Shell announced this morning it would take up to US$22bn of write-offs in the upcoming quarterly results due to a reassessment of oil and gas prices going forward.
The German broker said that with BP (two weeks ago) and now Shell rebasing their assumptions, others in the sector are likely to follow suit with those with high debt and gearing levels to be hit hardest.
Shell is not one of those companies, suggested Berenberg.
Gearing was 28.9% in the first quarter and on its assumption of an US$18.5bn impairment (in the middle of the range) gearing would rise to 31.1%.
While the second quarter is likely to see a material cash outflow given very weak commodity prices and working capital outflow, gearing is unlikely to reach problematic levels, it said.
As the dividend already been reduced, it will have limited strategic impact for the group.
Chris Beauchamp, chief market analyst at IG Markets, suggests, however, that Shell and BP are increasingly resembling dinosaurs.
“In a world of falling oil demand and a bigger push towards renewables, these energy titans increasingly look like creatures from another era, something which should give investors pause for thought.
“While neither Shell nor BP will be going anywhere soon, their importance as dividend payers will likely diminish relative to other sectors, and yield-hungry investors need to be prepared for this eventuality,” he said.
Jefferies says BP cut not a given
Unlike Shell, BP is yet to rebase its dividend and following the sales of its petrochemicals arm yesterday to INEOS for US$5bn Jefferies said this should not yet be taken as a given though it estimated the market has already priced in a 65% cut.
“Our base case remains for BP to maintain the dividend at 2Q and the proceeds from the hybrid and divestitures help in this regard.
“Even if we are wrong, the current yield of 10.8% vs 3.8% for Shell implies that the market is pricing in a 65% cut.”
BP a conundrum
Russ Mould, investment director at AJ Bell, adds: “BP’s status as the biggest single-payer in the FTSE 100, according to consensus forecasts, presents investors with a particular conundrum.
“Sector rival Shell has already cut its dividend and BP has form in this respect, having slashed its pay-out in 1992 and then again after the Gulf of Mexico oil rig disaster in 2010.
"A cut would not be the biggest surprise in the world, says Mould, and were that to come to pass that would be the latest example of a double-digit dividend yield that proved too much for a company to sustain, alongside former FTSE 100 member Centrica, not to forget Taylor Wimpey, Persimmon, Vodafone and Imperial Brands among others"
Shares in Shell fell 1.8% to 1,247p while BP eased 1.4% to 310.5p.