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NSS - Really interesting - Shell is implementing its strategy "with pace," and the company buybacks from the Permian assets sale, from the update were going to take place "at pace." So the word "pace" seems to be in vogue at the moment. For me it implies that they want to be seen to be less pedestrian in their activities and strategy. Great! New Year, new Shell plc!
Once a dividend is paid out the cash has left the building - from the company perspective it is gone! Permian was the sale of an asset, which a number of investors felt reduced the size/capitalisation of Shell. Buy-backs are an excellent way of keeping that capital invested in Shell plc. Maybe they are being implemented "at pace" because Biden's Build Back Better initiative might spread across the Atlantic. It includes a 1% tax on buy-backs. This infers that the Democrats have done the maths & feel that buy-backs are sufficiently worthwhile for investors, for this tax to be absorbed, and investors will still benefit from buy-backs.
Biden's Build Back Better initiative is not done and dusted yet though:
https://www.theguardian.com/us-news/2022/jan/08/build-back-better-democrats-midterms
With a macro outlook Putin appears to have further secured control over 3% of the World's oil reserves, + gas, + coal, through Russia's intervention in Kazakhstan, a vast country the size of Western Europe. Russia's growing power and influence in the energy markets, currently helps to keep oil and gas prices high and in so doing supports the Shell plc strategy.
https://www.fool.co.uk/2022/01/08/id-buy-more-royal-dutch-shell-shares-in-2022-heres-why/
The changes proposed to Shell's share structure come with very few consequences for UK investors. All shareholders will end up with the same rights, making it easier to understand and value the shares.
Similarly, unifying the group's tax domicile shouldn't cause much commotion. Though it will see the group drop its 'Royal' designation.
A streamlined company will be more manoeuvrable, a net positive for shareholders, but it doesn't change the underlying story for Shell, which rests almost entirely on oil prices.
The yoyoing of the oil price over the last 18 months has made Shell's results difficult to keep track of. However, we think the underlying trend is positive thanks to the fundamental strengths of the group's assets.
With oil trading at $82.22 a barrel, close to 5-year highs, these were always going to be good times for oil majors. Shell reported record operating cash flows in the third quarter - despite production disruption caused by hurricanes in the Gulf of Mexico and an increase in operating expenses. Results may have been a touch behind market expectations, but the direction of travel is clear.
The cash windfall couldn't come at a better time for the group. Not only has it allowed it to slice tens of billions off net debt, but it's funding an increase in capital expenditure as Shell invests in new gas fields as well as low carbon alternative fuels like hydrogen. Disposals have lent a hand too, with the imminent sale of the group's Permian shale fields expected to shore up the balance sheet, while also funding a $7bn share buyback.
We suspect operating expenditure will tick up again from here, given the group's increased environmental commitments. Alongside results Shell committed to halving emissions from operations by 2030, and that either requires significant investment in new technologies, or a further restructuring of the current business - neither of which will come cheap.
Whatever happens, Shell will remain an oil and gas giant for decades. We suspect the concern is that oil & gas groups in general risk the fate suffered by tobacco companies. With investors turning their nose up at tobacco stocks at any price, valuations in the cigarette industry have sunk to what would ordinarily be considered unsustainable lows - with little to no prospect of recovery in our view. If big oil can't convince investors it's making the right moves it risks the same fate.
We're not immediately concerned Shell will end up in the ethical waste bin. But projects to keep the group moving in the right direction risk eating into cash flows - especially as many of the newer technologies the industry is exploring are untested at a global scale.
Fortunately, Shell can afford to dabble - always assuming, of course, that the oil price doesn't catch a cold. Market conditions across all the divisions are improving, there should be scope for more cost savings and production increases. That should drive profits and free cash higher.
Great email. reposted with many thanks to adg on ADVN...
I sent a direct email to Ben after last weeks update, mainly about their glass half empty reporting and buyback mindset - surprisingly I got a reply from one of his team - will talk to them next week. Will update the board on any discussion. Response from shell; ~~~~~~~~~~~~~~~~~~~~
Thank you for your frank email to our CEO and for being a Shell shareholder. We have with our Powering Progress strategy carefully outlined how we will be successful in the ongoing energy transition. This will continue over the coming decades and we are currently implementing our strategy with pace. The Permian asset was a core asset in Upstream and the divestment was a commercial based decision optimising the value of the asset. It was not linked to the energy transition, but an opportunistic value driven decision. It was also well received in the market. Our capital framework carefully balance shareholder distribution, debt and capital investments. We have as part of that a progressive dividend policy where we increase our dividend per share by 4% per year, subject to Board approval. Share buybacks – especially when the share price is relatively low – allow us to manage the absolute dividend outflow and hence make the progressive dividend policy sustainable. The Permian divestment reduces the cash inflow of the Company on an ongoing basis, so it is rationale to use the proceed on share buybacks and hereby reduce the absolute dividend burden. I am happy to discuss your ideas on communication in a call. It is probably more fruitful than a dialogue via emails.
...will this affect the SP when the market opens tomorrow?
Windfall tax, that really annoys me. where were the govt handouts when the poo was ten bucks? Seems you get punnished for doing well but not helped out when the going is tough. I look after my finances well and get no help with my energy bills which have risen the same as anyone elses , while someone who ****es their money up the wall gets helped out.
I would like some cash, the divvi has a way to go to get back to the old days! Main thing is for rdsb to avoid a windfall tax.
