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Shell Tries to Woo Investors With Dividend Raise, Promise of Future Payouts -- Update

10/29/2020 | 08:38am

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 the pandemic-induced 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 would 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 now plans to spend 25% of its annual $19 billion-to-$22 billion investment budget on "the future of energy businesses" which include marketing, power, hydrogen and biofuels, up from an average of 11% over the past three years.

Shell intends to focus on investing in oil projects that have the highest returns, while growing its liquefied natural gas business. It will shrink its refining portfolio to six energy and chemical parks, from the current 14 sites.

The accelerated investment plans in low-carbon energy follow a similar move by BP PLC, which said in September it would cut its oil and gas production by 40% over the next decade and increase its expenditure on renewables and other low-carbon energy sources.

Mr. van Beurden declined to say whether Shell's oil production would shrink, saying the company was focused on value, not volume. 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.

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 that its gas-trading results were lower than during the comparable period a year ago. BP, which posted earnings earlier this week, also said trading suffered.

Shell further reduced the value of its giant floating gas project Prelude by around $1 billion. In July, the company cut the value of its assets by $16.8 billion and didn't give a breakdown of projects affected, but about $4 billion was attributed to Prelude, said a person familiar with the matter.

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 Thursday. That compared 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 1.5% Thursday.

"We have challenged the lack of a clear financial framework since the dividend cut in April, and the plan set out by the Shell management team clearly addresses this," said Lydia Rainforth, an analyst at Barclays.

Shell said it would give more information in February on how its restructuring feeds into its strategy, including details on its future portfolio, and plans for low-carbon energy investments.

Its gearing level -- 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 expected divestment proceeds of $4 billion a year on average, helping reduce net debt.

U.S. oil giants Chevron and Exxon Mobil Corp. are due to report results Friday. Exxon has already indicated a potential loss from its oil-and-gas production business.

Write to Sarah McFarlane at

(END) Dow Jones Newswires

10-29-20 0937ET

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