Royal Dutch Shell has raised its dividend almost 40 per cent and launched a $2bn share buyback scheme, as the energy major takes advantage of stronger energy prices to try to attract back investors.
Thursday’s moves, which came as the group reported a jump in second-quarter earnings helped by oil’s recovery above $70 a barrel, were more aggressive than analysts had anticipated and show the pressure on energy majors to resurrect flagging share prices.
France’s TotalEnergies also reported strong results on Thursday with its highest half-year earnings in five years, and will use some of its cash flow for share buybacks.
Investors remain wary of a sector that has been hard hit by two price slumps since 2015 while facing the long-term challenge of a possible peak in oil demand and increasing government action to tackle climate change.
Shell’s shares rose 3.5 per cent on Thursday but remain more than 40 per cent down from where they were two years ago, when oil prices were marginally lower. The company had said in April the dividend would probably remain unchanged for the rest of 2021 after raising it slightly at its previous earning report.
“There is an element of confidence in raising the dividend,” said Ben van Beurden, chief executive. “We felt that our dividend needed to be reset [as] the gap between our dividend payout and free cash flow was simply too large. We wanted to signal to the market the confidence we have in our prospects and cash flows by making it permanent.”
Analysts said the focus on returning cash was an effort to demonstrate that the energy majors remain huge generators of free cash flow when energy prices are strong, with the ability to bolster payouts to yield-hungry investors.
“Shell’s stepping up distributions is extremely positive,” said Biraj Borkhataria at RBC Capital Markets.
Shell’s dividend will rise to 24 cents a share from the second quarter, although it remains well below its pre-pandemic level. Last year the company slashed it by two-thirds to 16 cents, the first reduction since the second world war, as pandemic-induced lockdowns hit energy demand and pushed oil prices below $20 a barrel.
The policy of increasing dividends 4 per cent a year “remains unchanged”, the company said.
The buybacks were more widely anticipated, with investors keen to see energy companies returning cash rather than raising investment. Many had predicted, however, that the buyback would be closer to $1.5bn. Shell said it would keep holding capital expenditure below $22bn for the year.
Oil and gas majors in Europe are trying to balance investor demand for higher returns and pressure to adjust their business models to align with climate goals.
Van Beurden said he was increasingly confident oil prices would remain strong in the medium term, partly resulting from under-investment in the sector, but indicated any increases to planned capital expenditure would be weighted towards the company’s strategy of boosting cleaner fuels such as hydrogen.
In the second quarter, Shell reported adjusted net profit of $5.5bn, slightly ahead of analyst expectations of $5bn and up from $3.2bn in the first quarter. Cash flow from operations, excluding working capital movements, hit $14.2bn in the second quarter, exceeding analyst expectations for $12.1bn.
Total’s adjusted net income rose 15 per cent quarter-on-quarter to $3.5bn.
The energy majors are also using higher oil prices to deleverage. Shell’s net debt fell to $65.7bn from $71.3bn in the previous quarter, nearing its target of reaching $65bn before increasing shareholder distributions. The company said it was “retiring” the $65bn “milestone” and would instead target “AA credit metrics through the cycle”.
Brent, the international crude oil benchmark, traded near $75 a barrel this month compared with $45 a barrel at the start of the year, while gas prices have soared globally because of tight supplies.
“There are going to be a few quarters of tight [oil] markets,” van Beurden said.
However, Shell’s chief financial officer Jessica Uhl said she believed the dividend would be “resilient” even if oil prices fall back. “We’re not betting on the current price to always be the case,” she said.
https://news.google.com/__i/rss/rd/articles/CBMiP2h0dHBzOi8vd3d3LmZ0LmNvbS9jb250ZW50L2RmZGU4N2U2LTdiOGQtNDZiZi1iMzgzLTAzZDljODQ0NWZhN9IBP2h0dHBzOi8vYW1wLmZ0LmNvbS9jb250ZW50L2RmZGU4N2U2LTdiOGQtNDZiZi1iMzgzLTAzZDljODQ0NWZhNw?oc=5
2021-07-29 07:03:07Z
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