Shell chief: Economic recovery from Covid-19 could speed up energy transition
Shell chief executive Ben van Beurden said that economic recovery coronavirus pandemic might accelerate the shift to a low-carbon economy as the oil major released its first quarter results amid a decimated oil and gas industry.
As a result of collapsed demand for fuel, the firm has elected to cut its capital spending from $25bn to $20bn and to cut its dividend by two-thirds to 16 cents.
Although Shell’s low carbon Integrated Gas and New Energies division will not escape the cuts unscathed, van Beurden said the firm had tried to spare it the worst of the cuts:
“Where possible, we try to spare (New Energies) a little bit and that is basically because we still believe that there is an energy transition underway which may even pick up speed in the recovery phase of this crisis and we want to be well positioned for it,” he said.
About 45 per cent of the cuts will hit Shell’s exploration and production division, with 30 per cent for the refining and marketing business.
The low carbon business will bear the remaining 25 per cent of the cuts, but van Beurden said the firm remained committed to the shift to low-carbon energy production.
Sign up to City PM’s Midday Update newsletter, delivered to your inbox every lunchtime
Two weeks ago Shell unveiled plans to become a net-zero emissions business by 2050.
Analysts said that the historic decision to cut its dividend – the first time it had done so since the second world war – was a sign that Shell was committed to the transition.
In a note, Killik analysts said: “The cut will save the company approximately $10bn in cash and therefore significantly lowers its cash breakeven, while it is notable that the announcement comes shortly after Shell upped its commitment to decarbonising the business.
“While this [cut] makes Shell by far the lowest yielding of the major oil companies, it also arguably makes them best placed to transition towards a low carbon business due to the cash that it will free up, and therefore potentially has wider implications for the sector”.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “The need to service a cash hungry dividend has seen future investment sacrificed and assets sold.
“Essentially both Shell and BP have been slowly digesting themselves to keep the dividend ticking over.
“Removing that pressure allows the group to focus on the future and also secures the future of recently announced renewable energy investments”.