LONDON (Alliance News) - Royal Dutch Shell PLC on Tuesday said its plans concerning asset sales and debt reduction remain unchanged and it still plans to maintain its dividend this year followed by a share buyback in 2017, as the oil major set out its plan following the acquisition of BG Group.
Some observers were expecting Shell to reduce its capital expenditure budget further or to possibly extend the timeline by which the FTSE 100 company offloads a substantial amount of assets, but Shell said Tuesday all of its plans remain unchanged.
The major change Tuesday was the increase in the amount of synergies that Shell expects to deliver from its GBP35.00 billion takeover of BG Group earlier this year, as Shell now expects to deliver USD4.50 billion worth of "deal-related synergies" in 2018 compared to the original target of USD3.50 billion.
Shell also plans to exit up to 10 countries where it currently operates as part of its asset sale programme that will run until 2018, whilst capital investment this year has been reduced by a further USD1.00 billion.
As a result of the increased BG synergies target, Shell expects to deliver USD4.00 billion worth of synergies by the end of 2017, with the last USD500.0 million expected in 2018 - meaning Shell will hit that original USD3.50 billion goal earlier than expected.
"The BG deal is an opportunity to accelerate the re-shaping of Shell. Integration is gathering pace, and today we expect to deliver more synergies, and at a faster rate," said Shell Chief Executive Ben van Beurden.
"Our other deal-related financial commitments to shareholders in the form of asset sales, debt reduction, and dividends, followed by share buy-backs, are unchanged," said the company.
Shell plans to offload USD30.00 billion worth of assets between 2015 and 2018, but the market thought there was potential to extend that timeline as depressed oil prices are likely to hinder sales.
"Overall, Shell's focus is on re-shaping the company. We will retain the most competitive and resilient positions, through targeted investment, and substantial asset sales. This is a value-driven, not time-driven, divestment programme; and an integral element of Shell's portfolio improvement plan," said van Beurden.
Shell has locked-in around USD3.00 billion of asset sales this year, and that should reach USD6.00 to USD8.00 billion by the end of the year.
"We have earmarked up to 10% of Shell's oil and gas production, including 5 to 10 country exits, for disposal," said Shell.
Shell has committed to maintaining its annual dividend of USD1.88 per share this year and plans to stick to its commitment to carry out a share-buyback programme of at least USD25.00 billion in 2017.
As a result of the BG-deal, Shell's gearing at the end of March stood at 26%, compared to 14% at the end of 2015 prior to the deal being completed.
In order of priority, Shell said it will reduce debt, pay dividends and then balance between capital investment and share buybacks.
Shell had already lowered its capital expenditure budget post-BG to USD30.00 billion from USD33.00 billion, and on Tuesday said capital investment would total USD29.00 billion this year and then between USD25.00 billion to USD30.00 billion per year up until 2020.
New projects should contribute USD10.00 billion of annual cashflow by 2018 and operating costs are expected to reach a run-rate of USD40.0 billion of underlying operating costs by the end of 2016 - 20% lower than pro-forma 2014, the company said.
"As a result of Shell's portfolio development and investment, we expect to see an improvement in returns in the next few years, our debt reduced, and significant growth in free cash flow, across a range of oil prices," said Shell.
"For example, organic free cash flow could reach USD20.00 to USD25.00 billion and return on capital employed some 10% around the end of the decade, assuming USD60 oil prices. This compares to 2013-15 averages of USD12.00 billion and 8% with average USD90 oil prices," the company added.
Brent was trading just over USD50 per barrel on Tuesday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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