Shell Yemisi Izuora
Energy giant Shell has increased its third-quarter dividend payments despite seeing profits plummet due to lower oil and LNG prices, refining margins and production volumes.
The Anglo-Dutch firm also unveiled a cash allocation framework which will help it reduce debt while increasing increase distributions to shareholders and “reshaping” its business for the energy transition.
Shell also spoke about simplifying its upstream division to nine “significant core positions”, one of which is the UK North Sea.
Stuart Lamont, investment manager at Brewin Dolphin Aberdeen, commended Shell for making “bold” moves and said the company’s direction of travel was “positive”.
Third quarter pre-tax profits totalled £340m, down 95 per cent from £6.5 billion in the corresponding period last year, but improving upon vast losses of £18.4bn in the second quarter of 2020.
The Q2 figures were hit by a multibillion dollar impairment charge as Shell wrote down the value of assets due to the downturn and COVID-19.
Revenues were cut in half, to £34bn, in the third quarter, while income attributable to shareholders, a preferred performance measure at Shell, sank 92 per cent year-on-year to £375m.
Shell said its results benefitted from lower operating expenses, well write-offs, depreciation and strong marketing margins.
Dividend per share increased 4 per cent quarter-on-quarter to 12.82p (16.65 cents) during the reporting period.
Earlier this year, Shell cut its dividend for the first time since the 1940s, and by two-thirds, in response to the recent slump in oil prices and “significant” mid and long-term market uncertainty.
Last month, the London-listed firm revealed plans to reduce its global headcount by 7,000-9,000 in a bid to lower costs.
Today, Shell said its new framework included a target to reduce net debt to £50bn, from £56.5bn at quarter-end.
If the company hits its straps, it will distribute 20-30% of cash flow from operations to shareholders.
This increase will be achieved through a combination of Shell’s “progressive dividend” and share buybacks.
Chief executive Ben van Beurden said: “Our sector-leading cash flows will enable us to grow our businesses of the future while increasing shareholder distributions, making us a compelling investment case.
“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.
“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.”
Mr Lamont said: “There are some bold moves from Shell in today’s update. Only six months or so after cutting its dividend for the first time since World War II, Shell has set out a road to recovery for the business and shareholders, including a progressive dividend policy.
“With the share price at multi-decade lows, there was a lot of pessimism about Shell going into these results. But, like rival BP, it has set out a plan to transition to a low carbon world, investing for growth, cutting costs and re-balancing its asset portfolio, while trying to remain an attractive investment proposition.”
He added: “With further Covid-19 restrictions in the offing across the globe, there could still be short-term volatility to come in demand for oil, which will likely weigh on Shell.
“However, on the face of it, there is a positive direction of travel here that should go some way towards assuaging concerns about Shell’s long-term direction of travel.”