Shell has announced its third quarter 2020 results. The Company has announced a cash allocation framework that will enable it to reduce debt, increase distributions to shareholders, and allow for disciplined growth as it reshapes its business for the future of energy.
Income attributable to Royal Dutch Shell shareholders was $0.5 billion for the third quarter 2020, which reflected lower realised prices for oil and LNG as well as lower realised refining margins and production volumes compared with the third quarter 2019. This was partly offset by lower operating expenses, well write-offs, depreciation and strong marketing margins. Income attributable to Royal Dutch Shell shareholders included an impairment charge of $1.1 billion, partly offset by gains on fair value accounting of commodity derivatives of $0.5 billion.
Cost of supplies adjustment attributable to Royal Dutch Shell plc shareholders for the third quarter 2020 was negative $0.3 billion.
Adjusted Earnings were $1.0 billion for the third quarter 2020, reflecting lower realised prices for oil and LNG as well as lower realised refining margins and production volumes compared with the third quarter 2019. This was partly offset by lower operating expenses, well write-offs, depreciation and strong marketing margins.
Cash flow from operating activities for the third quarter 2020 was $10.4 billion, which included positive working capital movements of $1.4 billion. Cash flow from investing activities for the quarter was an outflow of $2.8 billion, driven mainly by capital expenditure, partly offset by proceeds from divestments.
Gearing was 31.4% at the end of the third quarter 2020, compared with 32.7% at the end of the second quarter 2020, mainly driven by strong cash flow generation in the quarter.
Total dividends distributed to Royal Dutch Shell plc shareholders in the quarter were $1.2 billion.
Shell announces a dividend per share growth by around 4% to 16.65 US cents for the third quarter 2020 and annually thereafter, subject to Board approval.
THIRD QUARTER 2020 PORTFOLIO DEVELOPMENTS
During the quarter, the CrossWind consortium, a joint venture between Shell (79.9% interest) and Eneco (20.1% interest), was awarded the tender for the subsidy-free offshore wind farm Hollandse Kust (noord) in the Netherlands. The wind farm has a planned installed capacity of 759 MW and is expected to help meet the objectives of the Dutch Climate Accord and the EU’s Green Deal. Both companies have already taken their final investment decisions on the project. This investment is part of Shell's ambition for a new wind-to-hydrogen value chain.
During the quarter, Shell completed the sale of its Appalachia shale gas position in the USA for $541 million paid fully in cash, less closing adjustments. The transaction has an effective date of January 1, 2020.
In August, Shell took the final investment decision to contract the Mero-3 floating production, storage and offloading (FPSO) vessel to be deployed at the Mero field within the offshore Santos Basin in Brazil. This production system has a daily operational capacity rate of 180,000 barrels of oil equivalent, with production coming online over the next four years.
Royal Dutch Shell Chief Executive Officer, Ben van Beurden commented:
'Our sector-leading cash flows will enable us to grow our businesses of the future while increasing shareholder distributions, making us a compelling investment case.
We must continue to strengthen the financial resilience of our portfolio as we make the transition to become a net-zero emissions energy business. Our decisive actions taken earlier in the year have solidified our operational and cash delivery. The strength of our performance gives us the confidence to lay out our strategic direction, resume dividend growth and to provide clarity on the cash allocation framework, with clear parameters to increase shareholder distributions.'
Chair of the Board of Royal Dutch Shell, Chad Holliday commented:
'The Board has reviewed Shell’s recent performance and its plans to grow its businesses of the future, and we are confident that Shell can sustainably grow its shareholder distributions as well as invest for growth.
As a result, the Board has decided to increase the dividend per share to 16.65 US cents for the third quarter 2020. The Board has additionally approved a cash allocation framework for Shell which, on reducing its net debt to $65 billion, will target total shareholder distributions of 20-30% of cash flow from operations.'