WOOD joined a series of high profile names that have underlined the scale of the challenges facing even big corporations last week when it axed a proposed $160 million payout to investors.
The Aberdeen engineering giant, which has a big North Sea oil services operation, scrapped its previously recommended fourth quarter dividend payment as it announced plans for deep cost cuts.
North Sea oil services giant cuts jobs and dividend amid turmoil in market
Wood’s name was added to a list of companies from a range of sectors that have in recent weeks said they would either scrap or defer dividends payments that features more than 100 others.
In Scotland this includes Glasgow-based engineering giant Weir Group and the Aggreko generators business. STV, Stagecoach and aviation services firm John Menzies are also on the list.
But Wood’s action reflected the fact that oil and gas sector players are facing a particularly grim combination in the form of the impact of the coronavirus on demand and a price war between Russia and Saudi Arabia.
This sent the crude price tumbling to an 18-year-low of less than $25 per barrel last month. Brent sold for around $33/bbl yesterday.
Oil and gas firms are set to slash spending on new assets and upgrades depriving services players like Wood of work.
The actions Wood is taking in response include cutting jobs and pay rates and putting staff on furlough.
Chief executive Robin Watson indicated directors had decided it was only right that shareholders should feel the impact of the retrenchment too.
The costs of the crude price plunge must be shared fairly
He said the board had made the prudent and appropriate decision to withdraw its recommendation to pay the proposed 2019 final dividend of 23.9 cents per share.
Significantly Wood said its board would review the company’s future dividend policy only once there is greater clarity on the impact of Covid-19 and the substantial fall in oil prices.
With Wood’s rival Petrofac announcing yesterday that it would suspend its final dividend for 2019 other firms will be under pressure to follow suit.
200 North Sea jobs at risk as oil services firm plans deep cost cuts
This includes companies that operate oil and gas fields in areas such as the North Sea and have huge influence on the supply chain.
Before the coronavirus crisis erupted North Sea firms were served notice that their social licences to operate were under threat amid concern about climate change.
Questions of prudence aside, for producers to maintain dividend payments at a time when so many people are struggling would not help them in attempts to win friends outside the ranks of shareholders and the investment community.
But It remains unclear what two of the most important players in the North Sea will do.
BP’s new chief executive Bernard Looney last week said the company is protecting its people, supporting the communities where they live and work and strengthening its finances in response to the coronavirus. The latter will involve cost cuts.
BP to slash spending amid 'brutal' oil and gas market conditions
Regarding payouts to investors, Mr Looney said: “We remain committed to growing sustainable free cash flow and distributions to our shareholders over the long term.”
He made no mention of plans for the current year.
When Royal Dutch Shell announced plans for deep cost cuts last month the company said its board had decided not to continue with the next tranche of its share buyback programme following the completion of the latest $1bn tranche but did not refer to dividends.
Plans for huge Shetland oil field in question as crude price plummets to 18-year-low
Companies might argue they must maintain dividends to provide fair reward for investors who have shown faith in them. Analysts have noted the importance for oil and gas giants of dividend payments following share price falls amid uncertainty about their prospects as the world tries to slow climate change.
But long-term holders of shares in the likes of Shell and BP may have recouped their investments and more some time ago. More recent buyers have enjoyed a high dividend yield on their holdings.
Companies can compensate investors for cutting cash payouts by paying scrip dividends in the form of additional shares.
BP paid out $7bn in dividends last year and bought back $1.5bn shares.
Shell paid out $15.2bn in dividends in 2019 and bought back $10.2bn shares.
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