Shell calls end to austerity with return to full dividend

By Ron Bousso

LONDON (Reuters) - Royal Dutch Shell on Tuesday cancelled an austerity dividend policy as the oil and gas company boosted its cash generation forecasts, drawing a line under three years of oil price turmoil.

The Anglo-Dutch company said it will abolish its scrip dividend, through which investors can opt to receive dividends in shares or cash, in the fourth quarter of 2017. The scrip dividend scheme was introduced in early 2015 after oil prices fell by more than half from over $100 a barrel.

With lower debt, oil prices above $60 a barrel and progress in asset sales, pressure has mounted on Shell to deliver on commitments made in 2015 to remove the scrip and launch a share buyback programme.

 

Shell's dividend payouts in the 12 months to September amounted to $15 billion, with scrip accounting for around a quarter.

In a strategy update, the company reiterated its plans to buy back $25 billion of shares between 2017 and 2020 in order to offset the dilutive effect of the scrip and its $54 billion acquisition of BG Group. It did not specify a time to start the programme.

Shell also raised its cash flow outlook to $30 billion from $25 billion by 2020, assuming an oil price of $60 a barrel.

Over the past two years Shell sharply increased revenue from its operations thanks to deep cost cuts, thousands of layoffs and asset sales.

Over the past five quarters, it has adapted its operations to make profit at oil prices of $50 a barrel, generating sufficient cash to cover its dividend payouts.

"We have also made significant progress with our divestment programme, allowing us to reduce net debt in that time," Chief Executive Officer Ben van Beurden said in a statement.

BP pipped its rivals when announcing in October that it would resume share buybacks in the fourth quarter in order to offset the dilutive effect of the scrip dividend. Statoil also eliminated its scrip dividend.

Shell said that its vast $30 billion asset disposal programme, aimed at reducing debt following the acquisition of BG Group, was nearly complete one year ahead of target, with $23 billion completed, $2 billion announced and another $5 billion at an advanced stage of progress.

The company will continue divestments at a rate of $5 billion per year once the target is reached until at least 2020, it said.

The assets included a portfolio of oilfields sold to Chrysaor which amounted to half of Shell's production in the North Sea, a retreat from Canada's oil sands and a number of refinery sales.

As a result of the divestments and cost savings, the company's target of reducing its debt-to-equity ratio to 20 percent was "in sight". It stood at 25.4 percent at the end of September.

Shell maintained its capital expenditure forecasts at $25 billion to $30 billion per year until the end of the decade.

(Reporting by Ron Bousso; editing by Louise Heavens and Jason Neely)