Reiterates plans to buy back at least RM103b of stock by 2020

By BLOOMBERG

LONDON • Royal Dutch Shell plc will pay its entire dividend in cash for the first time in more than two years as Europe’s biggest oil company seeks to demonstrate it has left the worst of the crude slump behind.

From this quarter, Shell will no longer offer shareholders the option to take the payout in stock, it said yesterday. The company paid about US$16 billion (RM65.66 billion) in dividends in the past year, of which about US$4 billion was in shares. It also reiterated plans to buy back at least US$25 billion of stock by 2020, subject to further debt reductions and a continued recovery in oil prices.

Following sweeping cost cuts, the world’s biggest oil producers, including Shell, Exxon Mobil Corp and BP plc, have increased profit this year, reduced debt and covered their dividend with cash from operations even with oil at US$50 a barrel. Last month, BP gave the boldest signal yet that the industry had emerged from the downturn, announcing that it would buy back shares for the first time in three years.

The steps announced by Shell yesterday “aim to ensure that our company can continue to thrive, not just in the short and medium term but for many decades to come”, CEO Ben van Beurden said in a statement. Shell’s A shares rose 3.2% yesterday to 2,389.5 pence (RM130.41) at 11:05am in London, the best performance on the UK’s benchmark FTSE 100 index and the biggest intraday gain in three weeks.

Shell also boosted its guidance for free cashflow to US$25 billion to US$30 billion by 2020 with oil at US$60 a barrel, from an earlier outlook of US$20 billion to US$25 billion.

It has completed or announced US$25 billion of divestments since 2016 and a further US$5 billion are in “advanced progress”, according to the company, which plans to sell an average of US$5 billion of assets a year in 2019 and 2020.

Shell’s “strategy update shows an encouraging increase in future cashflows”, said Simon Gergel, CIO of UK equities at Allianz Global Investors, which owns Shell shares. The decision to stop the so-called scrip dividend is welcome as it “reflects their improving cash-generation profile”, he said.

The purchase of BG Group plc gave Shell assets from the US to Australia including high-margin oil production in Brazil. CEO Van Beurden wants to use the deal to make the company the best-performing oil major, surpassing Exxon.

“Shell’s overarching priority is to position the company as a world-class investment, underpinned by growth in free cashflow per share” and return on capital, said Jason Gammel, a London-based analyst at Jefferies LLC. “This strategy update indicates significant progress.”