Shell Raises Dividend Despite Q4 Profit Slump: Update

(Adds comments from press conference)

Shell expects to raise first-quarter dividends by 4% to $0.1735/share, the company reported on February 4, despite suffering a 71% slump in adjusted earnings in 2020 to $4.85bn.

It shocked investors last year with its decision to cut the dividend. But the Anglo-Dutch major now sees brighter prospects. Its cost-cutting measures are taking effect earlier than planned and it looks forward to banking $3bn this half year from asset sales in Nigerian oil and Australian infrastructure. Further it has had unsolicited bids for other assets, owing to the higher commodity prices this year, CEO Ben van Beurden told journalists February 4.

In particular, and following an adverse court ruling in Nigeria over a leak, he said the company would be "taking a hard look" at its remaining onshore oil production in Nigeria and said Shell Petroleum Development Company had already sold half its footprint. It and its partners sold their stakes in OML 17.

Shell earned $16.5bn in profits in the previous year. Fourth-quarter adjusted net income came to $393mn, down from $2.93bn a year earlier and $955mn in the previous three months. Cash flow from operations shrank to $6.29bn from $10.4bn in the third quarter.

Shell  incurred $748mn in upstream losses in the fourth quarter, as a result of lower prices and a 14% year-on-year drop in production. The company cited Opec+ cuts, increased maintenance, lower gas demand and hurricanes in the US Gulf of Mexico as factors behind the fall in output.

He said that the company has some 300 federal leases in the Gulf of Mexico that meant its operations offshore would not be affected by new administration: more effective, he said, would have been to ban the use of oil and gas on federal lands. As it is, the Gulf has the lowest-carbon oil production in the US. Producing more oil to meet global demand from other basins would only raise global emission, he said. However he welcomed the president's plan to bring the US back into the Paris Climate Agreement and his net-zero carbon programme.

Shell's oil products division earned $540mn, with a $287mn loss from refining and trading more than offset by a $828mn profit from marketing as retail rose 5%. The company also booked a $381mn income at its chemicals business and van Beurden reminded the audience that commodity prices were not the whole story. Shell also booked $836mn in corporate losses. Aviation is a big part of oil demand, and while surface traffic is rising, and Chinese retail demand is up 15%, he said he did not expect oil demand to return to 2019 levels until 2o22.

"We are coming out of 2020 with a stronger balance sheet, ready to accelerate our strategy and make the future of energy," van Beurden said in a statement. CFO Jessica Uhl told press that there were not likely to be further major impairments as it had covered the three main drivers last year: the effects of the pandemic, the accelerating energy transition and the strategy reset. "All three factors affected balance-sheet value," she said, conceding that a change in the pace of the energy transition or energy prices could yet happen, with negative or positive impacts. 

Shell's net debt crept up to $75.4bn at the end of December, from $73.5bn three months earlier, while its gearing increased to 32.2%. Investors are watching net debt closely as Shell has pledged to increase dividends and resume buying back shares once it is brought under $65bn. Free cash flow came $882mn, falling short of the $1.3bn dividend payout. 

He said the floating gas liquefaction plant Prelude offshore Australia had loaded three cargoes this year but that there are still outstanding issues to resolve before it can return to full capacaity. Generally he said that upstream would continue to be a major part of the company's business until at least the 2030s, as it gave returns for shareholders and it funded the energy transition.

Shell remains committed to its nine core regions – which include the North Sea – and these generate 80% of the cash flow. However owing to belt-tightening, last year had not been "stellar" for the exploration and production division as asset sales including in the US Appalachia and delayed final investment decisions reduced its reserves-years of production ratio.