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Shell Plc

0.00 (0.0%)
Share Name Share Symbol Market Type Share ISIN Share Description
Shell Plc LSE:RDSA London Ordinary Share GB00B03MLX29 'A' ORD EUR0.07
  Price Change % Change Share Price Shares Traded Last Trade
  0.00 0.0% 1,895.20 0.00 01:00:00
Bid Price Offer Price High Price Low Price Open Price
1,900.20 1,900.80
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Petroleum Products/refineries 381,314.00 42,309.00 604.10 313.72 132,729.45
Last Trade Time Trade Type Trade Size Trade Price Currency
- O 0 1,895.20 GBX

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Posted at 10/1/2022 16:36 by maywillow
Brits face a massive increase in energy bills. BP and Shell could be on the hook to pay

By Charles Riley, CNN Business

Updated 1221 GMT (2021 HKT) January 10, 2022

London (CNN Business)The UK government is coming under mounting pressure to increase taxes on oil and gas companies, including BP and Shell. The aim: to help British households cope with skyrocketing energy bills.

The main opposition Labour Party this weekend called on Prime Minister Boris Johnson to impose a windfall tax on companies pumping oil and gas from the North Sea, saying that the money raised could be used to cut £200 ($272) from soaring household bills.

The party reportedly says the rate of corporate tax the companies pay should be increased by 10 percentage points for a year. That would also allow the government to increase energy subsidies for the poorest households to £400 ($545) per year from £140 ($190).

British consumers will pay roughly £790 ($1,075) more to heat and light their homes this year, according to Bank of America, following a dramatic surge in wholesale energy prices that has caused dozens of UK energy suppliers to collapse in recent months.

Wholesale European gas prices have jumped by 400% over the previous year and electricity prices have increased by 300%, according to Bank of America. The increases have been driven by cold weather, nuclear plant outages in France and reduced gas flow from Russia.

BP (BP) and Shell (RDSA) both operate in the North Sea, and have benefited from rising gas and oil prices.

BP CEO Bernard Looney told the Financial Times in November that surging commodity prices had turned the company into a "cash machine." The company posted profits of $3.3 billion in the third quarter of 2021, and said it planned to return an extra $1.25 billion to shareholders.

Shell made more than $4 billion in the quarter, and is also rewarding investors with a $7 billion share buyback program as it returns cash from the sale of its shale assets in the Permian Basin, which stretches from Texas to New Mexico.

Industry group OGUK, which represents UK offshore producers including Shell and BP, said last week that a windfall tax would make energy companies less likely to invest in the country, causing "irreparable damage to the industry" that would "leave consumers even more exposed to global shortages."

UK households are already under pressure from inflation of more than 5% and they face a sharp rise in costs in April, when a cap on energy prices will be raised. The poorest 10% of households will see their spending on energy increase from 8.5% of their total budget to 12%, according to the Resolution Foundation.

"Proceeding with such a large, overnight bill rise without mitigating measures at a time when real wages are likely to be falling looks completely untenable," the group said in a report published in late December.

The UK government has so far rejected calls for a windfall tax on North Sea producers, even as other European countries take action to shield consumers from the sharp increase in prices.

"What Labour are putting out just doesn't add up. A windfall tax on oil and gas companies, who are already struggling in the North Sea, is never going to cut it," cabinet minister Nadhim Zahawi told LBC radio on Sunday. "The best way to help people is to make sure there is a job available to them."

European households will pay €650 ($735) more for energy this year, bringing average spending to €1,850 ($2,095), according to Bank of America. Consumers in the United Kingdom and Italy face the largest increases of the major economies in western Europe.

Posted at 09/1/2022 13:44 by adrian j boris

Calls for ‘Robin Hood’ tax on oil and gas producers to help consumers pay energy bills

By Ruchira Sharma

January 9, 2022 12:43 pm(Updated 1:10 pm)

Labour and the Lib Dems have both called for a windfall tax on oil and gas producers to curtail rising energy prices over the next year.

Both parties slammed the Government for failing to act on energy costs and called for a one-off levy to protect vulnerable families.

Energy prices are expected to soar when the legal cap on prices rises in April.

Wholesale gas prices climbed throughout 2021, with the cap increase set to pass some of the pain to consumers and worsen a cost of living crisis.

Bills could rise from £1,277 a year for an average household under the current price cap to £1,865 a year, an increase of 50 per cent, according to estimates.

The Prime Minister is coming under mounting pressure from his own backbenchers to provide support to consumers set to be stung by the price cap rise, with experts predicting that prices could keep rising until at least 2023.

