Shell Promises Significant Increase in Returns to Investors

(Bloomberg) -- Royal Dutch Shell Plc plans to shower its investors in money, pledging returns of $125 billion between 2021 and 2025 -- twice as much as a decade earlier.

The oil and gas major says it can pull off this feat with crude at $60 a barrel and only a small increase in capital spending, an aggressive move to keep shareholders on its side while it weathers a disruptive transition to lower-carbon energy. The Anglo-Dutch company has already sought to stand out from some of its peers, who are boosting spending to get more barrels of oil and gas.

“We want to position the company for the future of energy,” Chief Executive Officer Ben van Beurden said in a Bloomberg television interview. “The future will involve oil and gas, by the way. But it will also be a future where much more of the dynamics of the market are dictated by the customer.”

Shell expects new projects to generate a torrent of cash -- as much as $35 billion a year by 2025 -- that it can use to enormously boost distributions to investors as dividends and buybacks, it said in a statement on Tuesday. It is in the middle of repurchasing $25 billion of stock by the end of 2020, and said it expects to increase the dividend per share “when there is line of sight to the completion” of that program.

New Themes

Shares fell 0.7% to 2,469 pence in London as of 9:34 a.m. local time, compared with a 0.3% decline in the European energy sector.

Shell didn’t break out how much of the $125 billion in distributions would come from higher dividends. That figure compares to $52 billion in payouts from 2011 to 2015, and an expected $90 billion from 2016 to 2020.

It raised its annual capital investment estimate to an average $30 billion in the five years to 2025, going no higher than $32 billion in the period. That’s up from its current annual budget of $25 billion to $30 billion. The figure includes small acquisitions of less than $1 billion, but excludes “major inorganic opportunities.”

Shell also offered a new way to think about the company, breaking out its strategy into three themes: Core Upstream, Leading Transition and Emerging Power.

Evolving Demands

The upstream segment includes deep-water, and shale and conventional oil and gas projects. Notably, Shell didn’t pledge a boost in hydrocarbon production, but instead said it would “sustain” the business.

The transition theme incorporates the work of its integrated gas, chemicals and oil products businesses, while emerging power “will focus on creating business models to meet evolving customer demands.” Shell said previously it wants to be the world’s largest power producer by the 2030s, an ambition that’s raised questions from shareholders unsure about a business known for heavy regulations and low returns.

“The world will have to consume its energy much more in the form of low-carbon electricity than it has in the past,” Van Beurden said. “So we see a tremendous growth opportunity in electricity. We think the power business of the past is going to be disrupted and replaced with something that’s much closer to a business that plays to our strengths.”

The company could spend as much as $3 billion annually on new energies from 2021 to 2025, up from about $1.5 billion, the CEO said. Expenditure on the transition theme is likely to be $13 billion to $15 billion, more than the $11 billion to $13 billion in upstream.

Shell said it intends to create new business models to achieve higher returns. It expects overall return on capital employed will be higher than 12% by 2025, up from about 9% at the end of the first quarter.

“We have reshaped our company with a focus on value and have demonstrated a clear track record of delivering on our ambitious promises,” Van Beurden said in the statement. “It is the success of our strategy and strength of our delivery today that gives us confidence for the future.”

To contact the reporter on this story: Kelly Gilblom in London at kgilblom@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Rakteem Katakey, Helen Robertson

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