CityWire.co.uk
By Deborah Hyde | 09:44:10 | 17 March 2009
Royal Dutch Shell shares fell in morning deals as oil price falls and news of an investigation by US authorities overshadowed an upbeat release from the oil major ahead of its strategy update later today.
The Anglo Dutch group said even though it believes the current downturn will last more than a year it remains confident it can lift its dividend by 5% in the first quarter and has the balance sheet flexibility to maintain investment, fund future projects and grow dividends going forward.
It also said the economic slowdown is an opportunity to reduce supply-chain costs.
The group still expects to grow production by 2-3% to 2012 and beyond much higher than the recently reduced target from BP of 1-2% growth.
It said it replaced 95% of the oil and natural gas it pumped in 2008.
Shares fell back 36p, or 2.28%, to £15.42 as Brent fell back $1.06, or 2.28%, to $45.40.
Investors are still waiting for news on the group’s share buyback programme and some reassurance on its debt position given many commentators expect it to scrap the programme as debts rise.
Richard Griffith, analyst at Evolution, said the key message in this morning’s release is that in spite of short market volatility, Shell says it can continue to grow its dividend even in a down turn at the same time as sustaining organic capital expenditure at $31-32 billion this year, broadly the same as 2008.
Griffith also cheered the commitment to raise the dividend saying ‘Hopefully RDS has kicked the dividend cut debate into the long grass’.
He has an add rating and a £20 target on the group as its shares are yielding 7.3% for 2009 and it has just confirmed that dividends are sustainable.
Separately, Royal Dutch Shell said it was under investigation by US authorities about allegations it has breached overseas bribery rules.
Shell is currently under investigation by the United States Securities and Exchange Commission and the United States Department of Justice for violations of the US Foreign Corrupt Practices Act, the company said in its 2008 annual report.
Lawyers at Haynesboone who specialise in the Foreign Corrupt Practices Act said that companies that violate the act may be required to pay a fine of up to $25 million, or twice the gain obtained from the violation.
‘The company may also be required to disgorge profits obtained from the violation. Additionally, settlement agreements with the government have commonly required companies to maintain, at their own expense, a corporate monitor to supervise the companys FCPA compliance program and report observations to the government,’ according to a report from the law firm.
It said a violation of the act can also lead to a companys debarment from future government contracts and a company may have its export license rescinded.
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