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(Alliance News) - Royal Dutch Shell PLC on Thursday announced a new cash allocation framework, which it said will enable the oil company to reduce debt, increase distributions to shareholders, and allow for disciplined growth.
The FTSE 100-listed oil company said the cash allocation framework includes a target to reduce net debt to USD65 billion from USD73.5 billion as of September 30. Upon achieving this milestone, Shell targets to distribute a total of 20% to 30% of cash flow from operations to shareholders.
Increased shareholder distributions will be achieved through a combination of Shell's progressive dividend and share buybacks. Remaining cash will be allocated to "disciplined and measured" capital expenditure growth and further debt reduction, it added.
The Anglo-Dutch firm declared a third quarter dividend of 16.65 US cents, down 65% from USD0.47 paid out in the third quarter last year. However, it was up 4.0% from the 16.00 cents paid for the second quarter, and Shell confirmed on Thursday it will grow the dividend annually as part of its progressive dividend policy.
For the third quarter ended September 30, Shell reported attributable income of USD489 million, down 92% from USD5.88 billion in the third quarter last year. Current cost of supply earnings for the period were USD177 million, down 97% from USD6.08 billion.
The drop in quarterly income was blamed on lower realised prices for oil and liquefied natural gas as well as lower realised refining margins and production volumes compared with the third quarter of 2019.
Revenue for the three months fell 50% to USD44.71 billion from USD86.54 billion a year before. Pretax profit dropped to USD442 million from USD8.37 billion.
Over the nine month period, Shell swung to a CCS loss of USD15.44 billion from a USD14.40 billion profit and to a pretax loss of USD22.84 billion from a USD22.70 billion profit.
Total production in the third quarter fell 14% to 3.1 million barrels of oil equivalent per day from 3.6 million barrels a year ago. Year-to-date production was down 7% at 3.4 million barrels.
By segment, the Upstream business posted a CCS loss of USD1.11 billion for the three months compared with USD1.65 billion profit a year before, reflecting lower oil prices, reduced production due to restrictions imposed by oil cartel OPEC+ and severe weather conditions affecting US Gulf of Mexico production.
Total Upstream division output fell 14% year-on-year in the third quarter to 2.2 million barrels of oil equivalent per day. Year-to-date output was down 9% at 2.4 million barrels per day.
Shell sees fourth quarter Upstream production in a range of 2.3 million to 2.5 million barrels of oil equivalent per day.
The Integrated Gas business swung to a quarterly CCS loss of USD151 million from USD2.60 billion profit, mainly due to an impairment charge of USD924 million relating to the Prelude floating LNG operations in Australia.
Third quarter CCS earnings for the Oil Products business amounted to USD2.09 billion, down 14% year-on-year, due to lower refining margins and a drop in sales volumes in the face of the Covid-19 pandemic.
The Chemicals segment saw a 38% drop in quarterly CCS earnings to USD131 million due to a weak price environment compounded by the pandemic.
Looking ahead, Shell said that, as a result of the coronavirus crisis, there is significant uncertainty in macroeconomic conditions with an expected negative impact on demand for oil, gas and related products.
"The fourth quarter 2020 outlook provides ranges for operational and financial metrics based on current expectations, but these are subject to change in the light of current evolving market conditions. Due to demand or regulatory requirements and/or constraints in infrastructure, Shell may need to take measures to curtail or reduce oil and/or gas production, LNG liquefaction as well as utilisation of refining and chemicals plants and similarly sales volumes could be impacted. Such measures will likely have a variety of impacts on our operational and financial metrics," Shell said.
On Tuesday, peer BP also had reported a sharp year-on-year drop in third-quarter earnings but an improvement on the previous second quarter in the absence of exploration write-offs and recovering demand. Underlying replacement cost profit was USD86 million for the three months to September 30, compared with a loss of USD6.68 billion in the second quarter, and USD2.25 billion profit for the third quarter of 2019.
BP declared a third-quarter dividend of 5.25 US cents, halved from 10.25 cents in the third quarter last year.
Shell A shares were up 2.5% early Thursday at 922.30 pence each. BP shares were up 0.4% at 194.20p.
By Tapan Panchal; tapanpanchal@alliancenews.com
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