MercoPress. South Atlantic News Agency

Shell announced it was cutting its dividend for the first time since World War Two

Shell also suspended the next tranche of its share buyback program and said it was reducing oil and gas output by nearly a quarter after its net profit almost halved

Royal Dutch Shell cut its dividend for the first time since World War Two on Thursday as the energy company retrenched in the face of an unprecedented drop in oil demand due to the coronavirus pandemic.

Shell also suspended the next tranche of its share buyback program and said it was reducing oil and gas output by nearly a quarter after its net profit almost halved in the first three months of 2020.

“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.

For years, Shell has taken pride in having never cut its dividend since the 1940s, resisting such a move even during the deep downturns of the 1980s.

Shell is the first of the five so-called Oil Majors to cut its dividend because of the fallout from the coronavirus crisis. BP and Exxon Mobil have said they will maintain their first quarter dividends while Total and Chevron have yet to report first-quarter results.

Shell said it would reduce its quarterly dividend to 16 cents per share from 47 cents for the last three months of 2019. The dividend cut also comes after Shell this month laid out the oil and gas sector's most extensive strategy yet to reduce greenhouse gas emissions to net zero by 2050.

Shell paid about US$15 billion in dividends last year making it the world's biggest payer of dividends after Saudi Arabia's national oil company Saudi Aramco.

Following years of deep cost cuts after its acquisition of BG Group for US$53 billion in 2016, Shell had previously planned to boost payouts to investors through dividends and share buybacks to US$125 billion between 2021 and 2025.

Outside the Oil Majors, Norway's Equinor became the first large oil company to cut its dividend in response to the current downturn, reducing its first-quarter payout last week by two-thirds.

Shell said it expected to cut production of oil and gas in the second quarter to between 1.75 million and 2.25 million barrels of oil equivalent per day (boed) from 2.7 million boed in the first quarter. The company revealed it cut activity at its refining business by up to 40 per cent in response to the demand shock.