Thursday 29 October 2020 10:01 am

Shell boosts dividend as oil giant beats profit forecasts

Oil giant Shell beat analyst expectations for profit in the third quarter of a year, but the Anglo-Dutch firm’s income remained at historically low levels.

It will also increase its dividend by four per cent, just months after slashing it by two-third, the first reduction since World War Two.

The FTSE 100 firm posted $955m in profit, a second consecutive period of profit after it posted $638m last quarter.

Earnings were well ahead of company forecasts of a $146m profit.

However, the small surplus is 80 per cent lower than profit achieved in the same period last year, where it stood at $4.7bn.

Shell said the fall was due to lower oil prices in the third period due to coronavirus, as well as lower production volumes due to the global squeeze on demand.

Production caps imposed by oil cartel Opec, as well as an especially bad hurricane system, also limited output.

But finance chief Jessica Uhl said that the market had now “reached the bottom of the cycle”.

In swinging back to profit Shell followed rival oil major BP, which did the same earlier this week.

It also posted revenue of £489m, down 92 per cent on the same period in 2019 but representing a significant improvement of last quarter’s £18bn drop.

Shares in the firm rose 2.3 per cent as markets opened this morning.

Chief executive Ben van Beurden said: “Our decisive actions taken earlier in the year have solidified our operational and cash delivery.

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“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.”

‘New era’ of dividend growth for Shell

The blue-chip also laid out plans to reduce its net debt to $65bn, down from the current $73.5bn.

On achieving this, it said that it would distribute 20-30 per cent of cash flow from operations to shareholders.

Van Beurden said the firm was embarking on a “new era of dividend growth”.

He confirmed to media that the firm’s payouts would increase every year, subject to board approval.

The company said the steps it had taken to strengthen its finances would also help its transition to a net-zero emissions energy business by 2030.

In line with plans to shrink its oil and gas portfolio, it said it would cut back its oil refineries from 14 sites to six “energy and chemical parks.”

Shell also named nine hubs for oil and gas production: Brazil, Brunei, Gulf of Mexico, Kazakhstan, Malaysia, Nigeria, Oman, Permian and Britain’s North Sea.

In terms of further details of the company’s plans for the energy transition, van Beurden said that these would be laid out in February.

However, he did say that the firm would more than double its capital expenditure on new energy forms like hydrogen.

And he hinted that Shell had reached peak oil production: “It is probably fair to say that 2019 was the high point when it comes to oil production”, he said.

Stuart Lamont, investment director at Brewin Dolphin, praised the “bold moves” laid out in today’s results.

“Only six months or so after cutting its dividend for the first time since World War Two Shell has set out a road to recovery for the business and shareholders, including a progressive dividend policy.

“With the share price at multi-decade lows, there was a lot of pessimism about Shell going into these results.

“But, like rival BP, it has set out a plan to transition to a low carbon world, investing for growth, cutting costs and re-balancing its asset portfolio, while trying to remain an attractive investment proposition.”