OSLO (Reuters) - Norway’s Equinor is cutting its quarterly dividend by two-thirds as part of an effort to preserve cash, making it the first major oil company to slash shareholder payouts following the collapse in crude prices.
Equinor’s decision breaks a long-standing industry taboo. For years, the world’s biggest oil companies have avoided cutting dividends come what may to keep investors sweet and instead raised debt when necessary to maintain spending.
“Equinor has already taken forceful actions to strengthen our liquidity and financial resilience under the current circumstances,” Chief Executive Eldar Saetre said on Thursday.
“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,” he said in a statement.
Equinor’s first-quarter cash dividend will be $0.09, down from $0.27 in the final quarter of 2020, it said.
Equinor’s shares were down 2.1% at 0842 GMT, underperforming a 1.9% rise in European energy stocks.
Some investors have said major oil companies should consider cutting shareholder payouts rather than taking on more debt given how high their debt-to-capital ratios have become.
Equinor recently announced plans to cut investment, exploration drilling and operating costs by about $3 billion to help weather the coronavirus crisis, which has sent crude prices to their lowest in more than two decades. [O/R]
The company also suspended its $5 billion 2019-2022 share buyback plan last month and raised $5 billion in a bond issue on April 1.
“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.
“This provides for long-term competitive growth and shareholder value.”
Equinor last made outright cuts to its dividend during the financial crisis of 2008-2009. In the years following the 2014 oil price crash, it opted for a so-called scrip dividend, giving investors the option of receiving shares instead of cash.
“The move is one of extreme caution given the extraordinary market conditions rather than an expression of balance sheet weakness or credit rating pressure,” Bernstein analysts wrote in a note to clients, adding that the decision was disappointing.
If the overall macroeconomic situation improves, however, Equinor’s dividend may rise in the third quarter, they said.
The price of North Sea Brent crude hit a 21-year low of $15.98 per barrel on Wednesday, down 75% since the start of the year as demand for oil collapsed due to the outbreak of COVID-19, the disease caused by the new coronavirus.
Additional reporting by Nerijus Adomaitis in Oslo, Stine Jacobsen in Copenhagen and Ron Bousso in London; Editing by Christian Schmollinger, Muralikumar Anantharaman and David Clarke