ROYAL DUTCH SHELL PL

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Shell Posts 3Q Profit, Pledges to Cut Debt Amid New Cash Allocation Framework -- Update

10/29/2020 | 03:55am

--Shell reported profit for the third quarter, better than expected by the market

--The energy group also announced a new cash allocation strategy to strengthen finances, increase shareholder returns and fund low-carbon growth

--The interim dividend has been raised by 4% on quarter

By Jaime Llinares Taboada

Royal Dutch Shell PLC on Thursday reported narrowed profit for the third quarter which came in ahead of market expectations and unveiled a new cash allocation framework which includes targets to reduce net debt to $65 billion, progressively increase dividends, and free up cash to grow its low-carbon business.

The Anglo-Dutch oil major made net profit of $489 million in the three months to Sept. 30, narrowing from $5.88 billion a year earlier. Weak oil and gas prices and low demand for refined products continued to impact the business.

However, earnings came ahead of expectations. The adjusted CCS profit--a figure similar to the net income that U.S. oil companies report, but which strips out exceptional items--was $955 million, beating market consensus of $146 million, taken from Vara Research and based on 26 analysts' forecasts. It also improved on quarter from $638 million profit reported in the second quarter.

Alongside the quarterly earnings, Shell announced a new cash allocation strategy to reduce debt, increase shareholders' distributions and allow for disciplined growth.

As part of the new framework, Shell said it will cut net debt to $65 billion from $73.5 billion as at Sept. 30, and afterward distribute 20%-30% of operating cash flows via dividends and share buybacks. The remaining cash will be used to increase capital expenditure and grow the low-carbon business, and continue reducing debt.

The FTSE 100 group committed to resume dividend growth and declared a third-quarter payment of 16.65 cents a share. This is up 4% from 16.00 cents in the second quarter, but significantly below 47.00 cents a year earlier.

"We must continue to strengthen the financial resilience of our portfolio as we make the transition to become a net-zero emissions energy business. Our decisive actions taken earlier in the year have solidified our operational and cash delivery," Chief Executive Ben van Beurden said.

Earlier this year, management decided to significantly reduce costs after the coronavirus hit oil and gas markets. Underlying operating expenses have been cut by 11% or $3.04 billion in the nine months to Sept. 30, and capital expenditure was slashed by 28% or $4.71 billion compared with the same period of 2019.

Shell said that these steps have strengthened its financial resilience, which will help fund its ambition to become a net-zero energy business by 2050 or sooner.

Shell also said it would focus refining operations on six sites--down from the current 14--and simplify the upstream business to nine positions which would generate 80% of the division's cash flow.

Shares at 0817 GMT were up 20.8 pence, or 2.3%, at 920.9 pence.

Write to Jaime Llinares Taboada at jaime.llinares@wsj.com; @JaimeLlinaresT

(END) Dow Jones Newswires

10-29-20 0454ET

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