Shell increases dividend and identifies oil and gas production hubs

The company still warned the pandemic will continue to generate “significant uncertainty.”

In a sign of renewed confidence, despite the collapse in energy demand because of COVID-19, Shell said it would boost its dividend on an annual basis after it cut the payout in April for the first time since the 1940s.

The company’s shares rose 4% shortly after trading began in London.

Shell is planning a major restructuring as part of “a complete overhaul” to reduce greenhouse gas emissions to net zero by 2050.

In line with plans to shrink its oil and gas portfolio, it said on Thursday it would reduce its oil refineries from 14 sites to six “energy and chemical parks”.

It also named nine hubs for oil and gas production: Brazil, Brunei, Gulf of Mexico, Kazakhstan, Malaysia, Nigeria, Oman, Permian and Britain’s North Sea.

Shell’s shares have dropped by more than 60% so far this year, more than any other major oil company, as investors fret over the impact of the pandemic on energy demand and the long-term energy transition.

But following its strong quarterly results, Shell outlined a long-term plan to reduce debt to US$65 billion and aim for shareholder distributions of 20-30% of cash flow. Its debt at the end of September was US$73.5 billion, down from US$77.8 billion in 2Q20.

Shell’s capital investment will remain in a range of between US$19 and US$22 billion in the near term while it targets annual divestments of US$4 billion.

“We are confident that Shell can sustainably grow its shareholder distributions as well as invest for growth,” Shell Chairman Chad Holliday said in a statement.

Shell said the pandemic’s impact on demand has continued into the fourth quarter, with refining expected to run at 69% to 77% of capacity.

“As a result of COVID-19, there continues to be significant uncertainty in the macroeconomic conditions with an expected negative impact on demand for oil, gas and related products,” Shell said in a statement.

Its adjusted earnings in 3Q20 fell 80% to US$955 million, but easily beat company-provided average analysts forecasts of a US$146 million profit.

Shell increased its quarterly dividend to 16.65 cents.

The results were driven by a record profit from Shell’s marketing division, which includes the world’s biggest retail network. Earnings in the segment were up 10% on the year at US$1.6 billion for the quarter on 20% lower product sales than a year ago.

Shell, the world’s biggest Liquefied Natural Gas trader, wrote down the value of its LNG portfolio by just under US$1 billion in the quarter, focusing on its flagship Prelude project in Australia.

Shell in July had cut the value of its oil and gas assets, including Prelude, by US$16.8 billion in the second quarter after sharply lowering its price outlook.

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