The Liberal Democrats said a windfall tax on oil and gas producers who have profited from the price increases would generate enough money to give over seven million households £300 off their heating bills this year – an estimated £5 billion to £7 billion.

“Cabinet ministers are turning a blind eye to families in their own backyard struggling with soaring heating bills,” Liberal Democrat leader Ed Davey said.

“We need an urgent package of support now to help people cope with the cost of living crisis. That should include Liberal Democrat calls for a Robin Hood tax on oil and gas firms seeing record profits, raising enough cash to give over seven million households £300 off their heating bills this year.”

Meanwhile, Labour outlined proposals to save households around £200 or more through its windfall tax, calling for the squeezed middle, pensioners and the lowest earners to get additional support – up to £600 off bills.

“There is a global gas price crisis, but 10 years of the Conservatives’ failed energy policy, and dither and delay has created a price crisis that’s being felt by everyone,” said Rachel Reeves MP, Labour’s Shadow Chancellor of the Exchequer.

“We want to stop bills going up.

“Labour’s plan to keep energy bills lower in future would see us accelerate home-grown renewables and new nuclear, retrofit 19 million homes to save households an average of £400 a year on their bills, and reform our broken energy system to stop energy companies playing fast and loose with the rules.”

The Institute for Public Policy Research (IPPR) has welcomed plans for a windfall tax on North Sea oil and gas, saying that it is right that those profiting from the crisis contribute to supporting those hardest hit.

Luke Murphy of the IPPR said: “In the longer-term, the only way to address this crisis is not to increase domestic gas production as some have suggested, but to reduce our reliance on volatile fossil fuels by ramping up renewables and an ambitious plan to insulate homes across the country.

“The Government must now deliver a plan that can ease the immediate cost of living crisis this year and address the longer-term challenge of delivering an energy supply that is affordable, secure and net zero.”

Government modelling suggests inflation could increase to around seven per cent if the energy price cap shoots up in April as expected, according to reports.

The energy regulator Ofgem will set the price cap for domestic customers in February, before the changes kick in in April.

Charities, including the fuel poverty charity National Energy Action, have warned that the steep rise in costs will see “an avalanche” of people falling into debt or rationing heating.

Posted at 07/1/2022 14:55 by waldron

Shell share price forecast: Cheap RDSB could surge ahead

By: Crispus Nyaga
on Jan 7, 2022

The Shell share price has started the year well.

It has risen by about 12% from its December lows.

The stock could keep rising in light of the $5.5 billion buybacks.

The Royal Dutch Shell (LON: RDSB) share price rose to the highest level since October last year. It is trading at 1,722p, which is about 12% above the lowest level in December. Other oil and gas stocks like BP and ExxonMobil have also done well.

Shell buybacks

The Shell share price has done well, supported by the relatively high crude oil and natural gas prices. The price of crude oil has jumped this year as investors downplay the impact of the Omicron variant to the global economy. Recent data shows that the variant is relatively milder than the previous variants.

The stock is also doing well after the company unveiled its plan to return funds to shareholders. It will buy back stock worth $5.5 billion using the funds it raised after selling its Permian Basin operations to ConocoPhillips.

These distributions will be in addition to the existing buyback plan that involves repurchasing stock using between 20% and 30% of its total cash flow.

In a statement, the company said that it will report between 910k and 950k barrels of oil per day for the fourth quarter and about 7.7 million to 8.3 million mt/day of LNG.

This guidance was lower than the previous one.

Analysts are optimistic about the Shell share price because of the rising demand and the fact that oil and gas prices have been stable.

The company is also taking actions to reduce costs.

For example, last year, the company said that it will shift its headquarters from the Netherlands to London.

In a recent article, Barron’s mentioned Shell as one of its picks for the year.

They cited the company’s discount to its American rivals and the fact that it is a leading gas producer.

Natural gas prices have been in a strong bullish trend lately.

On the daily chart, we see that the RDSB share price crossed a key resistance level this week. The stock managed to move above the key level at 1,705, which was the highest level on December 7th.

It also jumped above the 25-day moving average and is slowly approaching its highest level in 2021. The MACD has also moved above the neutral level.

Therefore, the stock will likely keep rising as bulls target the key resistance at 1,850p. This view will be invalidated if the stock crashes below 1,600p.

Posted at 16/11/2021 16:24 by waldron
Shell Changes: What Should Investors Do?

