(June 4): Royal Dutch Shell Plc plans to shower its investors in money, pledging returns of US$125 billion ($171 billion) between 2021 and 2025 -- twice as much as a decade earlier.
The oil and gas major says it can pull off this feat with crude at US$60 a barrel and only a small increase in capital spending, an aggressive move to keep shareholders on its side while it weathers a disruptive transition to lower-carbon energy. The Anglo-Dutch oil major has already sought to stand out from some of its peers, who are boosting spending to get more barrels of oil and gas.
Shell expects new projects to generate a torrent of cash -- as much as US$35 billion a year by 2025 -- that it can use to enormously boost shareholder returns. Higher distributions could come in the form of both dividends and buybacks. It is now undergoing a US$25 billion repurchase program set to end in 2020, and said it expects to increase the dividend per share “when there is line of sight to the completion” of the programme.
“We have reshaped our company with a focus on value and have demonstrated a clear track record of delivering on our ambitious promises,” Chief Executive Officer Ben van Beurden said in a statement. “It is the success of our strategy and strength of our delivery today that gives us confidence for the future.”
New Themes
Shares fell 1.3% to 2,454.5 pence in London as of 8.27am, in line with a broader decline in the European energy sector.
Shell didn’t break out how much of the US$125 billion in distributions would come from higher dividends. That figure compares to US$52 billion in payouts from 2011 to 2015, and an expected US$90 billion from 2016 to 2020.
It raised its average capital investment estimate to US$30 billion a year from 2021 to 2025, going no higher than US$32 billion in the period. That's up from its current annual budget of US$25 billion to US$30 billion. That figure includes small acquisitions of less than US$1 billion, but excludes “major inorganic opportunities.”
Shell also offered a new way to think about the company, breaking out its strategy into three themes: Core Upstream, Leading Transition and Emerging Power.
Evolving Demands
The upstream segment includes deep-water, and shale and conventional oil and gas projects. Notably, Shell didn’t pledge a boost in hydrocarbon production, but instead said it would “sustain” the business.
The transition theme incorporates the work of its integrated gas, chemicals and oil products businesses, while emerging power “will focus on creating business models to meet evolving customer demands.” Shell said previously it wants to be the world’s largest power producer by the 2030s, an ambition that’s raised questions from shareholders unsure about a business known for heavy regulations and low returns.
Shell said it intends to create new business models to achieve higher returns, without specifying what those could be. It said overall return on capital employed will be higher than 12% by 2025, up from about 9% at the end of the first quarter.
