Shell Tries to Woo Investors With Dividend Raise, Promise of Future Payouts
October 29 2020 - 8:06AM
Dow Jones News
By Sarah McFarlane
LONDON -- Royal Dutch Shell PLC said it would start raising its
dividend again -- after slashing it just months earlier -- and
planned to eventually increase shareholder payouts further,
projecting an upbeat assessment of its ability to weather a
pandemic-inspired oil demand shock.
The pandemic forced Shell to reduce its dividend by two-thirds
in April -- its first cut since World War II -- and helped trigger
a restructuring of the company, part of a broader plan at Shell to
accelerate investments in low-carbon energy.
The company is now increasing its dividend 4% to 16.65 cents a
share and said that once it has reduced its debt to $65 billion it
will aim to give 20% to 30% of cash flow from operations back to
shareholders. Shell's debt was $73.5 billion at the end of
September.
"The strength of our performance gives us the confidence to lay
out our strategic direction, resume dividend growth and to provide
clarity on the cash allocation framework, with clear parameters to
increase shareholder distributions," said Chief Executive Ben van
Beurden.
Shell intends to focus on investing in oil projects that have
the highest returns, while growing its liquefied natural gas and
low-carbon energy businesses. It will also shrink its refining
portfolio to six energy and chemical parks, from the current 14
sites, the company said.
The company plans to cut up to 9,000 jobs, about 11% of its
workforce, following similar cost-saving moves at Chevron Corp. and
BP PLC.
Shell's third-quarter performance was hurt by lower refining
margins and a fall in refining activity, along with lower margins
in its LNG business, as lower crude prices started to filter
through to LNG contracts linked to oil prices.
Refining can act as a hedge for major oil companies during times
of lower energy prices, but recently even these areas haven't been
as profitable. Refining margins have in the past risen when oil
prices fell, but fuel demand is also weak, with people driving and
flying less because of Covid-19.
Shell said it used around 65% of its refining capacity in the
quarter, down from 78% in the same period a year earlier, partly
due to lower demand.
Shell said that its gas-trading results were lower than during
the same period a year ago. BP, which posted earnings earlier this
week, also said trading suffered.
During the second quarter, oil prices plummeted as countries
locked down to slow the spread of the virus. More recently, lower
volatility has reduced trading opportunities as Brent oil prices
have stabilized at around $40 a barrel.
Shell reported a third-quarter profit on a net
current-cost-of-supplies basis -- a figure similar to the net
income that U.S. oil companies report -- of $177 million on
Thursday. That compares with a profit of $6.08 billion in the same
period last year.
The company said that its marketing division reported strong
margins, which helped offset lower sales volumes.
Shell's shares traded up 2.8% on Thursday.
The company said it would give more detail in February on how
its restructuring feeds into its strategy, including details on its
future portfolio, and plans for low-carbon energy investments.
Shell's gearing level -- its net debt as a percentage of total
capital -- was 31.4% for the three months to the end of September,
down from 32.7% in the previous quarter and above the company's
target of 25%.
The company said it expects divestment proceeds of $4 billion a
year on average, helping reduce net debt.
U.S. oil giants Chevron Corp. and Exxon Mobil Corp. are due to
report results on Friday. Exxon has already indicated a potential
loss from its oil-and-gas production business.
Write to Sarah McFarlane at sarah.mcfarlane@wsj.com
(END) Dow Jones Newswires
October 29, 2020 07:51 ET (11:51 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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