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Bloomberg: Shell Gives Hope for Dividend Boost Once Oil Rout Is Over

By Laura Hurst: 13 May 2020, 14:10 BST: Updated on 13 May 2020, 16:42 BST

  • Company should be in ‘strong position’ to raise distributions
  • Finance chief cites potential to revive both dividend, buyback

Royal Dutch Shell Plc said it will be well placed to boost shareholder payouts once the oil market recovers, as it sought to appease investors after last month’s surprise dividend cut.

The Anglo-Dutch major tore up the industry’s financial playbook when oil’s collapse forced it to slash payouts. For decades, Big Oil had used its hefty balance sheet to borrow money when needed and keep investors sweet until the next upward cycle. But 2020’s unprecedented market rout has seen several large players — Exxon Mobil Corp. and Equinor ASA as well as Shell — freeze or reduce dividends.

When “our outlook stabilizes and our balance sheet is in the right position, then we should be in a very strong position to increase shareholder distributions,” Chief Financial Officer Jessica Uhl said Wednesday on an investor call, citing the potential for both dividends and share buybacks.

The Anglo-Dutch company’s shareholder returns had looked unaffordable even before the coronavirus pandemic hit. The company said in January it had slowed the pace of its buyback program and was unlikely to hit its $25 billion target this year. In March, it announced the cancellation of the next tranche of purchases as the severity of the outbreak became clear.

The investor call is a precursor to Shell’s annual general meeting in The Hague next week, where shareholders won’t be able to physically gather due to the coronavirus pandemic. The oil major’s financial performance and its recent carbon reduction ambitions dominated the meeting with Shell management.

The first comment came from a private investor seeking answers on the payout curtailment: “The aggressive 67% dividend cut has left shares with a lower yield than any other major oil company and unnecessarily depressed our share price.” Shell management insisted that while the decision was a difficult one, the dividend must remain meaningful and affordable.

Shell has had to pull on financial levers “harder than we would have liked,” Chief Executive Officer Ben van Beurden said Wednesday on the call. Cutting the dividend doesn’t give the company more money to spend, but means it no longer needs to borrow to finance the payout, he said.

The company reiterated the precarious position the oil industry remains in, as the coronavirus pandemic has decimated demand. The stresses caused by the current crisis were evident in March, and will continue more significantly in the second quarter, Uhl told shareholders.

Second-quarter production is expected to decline by 10% to 20%, Uhl said, due to assets being located in countries which are part of the OPEC+ group — which has pledged output curbs — as well as logistical constraints and other economic pressures.

The current environment won’t have a significant long-term effect on the company’s production but, for now, there will a drop-off. “Our expectation is that economic conditions and the conditions for our sector in particular, will remain likely stressed through 2021 and 2022,” Uhl said.

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