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Shell (RDS.A) Aims to Boost Returns on Stronger Outlook

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Royal Dutch Shell plc (RDS.A - Free Report) will distribute 20-30% of cash flow from operations to shareholders starting from the second quarter, it said in an update on Wednesday. The company credited “strong operational and financial delivery, combined with an improved macro-economic outlook” for the higher payouts.   

After suffering heavy losses in the initial phase of the coronavirus outbreak, especially in the second quarter of 2020, when the Oil/Energy sector was devastated by the pandemic-induced demand destruction and price plunge, some of the world’s biggest oil companies like Shell, ExxonMobil (XOM - Free Report) , Chevron (CVX - Free Report) and BP plc (BP - Free Report) have now returned to profit. Their earnings and cash flows have been steadily improving on the back of higher crude realizations and a recovery in consumption. As a matter of fact, U.S. oil hit a six-year high of $76.98 a barrel earlier this week.

Investors should know that Shell slashed its quarterly dividend by two-thirds last year to weather the historic oil price crash and preserve cash. The cut was the first since World War II. Shell also suspended its stock repurchase program. While the company did increase its payout twice in the past six months, it is still significantly lower than the pre-pandemic dividend of 47 cents.

Shell released a preliminary report for the April-June period wherein it also vowed to keep a tight lid on capital expenditures as it aims to spend less than $22 billion for the year. The performance of Anglo-Dutch firm’s trading division, which was instrumental in helping the supermajor partly cushion the impact of the coronavirus-induced oil price slump, is likely to be “significantly below average” for the Integrated Gas division and “average” for the Oil Products business.  

In its latest update, Shell further informed that it is expected to have reduced its debt load in the second quarter though the quantum of reduction could be partly offset by changes in working capital.  

Now, lets’ dig into some other segment wise selected items from yesterday’s release.

Upstream

According to the latest update, Shell’s upstream production fell by 6.3% on a year-over-year basis in the second quarter of 2021 at the midpoint of guidance. The supermajor is estimating its output in the range of 2,225 to 2,300 thousand barrels of oil-equivalent per day (MBOE/d) compared to 2,415 MBOE/d a year ago. Currency fluctuations will impact earnings positively but that might be offset by higher operating expenses due to increased planned maintenance activities. Tax charges are expected to hurt earnings in the range of $500-900 million.

Integrated Gas

Shell’s LNG liquefaction volumes are expected in the range of 7.1 to 7.7 million tons, which translates into a decline of around 11.5%. The decrease has been blamed on additional unplanned maintenance activities. However, Shell’s integrated gas production is expected to increase on a year-over-year basis and be in the range of 900,000 to 960,000 barrels of oil-equivalent per day (BOE/d). It was 904,000 BOE/d in the second quarter of 2020.

Oil Products

The company’s oil product sales are expected to increase and be in the range of 4 to 5 million barrels per day. Refinery utilization is estimated between 75% and 79%, higher than the year-ago period’s 70%. Marketing margins are expected to be higher sequentially due to strong retail margins.

Chemicals

Chemical sales may go up to the range of 3.5 to 3.8 million tons, while margins are likely to remain unchanged from the first quarter. Manufacturing plant availability is up between 81% and 85% (compared to 78% in the corresponding period of 2020).

About Shell

Royal Dutch Shell is one of the primary oil supermajors — a group of U.S. and Europe-based big energy multinationals with operations that span almost every corner of the globe. The Zacks Rank #3 (Hold) company is fully integrated, meaning it participates in every aspect related to energy – from oil production, to refining and marketing.

You can see the complete list of today’s Zacks #1 Rank stocks here.

It is set to be the first big oil company to release second-quarter 2021 results on July 29. The current Zacks Consensus Estimate for the to-be-reported quarter is a profit of $1.01 per share.

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