Shell to raise shareholder returns amid ‘strong cash generation’

Driven by strong cash generation, oil major Shell will be increasing its returns to shareholders through share buybacks or dividends.

In its 2Q 2021 update on Wednesday, Shell said it will move to the next phase of its capital allocation framework and, subject to final board approval, increase total shareholder distributions to within the range of 20-30 per cent of cash flow from operations (CFFO), starting at the 2Q results announcement.

This comes as a result of strong operational and financial delivery, combined with an improved macro-economic outlook, according to Shell.

The level of additional distributions will be determined with full visibility of the 2Q financial results, scheduled for the end of the month.

In the second quarter, Shell expects to have further reduced its net debt, although the extent of the reduction will be moderated by working capital movements. In conjunction with the increased distributions, Shell will retire its net debt milestone of $65 billion and will continue to target further strengthening of its balance sheet and AA credit metrics. 2021 cash capex will remain below $22 billion.

In the first quarter of 2021, Shell increased its dividend by 4 per cent, unlike the first quarter of 2020 when the company decreased its dividend by 66 per cent, the first time for the oil major to make such a move in 80 years.

In its second-quarter 2021 outlook, Shell said that its production is expected to be between 900 and 960 thousand barrels of oil equivalent per day.

The company’s LNG liquefaction volumes are expected to be between 7.1 and 7.7 million tonnes, reflecting additional unplanned maintenance activities, which are expected to impact trading and optimisation results.

Underlying opex is expected to be between $400 and $500 million lower than the first quarter of 2021, which included higher provisions related to counterparty credit risk.

Recently, a Dutch court has ordered Shell to deepen its carbon emissions cuts in a ruling described as the first-of-its-kind, but also the one that Shell plans to appeal.

Voicing his disappointment over the court’s decision, Shell CEO, Ben van Beurden, questioned the court’s decision to single out an energy company to reduce its carbon emissions as well as the implications of the ruling. He also confirmed that the company would appeal the court’s ruling “that I believe does not help reduce global CO2 emissions”.

Despite disagreeing with the court’s decision, Shell in June pledged to take some ‘bold but measured’ steps to accelerate the reduction of carbon emissions from its operations.