Royal Dutch Shell is proposing to turn its back on the Netherlands and create a single share class in London, but what does that mean for investors?

James Gard

16 November, 2021 | 3:32PM

UK investors wanting to trade shares in Royal Dutch Shell have for years been faced with the dilemma of which one to choose. Unusually, the company trades on the FTSE 100 with two tickers, and is the only stock to do so.

But many would struggle to explain the difference. Now, under plans put forward by the oil major, these two share classes could become one as the company ditches the “Royal Dutch” and moves its headquarters to London. The move comes just weeks after activist investor Third Point revealed plans to split Shell up, though it hadn't specifically proposed this latest course of action.

The current set-up is quite complex and the aim is to simplify this.

At the moment, Shell trades under tickers “RDSA” and “RDSB”, with the “A” shares subject to a 15% tax on dividends imposed by the Netherlands; “B” shares don’t, and are the ones usually favoured by UK investors, and trade at a (modest) premium to the A shares.(The A shares, on November 16, were at £17.05 and the B shares stood at £17.09.)

“A” shares pay out in euros and “B” shares in pounds sterling, although the figure quoted is $0.24 for the latest quarter. By having a single pool of ordinary shares, Shell hopes to speed up its plans to buy back shares, which is one of the planks of its post-pandemic appeal to shareholders.

This matters a lot for income investors because Royal Dutch Shell pays out billions to shareholders like DIY investors, funds and pensions. In 2020, Shell cut its dividend for the first time since World War II, but has been trying to play catch-up since with raised dividends and share buybacks. Buybacks reduce the number of shares in issue, with the aim of boosting the share price, and are currently in fashion among large FTSE income payers like WPP and Unilever. We wrote about the trend in our recent top FTSE dividend round-up and we plan to cover the topic in more detail this week.

Climate Pressure

More dramatic changes than a tidying up of the share structure are afoot.

As the name suggests, Royal Dutch Shell has roots in the Netherlands and UK. Its headquarters is currently in The Hague but the shares are listed in Amsterdam and London. Under the plans, Shell will have its HQ in London, while its chief executive and chief financial officer will move here too from the Netherlands. Crucially, Shell will move its tax residence to the UK, where ministers have received the news as a “vote of confidence” in British business.

Unilever, another company with Anglo-Dutch roots, threatened to go in the opposite direction and shift its base to the Netherlands – but reversed this after a backlash from big UK shareholders. The Dutch government is understandably not delighted by the news, describing it as an "unwelcome surprise".

Cynics might say Shell’s decision is not unrelated to the legal pressure the company is under in the Netherlands, where a court ruled its emissions cutting targets are not strict enough.

As Morningstar oil analyst Allen Good explains, though, this move is “unlikely do anything to shield the company from recent lawsuits over emissions”--such is the global nature of the oil business and international treaties on carbon emissions. Companies of Shell’s size can’t use regulatory arbitrage even if the option was there.

What should investors in Shell do?

Naturally, they will be asked to vote on the proposal, which requires at least 75% of shareholders to support it to go ahead.

Morningstar’s Good says the proposals won’t have an impact on the company’s valuation. It retains its no-moat rating – downgraded from narrow – and has a 3-star rating.

Shares have risen 35% this year as oil prices have soared, but Morningstar still values them at £19.40, above the £17 level they are trading at now.

Shell claims a simpler structure will help make its climate transition progress smoother, but Good says the move is unlikely to have any meaningful impact.

Posted at 11/10/2021 11:41 by gibbs1
RDSA [NL] ROYAL DUTCH SHELL PLC EUR 20.675 Real-time Quote. 2.05% Euronext Amsterdam Stock

RDSA [GB] ROYAL DUTCH SHELL PLC GBX 1744.3 Delayed Quote. 1.81% London Stock Exchange Stock

RDSA [CZ] ROYAL DUTCH SHELL PLC CZK 497.95 End-of-day quote. -3.10% Prague Stock Exchange Stock

RDSA [GB] ROYAL DUTCH SHELL PLC EUR London Stock Exchange Stock




Posted at 10/10/2021 17:07 by waldron
Europe Desperately Needs To Diversify Its Energy Supply
By Stuart Burns - Oct 10, 2021, 10:00 AM CDT

Rising energy prices have fueled inflation that was already being stoked by commodity price increase and supply chain problems for much of this year.
Thermal coal prices have risen to record levels, threatening to impact GDP growth in China and India as a result of electricity rationing.
Europe’s energy markets are particularly exposed to supply disruptions despite supposedly being highly integrated.

