Shell CEO ‘pulling out all the stops’ to safeguard dividends

RAKTEEM KATAKEY

LONDON (Bloomberg) -- Royal Dutch Shell Plc is “pulling out all the stops” to safeguard its dividend in a world where oil prices remain “lower for longer,” CEO Ben Van Beurden said. 

Europe’s biggest oil company is also protecting a plan to buy back shares and keeping its investment program “steady for the future,” Van Beurden said in emailed comments before a speech in London on Tuesday.

Oil’s collapse in the past year has forced Shell and its peers to reduce costs, defer projects and hunker down for a prolonged period of low prices. Even with crude trading for about $50/bbl, Van Beurden and BP Plc boss Bob Dudley have made dividends their top priority. Shell has weathered market ups and downs for seven decades—including oil at less than $10 in the 1980s and 1990s—without cutting shareholder payouts.

The company is “geared to generate cash flow from operations and free cash flow in 2017 and beyond,” Van Beurden said. “Shell is planning for a longer period of low prices.”

Shell’s debt-to-equity ratio gives it the flexibility to maintain dividends, he said. The company expects to cut operating costs by about $4 billion, or 10%, this year and will reduce capital expenditure by 20%. The weakening oil market has forced Shell to shelve projects including an oil-sands mine in Canada and a LNG terminal in Australia.

The oil slump drove Shell’s annual dividend yield to 8.1% on Sept. 28, the highest in at least 20 years. The measure—the annual return divided by the share price—was at 7.2% on Monday compared with 4.1% for the benchmark FTSE 100 Index.

Some oil majors have mitigated the impact of crude’s decline by bolstering the share of natural gas in their output. The Hague-based Shell and Paris-based Total SA now produce more gas than oil and have promoted the fuel as a cleaner alternative to coal, which dominates electricity output worldwide.

“Gas is a fossil fuel, yes, but a crucial one for the building of a low-carbon future,” Van Beurden said. “When burnt for power, gas produces around half the CO2 and one-tenth of air pollutants that coal does.”

Carbon Pricing

The CEO reiterated his call for governments to put a price on carbon to “level the playing field for renewables” and gas.

Shell and Total were among six European oil companies that came together in May to call for carbon pricing as a way to spur cleaner energy production. In a letter to the United Nations’ top official in charge of climate talks, they said climate change was a “critical challenge for our world” and urged global leaders to set out long-term, ambitious policies.

“Governments should take the opportunity to put a price on carbon,” Van Beurden will say on Tuesday. “The issue is essentially about finding economic ways to invest in an energy transition.”

Almost 200 nations are set to hammer out a binding global agreement on carbon emissions in December during talks in Paris.