I don't mind buybacks but I prefer cash. A bit of both would have met investor 'expectations'. But I'm sure they know what they are doing.
so do I when made at attractive prices.
For me at the current price levels a buyback is a good way to make a return to shareholders, especially if you are a higher rate tax payer.
There seems to be a lot of grumbling about share buybacks not being as good as divis. I rather disagree. Although I'm as fond of cash income as anybody, buybacks have the advantage, deferred admittedly, of increasing eps, so it comes to the same - the coming $7b buyback will have much the same effect as if it was a special dividend, but, as has been pointed out, not calling down the wrath of the Sun and the Guardian on the company. Also it won't attract dividend tax for those whose shares aren't shielded in their ISA or SIPP. To my mind, eps (and free cash flow) are all that really matter - a barely covered divi is nice immediate cash, but not a guarantee of future benefits, while increasing eps inevitably translates into an increased share price, down the line. Jam tomorrow, but lots more jam. A p/e for Shell of 7.6 makes this like finding money in the street - if I hadn't topped up by 35% last year, I probably would now.
''So why do you think they made the at pace comment....''
It can only mean that they will spend the buyback money as quickly as possible
within the rules of only being allowed to purchase up to 25% of average daily volume over the previous period of a month.
A nice little lift provided by the end of day auction... despite Brent dropping back in the afternoon - and Shell surprisingly ends on its highest closing price of the week AND above the 1725 line. Will 1720 now provide the support to keep it here? : https://invst.ly/x1-ii
Yep fully agree. Can you imaging the Sun headline "Pensioners freeze whilst Shell distributes billions of pounds worth of special dividends. to rich shareholders?" The Mirror and Guardian would be even worse.
Noticed a few articles yesterday claiming that fuel companies have made too much profit in December by failing to pass on oil price reductions to motorists immediately.
Shell being careful / prudent here - they know they're in the windfall sights.
Is this another case of Shell down playing most things and ensuring they aren't in headlights when the results are due.
This would make perfect sence to help keep the Windfall tax mob at bay.
This would be a very very sensible option to keep the spot light off us....
A nice mixup would be good I would imagine......Plenty spent on ESG purchases, , Buy Backs, Dividend and debt reduction...
Any thoughts ???
It may be due to being downgraded to neutral by Exane.
Hi NSS: Regarding 'at pace', I was making a rather general comment about companies seeming to make buyback policy decisions without paying particular attention to the sp movements after they've made them, leaving the trading in independent hands. I also believe there are rules governing the daily rate of acquisition of shares - so the pace is necessarily limited. I'm also assuming this next buyback programme can't start until the current one has run its course (28th Jan?). ‘At pace’ may imply quickly but the ‘pace’ can be anything from slow to fast - I just take it to mean ‘without undue delay’.
Meanwhile, it strikes me that, this morning, Shell is levelling out whilst Brent continues on its merry way - which implies that, given all the news it out there for now, Shell may have found its ‘top’ for the time being. It’s a bit early to say with certainty, of course!
https://invst.ly/x1w6q
Hi Boyo,
So why do you think they made the at pace comment....
You could be right but it could be to mop up those Dutch pensions shares whilst cheap and keep a floor on the SP.
Who knows.....Cheers
NSS
Well id have preferred a special to return the cash so a tad dissappointed today. That way i get to choose what i wish to spend the cash on. Several others ahead of Shell in the listing at the current sp for me.
Likely the broker doing the actual spending on the companies behalf will be taking a fair amount of cash out for their troubles.
NSS: AT PACE.....Do they see the price going much higher so want to get in quickly.....
From what I've seen, once companies decide to proceed with buybacks, rather than using the cash to reduce debt or invest in the future, they farm the job out and don't pay much attention to the actual share price.
Thats what I thought. That they see the price going up shortly and want to buy the shares back while cheap.
Shame it's all going to buybacks. Was hoping for a part dividend. Anyway, should mean an uptick in SP. I suspect they want to absorb the shares being off loaded by the Dutch pension funds.
https://www.reuters.com/business/energy/shell-continue-7-bln-buyback-programme-at-pace-2022-01-07/
LONDON, Jan 7 (Reuters) - Royal Dutch Shell (RDSa.L) said on Friday its $7 billion share buyback programme, of which $1.5 billion has been completed, will continue "at pace" despite a slowdown in fuel demand due to the Omicron COVID-19 variant.
Shell, the world's largest trader of liquefied natural gas (LNG), said that its production and liquefaction volumes were impacted in the fourth quarter by unplanned maintenance, mainly in Australia, where its flagship Prelude floating LNG vessel was hit by a power outage.
In a trading update, Shell said LNG trading results in the fourth quarter of 2021 are set to be "significantly higher" compared to the third quarter.
Natural gas and electricity prices around the world have soared since the middle of last year on tight gas supplies and higher demand as economies rebounded from the COVID-19 pandemic.
Benchmark European gas prices and Asian LNG prices hit all-time highs in the fourth quarter.
What does the phrase at pace mean?
1. And just as "with speed" can mean "fast", so too can "at pace" mean "fast".
Im sure the $$$$$$$ will be fantastic but I note nearly all of the production figures are at the low end of their Q3 forecast......
And yes buy backs........AT PACE.....Do they see the price going much higher so want to get in quickly.....
Maybe they can see the SP rocketing so need to buy quick while it's lower? Would prefer bigger increase in div myself, that's what a lot of shell holders rely on.