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We have written twice over the last week concerning the energy crunch, first in China and then in India.

Thermal coal prices have risen to record levels, threatening to impact GDP growth as a result of electricity rationing.

The Financial Times observes that China has suffered a triple whammy of emissions restrictions on power generation, a shortage of coal, and price caps on electricity that mean demand is unaffected as input costs have risen. India, which relies heavily on coal for its thermal power plant, is facing tight supplies and record prices. Nationally, it has only four days of stocks left.
Europe energy costs on the rise

But energy — whether it is in the form of coal, natural gas or oil — is a global commodity. Both Europe and the U.S. find themselves with their own set of challenges, more skewed to the tight natural gas market and rising global oil prices.

The U.K. is not alone but is possibly the most acutely exposed to Europe’s reliance on imported natural gas, particularly from Russia.

U.S. gas contracts for November delivery surged nearly 40% this week to hit £4 per therm (having started 2021 below 50p).

But a surprise announcement by Vladimir Putin yesterday saying Russia was prepared to increase supplies to stabilize prices prompted a sharp sell-off, sending the price down to £2.87.

Whether it stays there will depend in large part on whether Russia can honor that commitment in the months ahead. Russian state gas supplier Gazprom has come under intense criticism for deliberately shipping to no more than its minimal contractual obligations this year. The reality is Russia’s own inventory levels are also depleted after a harsh winter.

Related: WTI Oil Price Breaks $80 For The First Time Since 2014

It is probably fair to say Europe’s energy markets are particularly exposed to supply disruptions despite supposedly being highly integrated.

Many large industrial consumers have complained that the E.U.’s Green Deal to make the bloc climate neutral by 2050 will only push up energy prices further. In turn, that could ultimately lead to social unrest. For example, high energy prices resulted in the French “gilets jaunes,” or yellow vests, demonstrations in 2018-2019.
Inflation, energy cost impacts

Rising energy prices have fueled inflation that was already being stoked by commodity price increase and supply chain problems for much of this year. Rising energy costs and inflation have been contributing factors in the August fall in German industrial orders. Orders fell 7.7%, a far sharper fall then economists had expected.

Meanwhile, rising energy costs have prompted the closure of large energy consumers across Europe, such as ammonia and fertilizer production. Meanwhile, in the U.S., oil prices this week hit the highest level in seven years after OPEC+ decided to maintain current production levels, which will see a planned increase of just 400,000 barrels a day from November.

U.S. administrators have talked about release from the strategic petroleum reserve and even limits or a ban on U.S. exports of crude oil to limit domestic oil price rises. The average price of gas at the pump has reached $3.19 a gallon, the highest in seven years.

The U.S. economy does not appear to be unduly hindered by the price rises yet. The private sector added a higher-than-expected 568,000 jobs in September, the biggest rise in three months. However, with midterm elections next year, high gas prices will not go down well with voters.
Looking ahead

Buyers of European components may expect to see some inflation in prices this year and next. Cost increases are coming, not just from metal prices but energy, wage costs and continuing logistics delays in Europe.

It is to be hoped the continent copes through this winter and cost increases do not derail the recovery. While manufacturers have been riding a wave of unprecedented demand recovery, it should not be mistaken as unstoppable.

A number of factors are converging to push up costs while potentially dampening demand. That makes a toxic mix for a still-fragile recovery.

By Stuart Burns via AG Metal Miner

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Posted at 05/10/2021 18:10 by waldron

Shell share price forecast as crude oil and natural gas prices soar

By: Crispus Nyaga

on Oct 5, 2021

The Royal Dutch Shell share price skyrocketed to the highest level since February.

The stock soared as the price of crude oil and natural gas soared.

We explain why the stock will soon hit 2,000p in London.

The Royal Dutch Shell (LON: RDSB) share price skyrocketed to the highest level since February 2020 as oil and natural gas prices soared. The stock surged to 1,707p, which was about 110% above the lowest level since October last year.
Crude oil and natural gas prices surge

Royal Dutch Shell is one of the biggest upstream, midstream, and downstream oil and energy companies in the world. The firm explores, stores, trades, and sells oil and gas globally.

Therefore, like other integrated oil companies, Shell has benefited from the surging oil prices. The price of Brent surged to more than $83 while the West Texas Intermediate (WTI) soared to more than $80. This is notable since oil prices crashed to the negative zone at the height of the Covid panic in 2020.

