03.02.202223:24 Forex Analysis & Reviews: Shell boosts its dividend and share repurchases

Shell boosted its dividend and share repurchases on February 3, after fourth quarter profits hit their highest in eight years, fuelled by higher oil and gas prices and strong gas trading performance.

The strong results cap a year of dramatic recovery for the oil and gas sector after energy demand and prices collapsed in 2020 in the wake of the Coronavirus epidemic.

Shell shares were up 1.2% by 10:15 GMT, compared with a decline of 0.1% for the broader European energy index.

Shell, which moved its headquarters from The Hague to London last month, said it expected to increase its dividend by 4% in the first quarter of 2022 to $0.25 per share. This will mark the fourth dividend increase since Shell cut its dividend in early 2020 for the first time since the 1940s.

The company has also announced that it will buy back $8.5 billion worth of shares in the first half of 2022, including $5.5 billion from the sale of its Permian shale assets in the US.

That compares with share buybacks totalling $3.5 billion in 2021.

"2021 was a momentous year for Shell," CEO Ben van Beurden said.

Rising natural gas and electricity prices around the world since the middle of last year due to tight gas supplies and increased demand amid economic recovery from the COVID-19 pandemic have led to this result.

Benchmark European gas prices and Asian LNG prices hit all-time highs in the fourth quarter.

Shell, the largest trader of liquefied natural gas (LNG), said its integrated gas earnings were boosted by significantly higher profits from trading.

Trading helped offset an 11% drop in LNG sales and a 7% drop in LNG production in 2021 as a result of plant maintenance and unplanned outages, including at the flagship Prelude floating LNG plant in Australia.

According to the CEO, Prelude will remain shut down in the first three months of 2022.

Van Beurden also said that Shell would step in to help supply Europe with gas in case of Russian disruptions.

Earlier this month, Shell officially ditched "Royal Dutch" from its name and also merged its dual-listed shares. All this came against the backdrop of moving its head office from The Hague to London as part of a tax and structure simplification drive, which van Beurden said would help the company plan to grow its low-carbon business.

Adjusted profit in the fourth quarter of 2021 rose 55% from the previous quarter to $6.4 billion, well above analysts' average forecast of $5.2 billion. That compares with earnings of $393 million a year earlier.

For the year, Shell's adjusted earnings rose to $19.3 billion, compared with $4.85 billion in 2020.

"Net income came in 22% ahead of consensus expectations and net debt fell sharply. On top, Shell announced an $8.5 billion share buyback program for 1H, also ahead of market expectations," Morgan Stanley analyst Martijn Rats said.

The energy company said it planned this year's spending at the lower end of the $23-$27 billion after spending $20 billion in 2021.

Net debt dropped sharply throughout the year to $52.55 billion from $75.4 billion at the end of 2020. Shell's debt-to-capital ratio, or gearing, dropped to 23.1% from 32.2% over the same period.

Shell's cash generation soared by a third to $45 billion in 2021 as global economic activity recovered from the pandemic slump and oil and gas prices soared.

Meanwhile, Exxon Mobil on Tuesday reported its biggest profit in seven years and said it plans to increase domestic production by 25% this year. As for Chevron's profits, they fell short of estimates.

Thus, the oil and gas sector remains one of the leaders in the stock market this year.