Shell to increase shareholder returns starting Q2

Shell plans to raise shareholder returns to 20-30% of cash flow from operations beginning in the second quarter, the company said on July 7, amid a recovery in oil prices and fuel demand.

The move comes just over a year after the Anglo-Dutch major slashed its dividends by two thirds at the onset of the coronavirus pandemic, hailed as a prudent action at the time given the strain that the pandemic placed on the company's cash flow. Shell has been seeking to attract back investors since then. The latest increase is subject to the board's approval, Shell said, without saying whether the return would take the form of dividends or share buybacks.

While boosting shareholder rewards, Shell said in its earnings update that it would maintain capital expenditure at below $22bn in 2021 while continuing to pay down its debts. The company said it would retire its $65bn net debt target, without specifying whether the goal had been reached.

Shell anticipates underlying operating expenditure from its integrated gas business being $400-500mn lower in Q2 than in the previous three months. But production at the division is expected to average 900,000-960,000 barrels of oil equivalent/day, down from 967,000 bpd in Q1, while liquefaction volumes are projected to total 7.1-7.7mn metric tons, down from 8.16mn mt, as a result of unplanned maintenance.

These unscheduled outages also mean Shell's trading and optimisation results are expected to be significantly below average, although similar to its Q1 numbers. Shell also anticipates $1.3-1.4bn pre-tax depreciation and $300-400mn taxation charges at its gas business.

Upstream production is expected to average 2.225-2.3mn boe/d, down from 2.462mn boe/d in Q1. Any gain from currency effects will be offset by higher underling operating expenditure owing to increased planned maintenance, the company said. Some $3.2-3.5bn in pre-tax depreciation costs are expected, along with a $500-900mn taxation charge.

On the upside, Shell expects marketing margins at its oil products business to be stronger, with strong retail unit margins more than offsetting lower lubricant margins due to base oils and additives shortages. It expects refining margins to average $4.17/b, up from $2.65/b in Q1 and $1.59 in Q4 2020, reflecting healthier motor fuel demand as coronavirus restrictions are eased. Refinery utilisation is expected to come to between 75 and 79%, compared with 72% three months earlier.

Oil product sales are set to average between 4mn and 5mn boe/d in the three months, compared with 4.164mn boe/d in Q1. Underlying operating expenditure is expected to be $200-400mn higher, as a result of increased marketing volumes. Chemical margins are anticipated to be in line with Q1, with chemicals sales volumes totalling 3.5-3.8mn mt, versus 3.58mn mt in the previous quarter.