The rally was supercharged by an OPEC+ meeting that happened this week. The cartel decided to leave their supply goal intact, meaning that they will continue adding 400k barrels per day every month. This monthly increase was significantly smaller than what analysts were expecting. As such, some analysts believe that oil prices will soar to $100 per barrel soon.

At the same time, the price of natural gas has rocketed to a multi-year high. With countries facing significant energy shortages, there is a likelihood that the prices will keep rising as winter approaches. The natural gas prices are notable since Royal Dutch Shell is one of the biggest dealers around the world.

To some extent, the pandemic helped Royal Dutch Shell and other supermajors like BP and Exxon. It pushed some of these companies to sell non-core assets and cut their costs. As a result, what remained are relatively smaller companies that are more efficient.

Therefore, the Shell share price will likely keep doing well as cash flow rises and the company increases its shareholder returns.
Shell share price forecast

The weekly chart shows that the RDSB share price has been in a bullish momentum in the past few weeks. Indeed, it has risen in the past four straight weeks. At the same time, it has moved above the key resistance level at 1,487p, which was the previous year-to-date high.

The price has moved above the 25-day and 50-day moving averages and the 50% Fibonacci retracement level.

Therefore, there is a likelihood that the bullish momentum will continue as bulls target the next key resistance at 2,000p.

Posted at 30/4/2021 18:03 by waldron
Oil Giants Recover as Prices Rebound -- Update

04/30/2021 | 03:27pm BST

By Christopher M. Matthews

Big oil companies returned to profitability during the first quarter as they recovered from the unprecedented destruction of oil and gas demand wrought by the coronavirus pandemic.

Exxon Mobil Corp. reported $2.7 billion in net income Friday, its first quarterly profit since the pandemic erupted last spring, while Chevron Corp. reported $1.4 billion in first-quarter profit. The results were boosted by rising oil prices during the first months of 2021, as countries around the world soften coronavirus quarantines.

The largest European oil companies, BP PLC, Royal Dutch Shell PLC and Total SE, all reported profits earlier in the week after enduring huge losses last year.

"That recovery, which we had anticipated happening at some point in time, is happening sooner than we anticipated," Exxon Chief Executive Darren Woods said in an interview Friday. "As economies are reopening and rebounding quicker, in some places, than expected, we are seeing a demand response."

Oil companies endured one of their worst years on record in 2020, as Covid-19 lockdowns choked off demand for oil and gas as road and air traffic fell precipitously. Exxon reported its first annual loss in modern history in 2020 of about $22 billion.

But cautious optimism has been mounting that global economic activity could return to pre-pandemic levels later this year as vaccines become more widely available around the world.

Chevron Chief Financial Officer Pierre Breber said that demand for gasoline and diesel was nearly back to pre-pandemic levels, and that jet fuel is the last remaining overhang, with strong signs that domestic air travel in the U.S. is picking up.

"As we look forward, the next couple of quarters look very good," Mr. Breber said in an interview. "We feel good about our ability to generate cash."

Chevron's net income was down about 62% from the same quarter last year, but was a substantial increase from a $665 million loss in the previous quarter. Exxon's $2.7 billion profit compared with a $610 million loss a year ago. BP's profit more than tripled from the previous quarter to nearly $4.7 billion, and Shell reported a profit of almost $5.7 billion.

Share prices for the world's largest energy companies have moved in tandem with oil prices that have rebounded markedly in recent months. U.S. oil prices are up nearly 80% over the past six months, while the shares of Exxon, Chevron, BP and Shell are collectively up about 65%.

On Thursday, U.S. oil prices neared a six-week high of about $65 a barrel but fell around 2.5% in early trading Friday as traders eyed a build in crude and gasoline stockpiles. The share prices of Exxon, Chevron, BP and Shell were collectively down nearly 2% in early trading Friday.

The optimism about oil and gas demand rebounding is being tempered by concerns about rapidly rising Covid-19 case numbers in India and South America, said Bjornar Tonhaugen, an analyst at Rystad Energy. Reduced economic activity in India alone may sap as much as 900,000 barrels of oil a day from global demand, according to Rystad.

"For the moment optimism is helping prices, but every trader's eyes are on India," Mr. Tonhaugen said. "The oil bulls are out again but it's doubtful that they are having a confident and calm sleep."

In response to growing profits, Chevron, BP and Shell boosted their payouts to investors. On Wednesday, Chevron increased its quarterly dividend by 4%, while Shell also raised its dividend 4%, the second increase since slashing it last year. BP said it would buy back $500 million of shares. Total and Exxon held their dividends flat.

