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Dividend delight for Royal Dutch Shell shareholders

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Dividend delight for Royal Dutch Shell shareholders as economic recovery enables oil giant to raise payouts

  • Shell expects to withdraw its ‘milestone’ target to cut net debts to below $65bn
  • The gradual reopening of the world economy is boosting consumer oil demand 
  • Investors will get payouts that are between 20-30% of cash flow from operations

Royal Dutch Shell has announced that investors will receive higher payouts following a recovery in oil and gas prices and a reduction in its debt pile.

It said that thanks to an ‘improved macro-economic outlook’ and ‘strong operational and financial delivery,’ shareholders would be awarded returns that were between 20 and 30 per cent of cash flow from operations.

The oil supermajor added that it expects to report another fall in its huge debt pile and withdraw its ‘milestone’ target to cut net debts to below $65billion, having already slashed its arrears by $4billion to $71.3billion in the first quarter.

Shell promised back in late April that it would reward investors when it hit that target, though it did not state today whether that had been achieved.

Petroleum companies have reported rising confidence in recent months due to the rollout of vaccination programmes allowing countries to gradually open up again, thereby increasing demand for oil.

A barrel of oil is back at more than $78 — its highest price since 2019.

As a result, shares across the industry have recovered substantially since autumn last year. Shell’s are up by around two-thirds, though it ended trading 0.5 per cent down at 1452.4p on Wednesday and remains markedly lower than its pre-Covid levels.

Shell added that production in its upstream and integrated gas operations is forecast to drop and that earnings from upstream oil would see any boost from currency effects offset by higher spending on planned maintenance in the second quarter.

The firm is transitioning away from its traditional role as an oil and gas producer and towards cleaner forms of energy such as wind power, solar, and ‘green hydrogen.’

In the last week, the group received approval to provide offshore wind power to the US state of New Jersey and began operations on Europe’s largest green hydrogen electrolyser in Germany.

Chief executive Ben van Beurden warned on Monday, however, that reducing oil and gas production too quickly would lead the business into a ‘valley of death’ whereby they are unable to generate enough cash.

He told the Outrage & Optimism podcast that the company’s green energy businesses ‘are going to be free cash flow negative for at least a decade’ and that the money needed to invest in them ‘to let them grow up to materiality…is going to far outstrip the cash we will get out of it.’

Van Beurden added: ‘The energy transition is not going to happen at the pace that we need it to happen without strong incumbent players with the scope, the reach and the capabilities of companies like us to make it happen.

‘So, I think it is legitimate to say I will nourish my legacy business as an important foundation piece for funding the rest of my strategy. But I will also be mindful that that business then goes into decline.’

The Dutch-born chief executive was speaking following a court decision in the Hague that ordered Shell to raise its carbon emission reduction targets to 45 per cent below its 2019 levels by the end of the decade.

The judge in the case said the firm’s previous pledge had not been ‘concrete’ enough and ruled that its emissions goals should be brought closer into line with those set out by the Paris Climate Agreement. Shell has vowed to appeal the judgement.

AJ Bell’s investment director Russ Mould said that Shell’s dividend announcement ‘is an interesting coda to the recent court decision in the Hague, which effectively forced Shell to reduce its emissions more quickly than planned.

‘This is likely to require significant investment, and for this reason, Shell is likely to be wary of overstretching itself in terms of dividend commitments.’

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