Royal Dutch Shell PLC update
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Royal Dutch Shell has raised its dividend by nearly 40% and plans to launch a $2 billion share repurchase program, which will be completed by the end of this year, as the energy giant uses stronger energy prices to return cash to investors.
The move was because the group reported that after the oil price rebounded above US$70 per barrel in the second quarter, quarterly earnings soared, a move that was more aggressive than analysts expected. The company said in April that after a slight increase in the previous earnings report, the dividend for the remainder of 2021 may remain unchanged.
“Shell’s increase in distribution is very positive,” said Biraj Borkhataria of Royal Bank of Canada Capital Markets.
The company said on Thursday that the dividend will increase from 17.35 cents per share in the second quarter to 24 cents per share. Shell cut its dividend by two-thirds to 16 cents a year ago, the first cut since World War II, as the coronavirus pandemic cut demand and hit energy prices. However, oil and gas have rebounded this year.
Anticipating stock buybacks more broadly, investors are keen to see energy companies return cash rather than raise investment. However, many people predict that the repurchase will be close to $1.5 billion. Shell stated that it will limit capital expenditures this year to less than 22 billion U.S. dollars.
Chief Executive Ben van Beurden stated that the policy of increasing the dividend by 4% each year “stays the same.”
In the second quarter, Shell reported an adjusted net profit of US$5.5 billion, slightly higher than analysts’ expectations of US$5 billion and higher than the US$3.2 billion in the first quarter.
Operating cash flow excluding working capital flows reached 14.2 billion U.S. dollars in the second quarter, exceeding analysts’ expectations of 12.1 billion U.S. dollars.
Net debt fell to US$65.7 billion from US$71.3 billion in the previous quarter, basically achieving the goal of reducing net debt to US$65 billion before increasing shareholder distribution.
The company stated that it is “eliminating” the $65 billion “milestone” and instead targets “the AA credit indicator for the entire cycle”.
Shell’s performance was boosted by rising oil and natural gas prices. The international crude oil benchmark Brent crude oil traded at approximately US$75 per barrel this month, compared with US$45 per barrel at the beginning of the year. Due to tight supply, global natural gas prices have risen.
Compared with the second quarter of last year, the rebound in energy prices is particularly pronounced, when the blockade caused by the pandemic hit demand and pushed oil prices below $20 per barrel.