Shell doing all it can to safeguard dividend amid low oil prices, says CEO

The chief executive officer of Shell said the oil giant is “pulling out all the stops” to safeguard its dividends and buy-back programme, and to keep its investment programme steady for the future.

In an emailed version of his speech at the Oil and Money conference in London, Ben van Beurden outlined Shell’s strategy to cope with an extended period of low oil prices.

Beurden said that despite lower oil prices, the company’s gearing ratio - debt related to equity capital - is essentially unchanged since the end of 2015 and stands at 12.7%. This reflects good operational performance, which in turn leads to cash generation and re-introduction of the scrip dividend, it said. Beurden said this brings more short-term flexibility to Shell and ultimately protects dividends.

He also spoke about reduce operating costs. Beurden noted that costs fell in the first half of this year and said he expects them to drop by over $4bn, or around 10% over the full year.

“Costs are now back at the levels that we saw in 2011. And cost will go down further next year as we continue to work on the supply chain, on our overheads, and on targeted programmes in certain areas,” he said.

Shell is also focusing on a reduction in capital investment, which it expects to be around $30bn in 2015. That’s 20% lower than last year and 35% lower than in 2013.

In addition, Beurden pointed to portfolio restructuring. He said some parts of the company have not been performing to their full potential and in order to improve performance, it has specific targets for example costs and unit margins.

“We’re also taking portfolio actions in these areas. This is now beginning to show through in the bottom line,” he said.

Asset sales were also mentioned. Beurden said assets were being sold to crystallise value or because they’re not critical to the business.

“This is basically normal business, and it’s not something we do only when we really need to. The total of asset sales for 2014 and 2015 together is worth some $20bn.”

Beurden also highlighted the delivery of new projects and safeguarding of free cash flow.

In addition, Shell’s CEO called on governments to place a price on carbon emissions to cut coal consumption in favour of less polluting natural gas.

“I know that some people would like fossil fuels to be replaced by renewables as we speak. But for technical and economic reasons, this can only happen step by step. And it will not happen across the board,” he said.

He said sectors like heavy industry, heavy duty transport, and chemicals need carbon to operate, and the resource base of the other large source for carbon - biomass - is insufficient to meet their demand.