Shell has announced a cash allocation framework that will enable it to reduce debt, increase distributions to shareholders, and allow for disciplined growth as it reshapes its business for the future of energy – reduction in energy emissions.
Work is currently ongoing to reshape the company’s portfolio to deliver continued cash generation to grow its low-carbon businesses and to increase shareholder distributions. To confirm progress in its dividend policy, the company announced a dividend per share growth by around 4% to 16.65 US cents for the third-quarter of 2020 and annually thereafter, subject to the approval of the Board.
The cash allocation framework targets to reduce net debt to $65 billion from $73.5 billion as of 30th September 2020; and after achieving this, it targets to distribute 20 to 30% of cash flow from operations to shareholders. Increased shareholder distributions will be achieved through a combination of Shell’s progressive dividend and share buybacks. The remaining cash will be allocated to disciplined and measured capex growth and further debt reduction, targeting AA credit metrics through the cycle.
Shell wants to reshape its portfolio assets and products to meet the cleaner energy needs of its customers in the coming years. The key elements of the strategic direction are:
- Ambition to be a net-zero emissions energy business by 2050 or sooner, in step with society and its customers.
- Grow its leading marketing business, further develop the integrated power business and commercialise hydrogen and biofuels to support customers’ efforts to achieve net-zero emissions.
- Transform the Refining portfolio from the current fourteen sites into six high-value energy and chemicals parks, integrated with Chemicals. Growth in Chemicals will pivot to more performance chemicals and recycled feedstocks.
- Extend leadership in liquefied natural gas (LNG) to enable decarbonisation of key markets and sectors.
- Focus on value over volume by simplifying Upstream to nine significant core positions, generating more than 80% of Upstream cash flow from operations.
- Enhanced value delivery through Trading and Optimisation.
Royal Dutch Shell Chief Executive Officer, Ben van Beurden said, “Our sector-leading cash flows will enable us to grow our businesses of the future while increasing shareholder distributions, making us a compelling investment case.”
“We must continue to strengthen the financial resilience of our portfolio as we make the transition to become a net-zero emissions energy business. Our decisive actions taken earlier in the year have solidified our operational and cash delivery. The strength of our performance gives us the confidence to lay out our strategic direction, resume dividend growth and to provide clarity on the cash allocation framework, with clear parameters to increase shareholder distributions.”
The Chair of the Board of Royal Dutch Shell, Chad Holliday said, “The Board has reviewed Shell’s recent performance and its plans to grow its businesses of the future, and we are confident that Shell can sustainably grow its shareholder distributions as well as invest for growth.”
As a result, the Board has decided to increase the dividend per share to 16.65 US cents for the third quarter 2020. The Board has additionally approved a cash allocation framework for Shell which, on reducing its net debt to $65 billion, will target total shareholder distributions of 20-30% of cash flow from operations.”