With the oil industry under pressure, Norway's state-controlled oil company Equinor announced Thursday (April 23) it will cut its quarterly dividend payment to shareholders by two-thirds. Western Europe’s biggest crude producer said its first-quarter cash pay-out to shareholders would be $0.09 per share, down from $0.27 in the final three months of 2019, reflecting a quarter-on-quarter reduction of 67%. The move comes as violent fluctuations in the price of “black gold”, have kept world oil markets on edge this week.
The May contract of West Texas Intermediate (WTI), the benchmark for U.S. oil, collapsed below zero to trade in negative territory for the first time in history on Monday (April 20) as prices fell as far as -$40.32 before clawing back to settle at -$37.63 per barrel, according to Dow Jones Market Data. For comparison, WTI futures fetched more than $60 a barrel at the start of the year.
The decline below zero means that desperate sellers are effectively paying buyers to take the oil off their hands over fears that storage capacity could run out next month. The main US storage hub in Cushing, Oklahoma, the delivery point for the West Texas Intermediate (WTI) contract, is expected to be full within weeks. According to the International Energy Agency (IEA), the facility is already over two-thirds full, with 55m of its 76m barrel capacity already taken.
Monday’s negative price is a result of a dramatic fall-off in demand after the coronavirus outbreak caused shutdowns worldwide with billions of people around the globe staying home. Physical demand for the commodity has dried up due to large declines in airline, car, shipping, and trucking traffic as well as manufacturing production.
The price of the liquid has continued to slide even after Saudi-led OPEC and its allies led by Russia, a group known as OPEC+, agreed to the biggest-ever production cut — one intended to backstop prices. Some oil market analysts believe the cuts (a 10% slash on global output) may not be enough and if lockdowns remain in June oil prices could continue to suffer.
Brent crude, the international benchmark, also slumped on Monday, but maintained positive numbers as more storage is available worldwide. Brent oil prices have collapsed around 60% since the start of the year, while U.S. crude futures have fallen around 130%, according to Reuters.
(Eldar Sætre, president and CEO of Equinor ASA)
Back in Norway, Equinor also said that the $42 bln company had recently launched several actions to increase financial resilience in response to unprecedented market conditions and uncertainties.
Those actions include:
- Suspension of buy-backs under the share buy-back programme
- Launch of a USD 3 billion action plan in 2020 to strengthen financial resilience from capital expenditures, operating costs and exploration expense reductions
- Bond issuance of USD 5 billion
“The purpose of the combined efforts, including a reduction in dividend, is to secure balance sheet capacity, strengthen liquidity and support continued investments in a high-quality project portfolio,” Equinor said in a statement.
“Equinor has already taken forceful actions to strengthen our liquidity and financial resilience under the current circumstances. In this extraordinary market situation, we have now also decided to reduce the cash dividend for the first quarter 2020 by 67%, compared to the proposed fourth quarter 2019 dividend,” said Eldar Sætre, president and CEO of Equinor ASA.
Will bigger peers like Royal Dutch Shell follow suit? France’s Total will announce whether they also plan to cut dividends on Friday (April 24), with Royal Dutch Shell scheduled to announce earnings on April 30. In the US, oil giants Chevron and Exxon Mobil will report their latest quarterly figures on May 1. Oil prices, which are an indicator of economic health, will remain a focal point for investors.