A strategy update from Royal Dutch Shell (RDSB) appears to be getting raspberries from the market, but in the longer term it may get a more favourable hearing.
The shares dip 0.4% to £24.77, not helped by the continuing volatility in oil prices. The market is apparently relatively unimpressed with Shell’s new medium-term plan despite it including a material increase in the level of distributions to shareholders.
We recently took a close look at how Shell makes its money in this in-depth feature.
Perhaps there is some frustration with Shell’s reluctance to increase the dividend until there is a line of sight to the completion of the $25bn share buyback programme.
But the company says it could potentially distribute $125bn or more to shareholders over the five-year period of 2021 to 2025 through share buybacks and dividends.
To put that into context, Shell paid around $52bn in shareholder distributions in the period of 2011-2015 and said it expects to make shareholder distributions of around $90bn in the period of 2016-2020.
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The oil giant also says it is on track to deliver on its 2020 commitments and has increased its organic free cash flow outlook to around $35bn for 2025 at $60 per barrel.
By the end of next year, Shell said it plans to complete its $25bn share buyback programme in combination with reaching a gearing level of 25% and delivering $28bn to $33bn of organic free cash flow.
Broker Cantor Fitzgerald notes the new structure for the group: ‘The strategy is arranged into three core areas: Core Upstream (deepwater, shale and conventional), Leading Transition (integrated gas, chemicals and oil products) and Emerging Power. All sounds good to us, and the heady distribution projections will no doubt sound good to investors, as well.’
