Royal Dutch Shell experiences historic net loss of $21.5bn in 2020

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Royal Dutch Shell

The Royal Dutch Shell plc, more popularly known simply as Shell, is one of the largest companies in the world. However, due to the crippling effects of the COVID-19 pandemic, demand for oil fell sharply reducing its price to historic lows.

As a result, Shell had one of its worst years in history, having to cut its dividend for its shareholders for the first time since World War II. According to data presented by TradingPlatforms, Shell posted a $21.5bn net loss in 2020, with revenue dropping by over 47%.

Oil industry and Shell severely impacted by COVID-19

To try and mitigate the spread of the Coronavirus, borders around the world shut and lockdowns were imposed in cities across the globe. As a result, travel in most of its forms essentially ground to a halt. This drove down the price of oil affecting industries that Shell do business in.

The Dutch-Anglo company is involved and operating in every segment of the oil and gas industry which as a whole struggled mightily to earn a profit in 2020. Shell’s revenue fell by almost $165bn in 2020 a more than 47% drop compared to 2019. Shell also posted a net loss of $21.5bn in 2020 after posting a net income of $16.4bn in 2019.

Business was down in all but one of Shell’s business segments, with the chemicals segment the only one to post an income in 2020. Shell’s upstream segment, which deals in oil exploration and other such activities, posted a loss of almost $11bn.

Shell Cut Dividends For First Time Since WWII

Shell’s performance in 2020 greatly affected its shares and in turn its investors. In 2020, Shell had an estimated 7.8 billion shares which is almost 400 million less than the highest number of shares recorded in 2018. The oil giants also lost $2.78 per share in 2020, the only loss recorded loss in the reporting period beginning in 2008.

For the first time since World War II, shell announced that it was cutting its dividend. As a result, in 2020, Shell paid only $7.3bn in dividends compared to $15.2bn in 2019 – a drop of over 50%.

Cost-cutting measures implemented to mitigate effects of pandemic

Shell implemented several measures to cut costs to protect its cash flow generation and balance sheet including an almost 54% drop in purchases.

Shell made purchases worth $117 bn in 2020 compared to almost $253bn in 2019. In a further effort to cut costs, Shell spent $907m on Research and Development in 2020, the lowest spend on R&D from 2010-2020.

What do Shell think about the results?

Despite the losses, Royal Dutch Shell Chief Executive Officer, Ben van Beurden was positive about the future for the business.

He said: “2020 was an extraordinary year. We have taken tough but decisive actions and demonstrated highly resilient operational delivery while caring for our people, customers and communities. We are coming out of 2020 with a stronger balance sheet, ready to accelerate our strategy and make the future of energy. We are committed to our progressive dividend policy and expect to grow our US dollar dividend per share by around 4% as of the first quarter 2021.”

Industry reaction

David Elmes, Professor of Practice and Head of the Global Energy Research Network at Warwick Business School, said: “This week’s huge losses by Shell, BP and Exxon reflect the challenges oil and gas companies face. They are skating on ever-thinning ice as the effects of climate change combine with other events like the Covid-19 pandemic. A face-off between the world’s biggest oil and gas suppliers in 2015 caused prices to halve and they had barely recovered before Covid-19 caused a slump in demand. Worse still, that slump in demand as a result of the pandemic has become more prolonged than initially hoped.

“There will be some ongoing need for oil and gas as a fuel for a while yet. There will also be demand for the petrochemicals and other products made from them. But that can’t sustain the industry we’ve seen in the past as we look to address climate change. Some companies will need to change to survive. International oil and gas companies like Shell, BP & Exxon own less of the world’s resources than similar companies owned by governments in the countries where the oil and gas are found. They are getting squeezed and need a way out.

“Companies like BP and Shell know this and have plans in place, such as BP’s plan to become an integrated energy company. Shell is due to announce its plan later this month. The energy transition needed to address climate change is getting a significant push from Covid-19.”

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