Top Stories
Top Stories
Oil

Shell eyes dividend and spending boost after 2020

Reuters with CNBC.com
Key Points
  • In a strategy update, Shell outlined a vision for a future business that focuses more heavily on its gas, power and chemicals divisions as the world transitions to a lower-carbon economy.
  • "We are confident that our strategy is working (and) we are confident that the outlook for 2020, that we promised in 2017, is going to be met," Shell CEO Ben van Beurden told CNBC's "Squawk Box Europe" on Tuesday.
  • Shell shares were down almost 1% during mid-morning deals.
VIDEO2:1602:16
Shell CEO: Era of investing in upstream will be with us for some time to come

Royal Dutch Shell on Tuesday outlined plans to increase spending and dividends after 2020 in a show of confidence despite an uncertain outlook for oil and gas prices.

In a strategy update, the Anglo-Dutch energy company also outlined a vision for a future business that focuses more heavily on its gas, power and chemicals divisions as the world transitions to a lower-carbon economy.

The plans to increase spending on oil and gas projects come as Shell set out the sector's most ambitious targets to reduce greenhouse gas emissions from its operations in an effort to comply with the 2015 Paris climate agreement.

"We are confident that our strategy is working (and) we are confident that the outlook for 2020, that we promised in 2017, is going to be met," Shell CEO Ben van Beurden told CNBC's "Squawk Box Europe" on Tuesday.

"We have confidence that we can not just only do the dividend (but) we can grow the dividend and continue with share buybacks as well."

Shell shares were down almost 1% during mid-morning deals.

Shell said it was on track to deliver on its commitment to increase cash generation and carry out one of the world's largest share buyback programmes of $25 billion by the end of next year.

The world's second-largest listed oil and gas company after Exxon Mobil, underwent deep cost cuts following its 2016 acquisition of BG Group for $53 billion and the collapse of oil prices in late 2014.

Despite a slow and bumpy recovery in oil prices, it reported the largest profit among its peers last year and a jump in revenue from previous years.

Shell said its free cash flow - cash available for dividends and share buybacks - is set to rise to around $35 billion per year by 2025 based on a Brent crude oil price of $60 per barrel.

That compares with $28-33 billion in free cash flow it expects to deliver by the end of next year.

It said the cash delivery "creates the potential to distribute $125 billion or more to shareholders" in the form of dividends and share buybacks between 2021 and 2025.

That compares with distributions of around $90 billion between 2016 and 2020.

Spending more, giving more

Shell expects to increase its dividend payouts to shareholders once it completes the $25 billion share buyback by the end of 2020 it promised following its BG acquisition.

Shell, the world's biggest dividend payer at $16 billion a year, last increased its quarterly dividend in the first quarter of 2014 to $0.47 per share.

But while offering sweeteners to investors, Shell also outlined plans to increase its spending in the next decade. Rival Exxon and Chevron also plan to increase spending.

Shell said its capital spending will average $30 billion per year between 2021 and 2025, with a ceiling of $32 billion.

The target excludes major acquisitions.

"We believe that the era of investing in upstream is going to be with us for some time to come and therefore we have committed to really keep those core upstream themes very strong from a cash perspective for the next few decades," van Beurden said.

Shell has in recent years vowed to maintain its spending at the lower end of a $25-30 billion range. It spent $24.8 billion in 2018.