* Annual profit lowest in at least 20 years
* Shell to increase dividend in first quarter of 2021
* Shell's marketing business cushions impact of pandemic
* Debt ratio rises
(Adds analyst comment)
By Ron Bousso and Shadia Nasralla
LONDON, Feb 4 (Reuters) - Royal Dutch Shell's
profit last year dropped to its lowest in at least two decades
as the coronavirus pandemic hit energy demand worldwide though
the company's retail network and trading business helped cushion
the blow.
The Anglo-Dutch oil major's annual profit slumped 71% to
$4.8 billion as its oil and gas production and profits from
refining crude into fuels dropped sharply.
In a sign of confidence, however, Shell said it planned to
raise its dividend in the first quarter of 2021, which would be
the second slight increase since its slashed its payout by
two-thirds at the start of last year due to the pandemic.
Analysts said that while Shell missed forecasts for both its
fourth-quarter profit and cash flow, the results overall were
not as bad as feared, especially after rival British BP
posted a loss of $5.7 billion earlier this week.
"We are coming out of 2020 with a stronger balance sheet,"
Chief Executive Ben van Beurden said in a statement.
Shell shares were little changed at 0915 GMT, slightly
underperforming the broader European energy index.
Shares in Shell collapsed in 2020 along with rivals to hit
878.1 pence on Oct. 28, their lowest in more than a quarter of a
century. They have recovered since but are still down 40% since
the end of 2019, before COVID-19 savaged oil markets.
"Earnings were below consensus and cash flow too, but that
hides the fact that expectations were low after what BP reported
on Tuesday," Jefferies analyst Giacomo Romeo said.
U.S. rivals Exxon Mobil and Chevron reported
huge losses in 2020, battered by the prolonged slump in energy
demand during pandemic lockdowns. BP's loss was its first in a
decade while Exxon reported a massive $22.4 billion annual loss,
its first as a public company.
LOW-CARBON STRATEGY
Shell's results come week before it presents its long-term
strategy to become a net zero emissions company by the middle of
the century and tries to persuade investors that it has a
profitable future in a low-carbon world.
It is planning a major restructuring as part of its plan to
reduce greenhouse gas emissions and aims to cut 9,000 jobs, or
more than 10% of its workforce.
The reorganisation will lead to additional annual savings of
about $2 billion to $2.5 billion by 2022, above and beyond cuts
of $3 to $4 billion announced last year.
Like its rivals, Shell responded to the unprecedented drop
in oil and gas demand last year by cutting spending sharply.
Shell invested $17.8 billion in new projects in 2020, about
$6 billion less than a year earlier, and slashed its operating
costs by 12% to $32.5 billion, helping its cash flow.
Reducing costs is vital for Shell's plans to move into the
crowded power sector and renewable energy where margins are
typically lower than for fossil fuels.
It is betting on its expertise in power trading and rapid
growth in hydrogen and biofuels markets as it shifts away from
oil, rather than joining rivals in a scramble for renewable
power assets.
CASH FLOW MISS
Despite a 28% drop in fuel sales last year, Shell's adjusted
earnings from trading and marketing, which includes sales at its
global network of more than 45,000 filling stations, only fell
3% from a year earlier to $4.6 billion.
But at the same time, Shell's cash flow was down nearly a
fifth from 2019 while its debt-to-equity ratio rose to 32% from
29%, exceeding the company's target.
Shell's fourth-quarter profit fell 87% from a year earlier
to $393 million - missing analyst forecasts for a profit of $597
million - dragged down by weak liquefied natural gas prices,
lower production and weak refining margins.
Shell's net debt at the end of the fourth quarter rose about
$2 billion on the previous quarter to $75.4 billion, with its
gearing - or debt-to-equity ratio - ticking up to 32.3%.
Shell cut the value of its oil and gas assets by a further
$2.7 billion after writing them down by $17.8 billion last year
following the lowering of its energy price outlook.
The latest writedowns were due in part to charges related to
the Appomattox field in the U.S. Gulf of Mexico and the closure
of refineries in the Netherlands, Singapore and the United
States as it streamlines its refining hubs.
Shell said, however, that it planned to raise its dividend
for the first quarter of 2021 by 4% from the previous quarter.
(Reporting by Ron Bousso and Shadia Nasralla; Editing by David
Clarke)
BP (BP.)
