RDSA Shell Plc

By Sarah McFarlane 

LONDON -- Royal Dutch Shell PLC said it would start raising its dividend again -- after slashing it just months earlier -- and planned to eventually increase shareholder payouts further, projecting an upbeat assessment of its ability to weather a pandemic-inspired oil demand shock.

The pandemic forced Shell to reduce its dividend by two-thirds in April -- its first cut since World War II -- and helped trigger a restructuring of the company, part of a broader plan at Shell to accelerate investments in low-carbon energy.

The company is now increasing its dividend 4% to 16.65 cents a share and said that once it has reduced its debt to $65 billion it will aim to give 20% to 30% of cash flow from operations back to shareholders. Shell's debt was $73.5 billion at the end of September.

"The strength of our performance gives us the confidence to lay out our strategic direction, resume dividend growth and to provide clarity on the cash allocation framework, with clear parameters to increase shareholder distributions," said Chief Executive Ben van Beurden.

Shell intends to focus on investing in oil projects that have the highest returns, while growing its liquefied natural gas and low-carbon energy businesses. It will also shrink its refining portfolio to six energy and chemical parks, from the current 14 sites, the company said.

The company plans to cut up to 9,000 jobs, about 11% of its workforce, following similar cost-saving moves at Chevron Corp. and BP PLC.

Shell's third-quarter performance was hurt by lower refining margins and a fall in refining activity, along with lower margins in its LNG business, as lower crude prices started to filter through to LNG contracts linked to oil prices.

Refining can act as a hedge for major oil companies during times of lower energy prices, but recently even these areas haven't been as profitable. Refining margins have in the past risen when oil prices fell, but fuel demand is also weak, with people driving and flying less because of Covid-19.

Shell said it used around 65% of its refining capacity in the quarter, down from 78% in the same period a year earlier, partly due to lower demand.

Shell said that its gas-trading results were lower than during the same period a year ago. BP, which posted earnings earlier this week, also said trading suffered.

During the second quarter, oil prices plummeted as countries locked down to slow the spread of the virus. More recently, lower volatility has reduced trading opportunities as Brent oil prices have stabilized at around $40 a barrel.

Shell reported a third-quarter profit on a net current-cost-of-supplies basis -- a figure similar to the net income that U.S. oil companies report -- of $177 million on Thursday. That compares with a profit of $6.08 billion in the same period last year.

The company said that its marketing division reported strong margins, which helped offset lower sales volumes.

Shell's shares traded up 2.8% on Thursday.

The company said it would give more detail in February on how its restructuring feeds into its strategy, including details on its future portfolio, and plans for low-carbon energy investments.

Shell's gearing level -- its net debt as a percentage of total capital -- was 31.4% for the three months to the end of September, down from 32.7% in the previous quarter and above the company's target of 25%.

The company said it expects divestment proceeds of $4 billion a year on average, helping reduce net debt.

U.S. oil giants Chevron Corp. and Exxon Mobil Corp. are due to report results on Friday. Exxon has already indicated a potential loss from its oil-and-gas production business.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com

(END) Dow Jones Newswires

October 29, 2020 07:51 ET (11:51 GMT)

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