ROYAL Dutch Shell has announced plans to increase payouts to shareholders as it feel the benefit of the increase in oil prices fuelled by the rollout of coronavirus vaccines.
The Anglo-Dutch giant said it planned to increase total shareholder distributions to within the range of 20 to 30 per cent of the cash flow it generates from operations.
Shell said the increase is expected to start from the company’s second quarter results announcement, which is scheduled for July 29.
The decision to increase payouts underlines Shell’s confidence in the outlook for the market, amid growing hopes that a strong global economic recovery is in prospect. The hopes do not appear to have been dampened by the rapid spread of the Delta variant of the coronavirus.
The company noted: “As a result of strong operational and financial delivery, combined with an improved macro-economic outlook, Shell will move to the next phase of its capital allocation framework.”
READ MORE: BP triples profits as coronavirus vaccines fuel recovery hopes
The company cut net debt in the second quarter, by an undisclosed amount.
It made the announcement following a strong rally in oil prices since November. The Brent crude price hit a three year high of $77.09 per barrel this week.
The rise has been powered by the recovery in global demand which has followed moves by governments around the world to ease restrictions imposed to slow the spread of the coronavirus.
Brent crude fell to an 18-year-low of less than $20/bbl in April last year and the US oil price turned negative briefly after storage capacity was exhausted.
That month Shell announced the first cut in its dividend since the Second World War to help save cash.
READ MORE: Shell hails potential of field off Scotland after historic dividend cut
Analysts at JP Morgan Cazenove said yesterday’s announcement from Shell underlined how much cash it can generate from its operations and sent an important signal to the market.
The announcement will likely be welcomed in the North Sea, as a sign that an upturn may be in prospect following the deep slump triggered by the fallout from the coronavirus.
Firms that operate North Sea fields slashed spending on new developments causing pain across the supply chain.
However, the decision by Shell to increase shareholder distributions may reignite the controversy about the cuts the company has made to its North Sea operations in recent months.
READ MORE: Shell highlights value of North Sea cash engine in wake of job cuts in Aberdeen
In January Shell announced plans to shed around 330 jobs in its UK North Sea business, which is run from Aberdeen. The cuts will reduce total employee numbers in the North Sea business to around 1,000.
Shell’s directors have set out to reshape the business in response to the global drive to cut emissions. This will involve increasing investment in renewables.
However, they have made clear that Shell expects to remain in the oil and gas business for years. It can use the profits generated in the business to fund investment in other areas and to support payouts to investors.
In October Shell included the North Sea in a list of core regions that it has decided to focus upstream activity on.
In April Shell said it expected to pay out up to 30 per cent of the cashflow generated from operations to shareholders after net debt was reduced to $65bn.
The company said yesterday that it would “retire” the $65bn milestone, without elaborating.
READ MORE: Plan for bumper Shetland oil field development poses question for regulator
Shell looks set to maintain pressure on spending on new developments. It said total capital expenditure will remain below $22bn this year.
Shell has been repaid more than $500m by the UK Government since 2015 because the costs of decommissioning assets such as the Brent field have exceeded the profits it has made on its North Sea output.
Royal Dutch Shell A shares closed down 8p at 1451.2p.
Shell has said it plans to use share buybacks as a way of increasing shareholder distributions.
The group cut the first quarter dividend payment for 2020, to 16 cents per share from 47 cents in the preceding three months.
The group increased the quarterly dividend by four per cent in October. It raised the dividend for the first quarter of this year by a further 4% as planned, to 17.35 cents per share.
READ MORE: Cost of North Sea tax breaks laid bare in filings by oil giant
Separately, the Oil and Gas Authority has cut its estimate for the total cost of decommissioning North Sea assets to £44bn, from £46bn last year.
The regulator said the industry has made effective moves to cut the costs associated with decommissioning but still had much work to do. The OGA aims to reduce the total decommissioning bill to £39bn.
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