uncertainty,' Says CEO As Oil Slump Causes Firm to Cut Dividend for First Time in 75 Years

Royal Dutch Shell has cut its dividend for the first time since the Second World War amid a coronavirus-induced oil price slump, with the corporation's CEO warning that the firm and the industry are facing a "crisis of uncertainty."

CEO Ben van Beurden told Bloomberg TV: "It is, of course, a difficult day, but on the other hand it's also an inevitable moment."

Global demand for oil has collapsed due to coronavirus-driven lockdown measures, slashing economic growth and forcing down oil prices to historic lows. Meanwhile, storage space for oil has been running out, further depressing prices.

The situation has been exacerbated by a price war between Russia and the Saudi-dominated OPEC cartel, which resulted in the market being flooded with oil as Riyadh attempts to hit Moscow's coffers.

Oil producers have been suffering. In the U.S., some shale oil producers are facing the possibility of bankruptcy if prices stay low. Firms have been lobbying lawmakers and President Donald Trump to intervene, but the global economic picture remains dire.

Shell is cutting its quarterly dividend by two thirds, from 47 cents to 16 cents, starting from the first quarter of this year. The Anglo-Dutch company has also suspended its share buyback program as it grappled with a drop in net income to $2.9 billion in the first quarter of this year.

"We have reset our dividend to a level we believe is affordable," van Beurden told Bloomberg. He added that this will give Shell room to maneuver and continue investment in the current difficult environment.

Van Beurden added that the company does not yet know what the post-coronavirus energy market will look like, nor when demand might come back. This "crisis of uncertainty" prompted the dividend cut, which van Beurden explained was based on "quite a bleak scenario." He added, "We don't know what will be on the other side of this pandemic."

Shell has already cut activity at its refining business by some 40 percent in the face of falling demand. Van Beurden said the company expects "continued deterioration in the macroeconomic outlook."

Fellow energy giant BP said earlier this week that the company and the industry are facing an "exceptional level of uncertainty." BP said its first-quarter profits had fallen by two-thirds, from $2.4 billion last year to $800m this year.

CEO Bernard Looney explained: "Our industry has been hit by supply and demand shocks on a scale never seen before, but that is no excuse to turn inward." He added: "We are focusing our efforts on protecting our people, supporting our communities and strengthening our finances."

Shell, oil, coronavirus, slump, dividend, profits, price
This file photo shows a sign in front a Shell service station on October 31, 2019 in Novato California. Justin Sullivan/Getty Images/Getty