Royal Dutch Shell Plc (LON:RDSB) has lifted its guidance for both capital expenditure and free cash flow for the coming years, leading to the potential for strong returns to shareholders.
The company is now expecting to spend US$30bn per year between 2021 and 2025. It is also now forecasting US$25bn to US$30bn of positive cash flow by 2020, and expects that to exceed US$30bn a year between 2021 and 2025.
Shell told investors that its anticipated cash delivery creates the potential for US$125bn to be distributed to its shareholders during the four year period.
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“We have reshaped our company with a focus on value and have demonstrated a clear track record of delivering on our ambitious promises made at our Management Day in November 2017,” said Ben van Beurden, Shell's chief executive.
“It is the success of our strategy and strength of our delivery today that gives us confidence for the future.”
Royal Bank of Canada analyst Biraj Borkhataria, in a note to clients, said: “Shell’s guidance on both free cash flow and capex appear to be ahead of the market expectations, and we therefore expect the jury to be out until we can assess the credibility of the free cash flow targets by theme.”
“The potential for US$125bn in distributions to shareholders via dividends and buybacks over 2021-25 is a continuation of Shell’s near term distributions strategy, however to us this is dependent on a constructive oil price environment.
“Higher capex from 2020 could be taken negatively, subject to the mix across businesses, however the operating cash flow guidance appears to materially ahead of market expectations, which paves the way for continued positivity should Shell convince the market on its plans.”
Shell details key strategy themes
Shell’s strategy focuses around three key themes – ‘core upstream’, ‘leading transition’ and ‘emerging power’.
In core upstream, the fundamental hydrocarbons business, the group’s capital investment plans prioritise deep water assets, shale play and conventional oil and gas projects.
Secondly, the leading transitions theme concentrates on market-facing businesses such as integrated gas, chemicals and oil products.
The emerging power strategy, meanwhile, seeks to create business models that “meet evolving customer demands as society transitions to much greater levels of electrification”, Shell said.
van Beurden said that this was a forward looking strategy that would “ensure Shell is well-placed to continue to deliver a world class investment case and thrive in the energy transition.”
In mid-morning trading, Shell's A shares were trading 0.5% lower at 2,461p.