Shell to Pay Its Dividend in Cash in Latest Sign of Health for Big Oil

By Michael Amon Features Dow Jones Newswires

Royal Dutch Shell PLC said Tuesday it would begin paying its dividend only in cash, a fresh sign that big oil companies are trying to reward investors after struggling with three years of falling oil prices.

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The British-Dutch oil giant Shell said it was scrapping a program that gave shareholders the option of receiving dividends in discounted stock, known as a scrip. It was a popular choice among bullish investors but one that agitated others who said it diluted the value of their shares.

Shell's share price was up almost 2% in early trading in London.

The move is the latest evidence that big oil companies are recovering from a historic oil-market downturn and see oil prices stabilizing after years of volatility. Energy firms that once struggled to turn a profit with oil prices at $100 a barrel have been forced to drive down their costs to the point that they can generate enough cash to cover costs and hefty dividends at $60 or less.

Shell said it had shored up its dividend program because its free cash flow forecasts had risen to $25 to $30 billion by 2020 at Brent crude prices of $60 a barrel--$5 billion more than the company predicted in June 2016.

Norway's Statoil ASA announced its own plans to do away with its so-called scrip dividend program. Shell's British rival, BP PLC, is restarting a share buyback program in an effort to sweeten the pot for investors, and its board has discussed removing its own scrip program. Shell said it was committed to launching its own buyback program soon.

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Shell, the world's second-largest Western oil company behind Exxon Mobil Corp., has been working to drive down costs and shore up its finances following its $50 billion deal to buy BG Group PLC in 2016. The merger gave Shell a globally dominant position in liquefied natural gas and prized oil fields in Brazil but also saddled it with the oil industry's highest debt load.

Chief Executive Ben van Beurden said Shell had reduced the numbers of full-time employees, slashed the size of its offices, and cut down on its expensive workforce of expats. He said Shell had also changed a company culture once focused on "engineering wonders," looking now to "financial outcomes."

"There is a deep transformation in our ways of working," he said in a webcast Tuesday morning.

Shell said Tuesday it was on track to complete its goal of selling off $30 billion in assets by next year to bring down that debt. The company had completed $23 billion in sales, had $2 billion worth in announced deals and another $5 billion in deals that haven't been made public but are in "advanced progress," Shell said.

Shell also announced Tuesday that it planned to cut the carbon footprint of its energy products by 20% by 2035 and by half by 2050.

The announcement comes amid a wave of optimism about the oil industry following years of losses and cutbacks as crude prices fell from $114 barrel in 2014 to less than $28 a barrel in 2016. Prices have firmed up around $60 a barrel in recent months, as the strong global economy supports demand and the Organization of the Petroleum Exporting Countries withholds supply.

But Goldman Sachs on Tuesday sounded a note of caution about higher oil prices as OPEC prepares to meet in Vienna to decide on oil policy on Tuesday. "We believe that oil prices have overshot fundamentals," Goldman said in a note.

Write to Michael Amon at michael.amon@wsj.com

LONDON-- Royal Dutch Shell PLC said Tuesday it would begin paying its dividend only in cash, a fresh sign that big oil companies are trying to reward investors after struggling with three years of falling oil prices.

The British-Dutch oil giant said it was scrapping a program that gave shareholders the option of receiving dividends in discounted stock, known as a scrip. It was a popular choice among bullish investors but one that agitated others who said it diluted the value of their shares.

Shell's share price was up more than 3% in midmorning trading in London.

The move is the latest evidence that big oil companies are recovering from a historic oil-market downturn and see oil prices stabilizing after years of volatility. Energy firms that once struggled to turn a profit with oil prices at $100 a barrel have been forced to drive down their costs to the point that they can generate enough cash to cover costs and hefty dividends at $60 or less.

Shell said it had shored up its dividend program because its free cash flow forecasts had risen to $25 billion to $30 billion by 2020 at Brent crude prices of $60 a barrel--$5 billion more than the company predicted in June 2016.

Norway's Statoil ASA announced its own plans to do away with its so-called scrip dividend program. Shell's British rival, BP PLC, is restarting a share buyback program in an effort to sweeten the pot for investors, and its board has discussed removing its own scrip program. Shell also confirmed it was committed to launching its own $25 billion buyback program soon.

Shell, the world's second-largest Western oil company behind Exxon Mobil Corp., has been working to drive down costs and shore up its finances following its $50 billion deal to buy BG Group PLC in 2016. The merger gave Shell a globally dominant position in liquefied natural gas and prized oil fields in Brazil but also saddled it with the oil industry's highest debt load.

Chief Executive Ben van Beurden said Shell had reduced the numbers of full-time employees, slashed the size of its offices, and cut down on its expensive workforce of expats. He said Shell had also changed a company culture once focused on "engineering wonders," looking now to "financial outcomes."

"There is a deep transformation in our ways of working," he said in a webcast Tuesday morning.

Shell said Tuesday it was on track to complete its goal of selling off $30 billion in assets by next year to bring down that debt. The company had completed $23 billion in sales, had $2 billion worth in announced deals and another $5 billion in deals that haven't been made public but are in "advanced progress," Shell said.

Shell also announced Tuesday that it planned to cut the carbon footprint of its energy products by 20% by 2035 and by half by 2050.

The announcement comes amid a wave of optimism about the oil industry following years of losses and cutbacks as crude prices fell from $114 barrel in 2014 to less than $28 a barrel in 2016. Prices have firmed up around $60 a barrel in recent months, as the strong global economy supports demand and the Organization of the Petroleum Exporting Countries withholds supply.

But Goldman Sachs on Tuesday sounded a note of caution about higher oil prices as OPEC prepares to meet in Vienna to decide on oil policy on Tuesday. "We believe that oil prices have overshot fundamentals," Goldman said in a note.

Write to Michael Amon at michael.amon@wsj.com

(END) Dow Jones Newswires

November 28, 2017 06:42 ET (11:42 GMT)