An interim update from Royal Dutch Shell
Royal Dutch Shell has been hit hard by the Covid-19 outbreak and the oil crisis, just as all the other oil majors and the entire energy sector. In a recent blog post: Royal Dutch Shell and the recent crisis, I have written down what Royal Dutch Shells’ response was to this oil crisis. And I told you that, in my opinion, Royal Dutch Shell is taking the right steps to maintain their financial stability.
Image from Royal Dutch Shell
Yesterday morning, just before opening of the Dutch Stock Exchange, Royal Dutch Shell published an interim update for the first quarter, which looks positive in the context of the very challenging macro environment. This interim update came as a surprise, but it was very welcome, and I was happy with what I read. And yes, it is clear that the second quarter will be significantly more challenging.
Royal Dutch Shell said it doesn’t expect the coronavirus to have a significant effect on overall demand for its oil products in the first quarter. Shell does warn for the uncertainties around oil prices and the boosting volatility.
“Marketing margins in the first quarter are expected to remain strong, as the impact on demand from COVID-19 is not expected to be significant at the Shell Group level in the first quarter”
This is good news for the first quarter. What you further can read in the press release is that Shell says that the impact of the COVID-19 outbreak on oil demand will be visible in March. They do not give an outlook for the rest of 2020. And of course not, they can’t predict the future either 😄
Shell canceled the next tranche of its share buyback program, cut capital expenditure and pulled out of a liquefied natural gas project. But if the oil price keeps plunging, it would be hard for the board of directors not to take any (other) drastic measures.
Furthermore, I have read in their press release that:
“Shell has a new $12 billion revolving credit facility commitment. This is in addition to the $10 billion credit facility signed in December 2019. Together with cash and cash equivalents of circa $20 billion, available liquidity will rise from $30 billion to more than $40 billion”
I think this is also some good news, because with this liquidity, the dividend for 2020 is safe. For your information Shell has paid near $ 15 billion in dividends last year. With this news the board of directors of Shell seems to be sending a clear message that the dividend payment is not under discussion. And I’m happy with this!
I think that Shell, with all the action they took, is able to survive in the current environment without a significant cut to its dividend. And that is important for a Dividend Growth Investor. But if this market is to last for more than 9 to 12 months, I’m afraid that a dividend cut will be on their agenda.
What is your opinion on Royal Dutch Shell? What do you think about their recent actions, and the news from yesterday?
I like to hear from you!
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