Shell Drops Scrip, Nears Asset Sales Goal

Anglo-Dutch major Shell  will cancel its equity-dilutive scrip dividend with effect from the fourth quarter of this year and is hoping to embark on a $25bn share buy-back programme from 2017-2020 as it aims to improve its attractiveness for investors. It is within $1bn or so of its assets divestment target and its debt gearing could be down to 20% soon. It is also planning to cut its carbon footprint further in line with the Paris Agreement, it said November 28. 

Telling investors about the company’s strategy that includes higher returns and free cash flow, CEO Ben van Beurden said the company's next steps aimed to ensure the company's prospects were good for "many decades to come.” Part of that was the better outlook for organic cash flow, which has been consistently strong over the past five quarters. 

The company also announced a net carbon footprint ambition covering not just emissions from its own operations but also those produced when using Shell products. “Shell aims to cut the net carbon footprint of its energy products – expressed in grams of CO₂/MJ consumed – by around half by 2050. As an interim step, by 2035, we aim to reduce it by around 20%,” said van Beurden. “We will do this in step with society’s drive to align with the Paris goals, and we will do it by reducing the net carbon footprint of the full range of Shell emissions, from our operations and from the consumption of our products.”

The outlook for annual organic free cash flow has increased to $25bn-$30bn by 2020 at a Brent crude oil price of $60/barrel (real terms 2016). This is $5bn more than the outlook Shell provided during its capital markets day in June 2016, and it is also the amount the company plans in annual capital expenditure, with today's oil price suggesting the lower end of the range.

Debt reduction remains a priority. Gearing stood at 25.4% at the end of Q3 2017 and additional divestment proceeds of more than $5bn since then mean that 20% gearing is in sight.

The delivery of new projects continues, and the company remains on track to deliver 1mn barrels of oil equivalent/day and $10bn of cash flow from operations from new projects by 2018 (at $60 per barrel, real terms 2016). It expects to deliver an incremental $5bn cash flow from operations by 2020.

The $30bn divestment programme between 2016 and 2018 is almost delivered, with deals worth $23bn completed, another $2bn announced and $5bn at an advanced stage. Once this programme is completed the company expects to continue divestments at an average rate of more than $5bn until at least 2020.

Annual underlying operational expenditure will remain below $38bn until 2020, with efficiency gains expected to deliver further reductions, building on the more than 20% reduction in operational expenditure since 2014.