Thursday 29 April 2021 10:30 am

Shell hails 'strong start' and hikes dividend on higher oil prices

Oil giant Shell this morning hailed a “strong start” to 2021 as the Anglo-Dutch firm recorded a massive increase in earnings on the back of higher oil prices.

The FTSE blue-chip said that earnings rose to $3.2bn, up from $393m in the final quarter of 2020.

As a result of the improvement in trading, Shell confirmed it would increase its quarterly dividend by 4.0 per cent.

Shares in the firm rose 1.3 per cent on the back of the announcement.

The much improved performance came as the firm tries to put the horrors of 2020, which saw oil prices crash to historic lows, to one side.

Oil prices are now hovering around $67, close to pre-pandemic levels, helping Shell follow BP to a much better quarter.

That was despite the historic winter storm that blanketed Texas in February, which the firm had warned would cost it $200m.

Shell said the financial impact of the storm had been covered by $400m in provisions, but that it had dented refining margins.

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Chief executive Ben van Beurden said: “Shell has made a strong start to 2021, generating over $8bn of cash in the quarter. Our integrated business model is ideally positioned to benefit from recovering demand.

“Our competitive and robust financial performance provides the platform to achieve the goals of our Powering Progress strategy.”

He also said that Shell had reduced net debt by more than $4bn in the quarter, progressing towards the $65bn milestone it needs to hit before increasing shareholder distributions.

When it hits the milestone, the firm has pledged to give 20-30 per cent of surplus cash flow back to investors. BP, which has a similar scheme in place, said it would begin its share buybacks next quarter.

However, finance chief Jessica Uhl said the company did not have a timeline for when it would hit the target.

Keith Bowman, equity analyst at interactive investor, commented: “Fortunately for investors these latest results come without the drama seen this time last year when Shell cut its dividend for the first time since the Second World War.

“Extreme winter weather hitting its US Texas operations has dragged on adjusted earnings, although, as with rivals, an upturn in energy prices has aided profit generation. Overall adjusted earnings of $3.2bn have just about beaten expectations of closer to $3.1bn.

“Sales volumes under the ongoing global pandemic are down from the previous fourth quarter, although in line with the management’s recent guidance. Reduced operating expenses have been aided by lower maintenance costs and reduced marketing spend.

“In all, lower profit margins in the low-carbon power and renewable energy sectors have made reducing the cost base vital over the past year, as Shell looks to compete with both existing players and other oil majors moving in a similar low carbon direction. The reduction of elevated debt continues to require management attention and for now, stands at a level too high to yet commence share buy backs.