Royal Dutch Shell PLC is to boost returns to investors later this month, while still paying down debt, as its core businesses get stronger due to a recovery in energy demand and rising prices.
The Anglo-Dutch giant is to raise total distributions to shareholders to between 20 and 30 percent of cash flow from its operations, starting when it announces second-quarter results on July 29, the company said in a statement yesterday.
It did not specify whether they would take the form of dividends or share buybacks.
Photo: Reuters
Underscoring the improvement in the operating environment, Shell said that the higher returns would come as the company continues to reduce net debt.
The company’s B shares rose 2.7 percent to ￡14.596 as of 8:08am in London.
The economic recovery from COVID-19 has transformed the fortunes of oil producers, from the international majors to US shale drillers and OPEC members.
US crude futures hit a six-year high close to US$77 a barrel yesterday, driven by rising demand and constrained supply.
The increase in Shell’s returns “sends an important message to the market,” JPMorgan Chase & Co analysts wrote in a note.
Assuming oil remains at about US$75 a barrel, the bank expects a US$500 million buyback in the third quarter, with net debt ending the year at US$57 billion.
Since last year’s historic dividend cut, Shell has been trying to woo investors by pledging growing returns, a stronger balance sheet and setting out a plan to gradually transform the company for a low-carbon future.
While shareholders are starting to see more money in their pockets, Shell said it would keep a lid on spending, with capital expenditure remaining below US$22 billion for the year.
The expected reduction in net debt could be tempered by changes in working capital, which saw a large build in the first quarter of the year, the company said.
Shell’s trading units, which at times can be a large source of the company’s earnings, are expected to perform “significantly below average” for integrated gas in the second quarter, and at average levels for oil.
The divisions have so far this year failed to replicate the successes of last year, which saw oil trading almost double profits to US$2.6 billion, even as other parts of the company were scarred by the effects of the COVID-19 pandemic.
Gas liquefaction is expected to be in the range of 7.1 million to 7.7 million tonnes due to additional unplanned maintenance.
The company sees chemicals margins in line with the first quarter.
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