Royal Dutch Shell has reinstated its decades-long commitment to increasing shareholder payouts, despite admitting that its oil production may never recover from the coronavirus pandemic.
The oil company told its investors it would increase shareholder payouts for the third quarter, six months after cutting its dividend for the first time since the second world war, alongside plans for a low-carbon overhaul.
Shell, once the FTSE 100’s biggest dividend payer, cut its dividend from 47 cents to 16 cents a share in April because of the “crisis of uncertainty” facing oil companies amid the coronavirus pandemic.
But its chief executive, Ben van Beurden, said the company was “starting a new era of dividend growth” by raising its payouts to 16.65 cents a share for the third quarter, and also promised “a complete overhaul” of the business to produce less fossil fuel and more clean energy.
Van Beurden said Shell had probably reached its “high point” for oil production at about 1.7m barrels a day last year. In the future it plans to channel more capital towards renewable energy, hydrogen and its growing electricity business. Those plans means Shell is unlikely to increase its fossil fuel production.
The decision echoes a warning from energy economists and its rival BP that the coronavirus pandemic may have hastened the decline of global demand for oil by reducing the need for transport fuels and pummelling economies around the world as more governments begin to bring in tougher climate targets.
Shell will focus its remaining oil exploration on eight regions including Brazil, the Gulf of Mexico, Kazakhstan, Nigeria and the North Sea, and will reduce the number of its refineries from 14 to six.
Van Beurden said Shell was confident it could afford to expand its “businesses of the future” while increasing its payouts to shareholders owing to “sector-leading cash flows” that made the company “a compelling investment case”.
Shell’s share price rose by more than 4% to 940p after the announcement of the higher dividend alongside a modest return to profit. However, the company’s market value is still 60% lower than at the start of the year.
Shell is on a mission to win back investor confidence, reining in spending, cutting its costs and making 9,000 staff redundant, 10% of its global workforce, in order to reduce its debt.
Adjusted earnings for the third quarter reached $955m (£739m), easily beating analyst forecasts of a $146m profit, but still well below the $4.76bn in the same quarter last year.
The quarterly profits were “better than some feared”, said Steven Clayton, a fund manager at investment platform Hargreaves Lansdown, “but when the overall result is an 8% drop in earnings, that’s a funny sort of win”.
He added: “Right now Shell is doing a good impression of a contortionist, as it tries to reshape itself from being a major oil and gas producer, to a carbon-neutral energy company. If it can transform itself in the way it suggests then shareholders can look forward to a steady growth in income, from a stock that yields over 5%.”
The company cut the value of its oil and gas assets, alongside many of its rivals, as market prices tumbled. Shell expects oil prices to average $35 a barrel in 2020, rising to $40 in 2021, $50 in 2022 and $60 in 2023. The average oil price last year was $64.36 a barrel.