Royal Dutch Shell plc (RDS.A) shares leaped to the top of the FTSE 100 Tuesday after the company boosted its cash flow forecast and said it would pay future dividends in cash now that oil prices have stabilized and its balance sheet has improved.
In a strategy update for investors in London, Shell said it sees free cash flow of between $25 billion and $30 billion by 2020, based on a projection of Brent crude prices holding at around $60 per barrel, a $5 billion improvement from its June 2016 projections. It also said that asset sales and debt reduction would allow it to scrap its so-called 'script' dividend -- which is paid in either new shares or cash -- for cash only payments starting in the current quarter.
"We have increased our outlook for organic free cash flow, which has been consistently strong over the past five quarters," said CEO Ben van Beurden. "We have also made significant progress with our divestment programme, allowing us to reduce net debt in that time. Meanwhile, we intend to cancel our scrip dividend programme with effect from the fourth quarter 2017."
Shell shares were marked 3.5% higher by mid-day in London and changing hands at 2,396 pence each, taking its three-month gain to just over 11.5%.
The company also said it expects to complete a planned $30 billion in asset sales by the end of next year, having moved around $23 billion so far with a further $2 billion currently in the pipeline. "Once this programme is completed the company expects to continue divestments at an average rate of more than $5 billion until at least 2020," Shell said.
Shell posted stronger-than-expected third-quarter earnings on Nov. 2, thanks to the ongoing rise in global oil prices, rounding out the best collective quarter for western oil majors in three years.
Shell reported "clean" net income of $4.1 billion, or 47 cents share, for the three months ending in September, topping analysts' forecasts and rising 47% from the same period last year. The group's downstream unit, which focuses on refining and marketing, was expected to see a slump related to closures from Hurricane Harvey and costly fires in Europe, but earnings nonetheless rose 28% from last year to $2.6 billion and topped the $2.529 billion tally from last quarter.
Brent crude prices averaged around $52 a barrel for the three months ending in September, according to OPEC data, compared to around $46 over the same three-month period last year.
Rival BP plc (BP) also posted a sharp rise in third quarter profits and said it would buyback shares in the fourth quarter even as it held its dividend in check. BP said its replacement cost profits doubled to $1.865 billion in the three months ending in September over the same period last year, a figure that beat analysts' forecast of 1.58 billion. However, while the group said it would buyback stocks in the current quarter, it held its 10 cents per share.
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