Shell projects higher-than-expected capex, might raise dividend

Royal Dutch Shell boosted its forecasts for free cash flow growth and opened the door to a hike in its dividend payout, even as it bumped-up its guidance for capital outlays by more than expected and set out the road map for the company's transition to a lower-carbon future.

At its Strategy Day, in London, the oil giant said that at a price for crude oil of $60 a barrel in real terms, annual organic free cash flow would rise to around $35bn by 2025, versus between $28-33bn at present.

That would allow it to boost its returns to shareholders via dividends and share buybacks between 2020-25 $125bn or more, in comparison to approximately $52bn over 2011-15 and about $90bn in 2016-20, the company said in a statement.

Shell boss, Ben van Beurden, summed up the company's update in the following terms: "Increased organic free cash flow outlook, greater potential distributions to shareholders and confidence in our world class investment case given our high-margin portfolio, improving returns and a globally recognised brand."

Subject to progress in cutting its debt pile and the price of oil, Shell expected to complete its curent $25bn share buyback authorisation by the end of 2020, while maintaining a gearing level of 25%.

On a cash basis, Shell said it was also planning to ramp-up its annual capital expenditures, including small M&A deals of up to $1.0bn, to $30bn per year, with a ceiling of $32bn.

That compared to guidance in a range of $24-29bn up until 2020, with roughly $20bn being funeled towards maintenance and the remainder to growth.

Management also set itself a 12% target for its return on average capital employed.

Away from the numbers, Shell's refreshed strategy had three main themes: Core Upstream, Leading Transition and Emerging Power, with the second of those projected to lead the company through the energy transition.

Upstream on the other hand would be fully sustained but was not an area of potential future growth.

Commenting on the company's results, analysts at Berenberg said: "The increase in capex to an average of USD30bn a year is likely ahead of expectations, while the improvement in FCF forecasts to 2025 (from the mid-point of the 2020 guidance) implies about 3% annual growth, some of which may come from rising nominal oil prices.

"The shares have performed well into the event today, and we view the outcome as being largely priced in at the current levels. We await further details from the management presentations today."