Shell signals return to pure cash dividend, focus on
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[November 28, 2017]
By Ron Bousso
LONDON (Reuters) - Royal Dutch Shell <RDSa.L>
will return to paying pure cash dividends and step up its investment in
cleaner energy as it turns a corner after more than two years of cost
cuts and disposals prompted by weak oil prices.
Shell Chief Executive Officer Ben van Beurden sought to strike a balance
between reassuring investors it can increase returns in its core fossil
fuel business during an "era of volatility" in oil prices while
preparing to step up investments in renewables.
The Anglo-Dutch company said it will abolish its scrip dividend, through
which investors can opt to receive dividends in shares or cash, in the
fourth quarter of 2017.
The scheme was introduced in early 2015 to help preserve cash after oil
prices fell by more than half from over $100 a barrel and the company
bought BG Group in a $54 billion deal.
Shell's shares were trading 2.8 percent higher at 1020 GMT, compared
with a 1.1 percent increase in the broader European energy index <.SXEP>.
BP <BP.L> had pipped its rivals when announcing last month that it would
resume share buybacks in the fourth quarter in order to offset the
dilutive effect of the scrip dividend. Norway's Statoil <STL.OL> has
also eliminated its scrip dividend.
Simon Gergel, UK Chief Investment Officer at Allianz Global Investors
welcomed the removal of scrip dividend "which reflects their improving
cash generation profile."
BUYBACKS ON AGENDA
With lower debt, oil prices above $60 a barrel and progress in asset
sales, pressure has mounted on Shell to remove the scrip and launch a
share buyback program.
Shell's dividend payouts in the 12 months to September amounted to $15
billion, with scrip accounting for around a quarter.
In a strategy update, the company reiterated its plans to buy back $25
billion of shares between 2017 and 2020 in order to offset the dilutive
effect of the scrip and its acquisition of BG Group. It did not specify
a time to start the program.
Shell also raised its cash flow outlook to $30 billion from $25 billion
by 2020, assuming an oil price of $60 a barrel.
Shell was able to sharply increase revenue in recent quarters thanks to
deep cost cuts, thousands of layoffs and asset sales, adapting its
operations to make profit at oil prices of $50 a barrel and to cover its
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A Shell logo is seen reflected in a car's side mirror at a petrol
station in west London, Britain, January 29, 2015. REUTERS/Toby
Shell, which has bet largely on a growing demand for natural gas in the
transition to cleaner energy, also set out ambitious targets to reduce
its carbon footprint.
It raised planned investment in its new energies division which focuses
on renewables and low carbon technologies to $1-2 billion until 2020
from the current $1 billion.
"We have to start somewhere and we have to build a platform that can
participate and grow actively in further electrifying the world," van
Beurden told reporters.
The company, which has made a number of investments in electric vehicle
technology in recent months, said it will aim to reduce emissions of
greenhouse gases by 20 percent by 2035 and by half in 2050.
The targets will be expanded to include all of Shell's operations as
well as emissions from products consumed by consumers which Shell has so
far resisted, van Beurden said.
The new energies division is planned to be one of Shell's main growth
engines after 2020 and generate returns of 8 to 9 percent, Chief
Financial Officer Jessica Uhl said.
Shell said that its vast $30 billion asset disposal program, aimed at
reducing debt following the BG Group deal, was nearly achieved one year
ahead of target, with $23 billion completed, $2 billion announced and
another $5 billion at an advanced stage of progress.
The company will continue divestments at a rate of $5 billion per year
once the target is reached until at least 2020.
As a result of the divestments and cost savings, the company's target of
reducing its debt-to-equity ratio to 20 percent was "in sight". It stood
at 25.4 percent at the end of September.
Shell maintained its capital expenditure forecasts at $25 billion to $30
billion per year until the end of the decade.
(Reporting by Ron Bousso; editing by Jason Neely and Keith Weir)
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