The weeklong freeze in Texas that left millions without power in February affected profits for many of the companies, which both produce oil in the state and own plants there to convert the hydrocarbons into fuels and plastics.

Chevron's refining and chemical units reported $5 million in profits, down from $1.1 billion a year ago, which Chevron CEO Mike Wirth attributed to the February storm and continuing impact of the pandemic. In total, the storm cut about $300 million from its profit, Chevron said.

Exxon said the extreme weather reduced earnings by nearly $600 million. Meanwhile, analysts attributed the strong performance of BP's trading unit to its ability to capitalize on substantial price fluctuations during the storm.

Despite the improving conditions, Chevron has pledged to keep capital expenditures austere. Mr. Wirth said capital spending decreased 43% from last year during the quarter, citing its corporate restructuring last year that saw as much as 15% of its workforce laid off. Exxon also has pledged fiscal restraint, saying its plan to cut annual capital spending by about 30% remains unchanged.

Some investors are deeply skeptical of the industry notwithstanding climbing commodity prices, according to Paul Sankey, an independent oil and gas analyst. Most of the companies' share prices are still trading below their pre-pandemic levels as investors evaluate the firms' plans to navigate tightening global regulations on carbon emissions.

Earlier this month, President Biden pledged to cut U.S. emissions by about 50% from 2005 levels by 2030, targeting greenhouse gases from power plants, buildings and the transportation sector. Mr. Woods said Friday that Exxon is engaging with officials on climate policy and has urged the government to set a price on carbon, which it says would spur investment in carbon-reducing technologies.

Mr. Sankey said the industry delivered poor results for years from their core oil business before the pandemic, leaving some to doubt they can reap profits from renewable energy or technologies to reduce carbon emissions, which some of the companies have promised to do.

"Their track record is not good enough for them to get into a new theme, because they did so poorly on the old one," Mr. Sankey said.

Write to Christopher M. Matthews at

(END) Dow Jones Newswires

Posted at 04/2/2021 22:29 by sarkasm
Don't Sell Shell
Feb. 04, 2021 5:24 PM ETRoyal Dutch Shell plc (RDS.A), RDS.BRYDAFRYDBF1 Comment2 Likes

Shell's dreadful stock price action in 2020 is coming to an end. All the bad news has been priced in and the stock offers good value now.
Oil fundamentals look supportive but even with flat oil prices, Shell's financials look to be getting stronger, providing strong dividend cover.
The Strategy Day on 11th February could offer a catalyst for investors to reconsider Shell as a serious Energy Transition investment option.

The December 21st trading update from Royal Dutch Shell (RDS.A) largely foresaw the torrid Q4 results and 2020 full year results just released. In a nutshell, 2020 was an exceptionally challenging year for the oil major.

What should Shell shareholders do? While the company is trying to reposition itself for the new energy landscape ahead, the headlines have been consistently bad for the Anglo-Dutch company. Profit warnings, write-downs, collapsing prices for oil, collapsing refinery margins, the first cut in dividends for decades, a falling share price, and finally the departure of several clean energy executives amid internal arguments over its clean energy strategy have all contributed to the bear market in Shell's stock in the last year.

The 36% fall in the stock price over the last year sounds bad, but there is a fundamental truth in oil markets and that is that the cure for low oil prices is low oil prices. That’s why the weakness in the sector, the cutbacks in production and investment will cause higher oil prices going forward, as I have already pitched in a recent Seeking Alpha article on crude oil, that so far is playing out nicely.

The pessimism about Shell, coupled with some positive signs on the horizon and my bullish outlook on oil in fact make Shell a very good contrarian play.

The fact that December’s profit warning did not do much damage to the share price suggests that all the bad news is already priced in and indeed the stock has started to rise over the last couple of months. The Global Investor thinks this recent price action isn’t a dead cat bounce, but the start of a rally back to a fairer, higher price for Shell's stock.

Oil majors have traditionally been core income stocks for many portfolios but after the first dividend cuts in decades last year, when the dividend was cut 66% it has since been raised slightly in October and now been raised again slightly some more. This gives the stock a current dividend yield of about 3.6%. What’s more, Shell is still slashing costs and capital expenditure, like the rest of the oil and gas industry, and US shale output is falling thanks to weak pricing. This suggests low prices will squeeze out uneconomic supply and help oil prices continue their recovery. And with the rollout of vaccination programs, some oil demand lost in 2020 should come back in 2021, further tightening the supply-demand balance towards higher oil prices.

Another contrarian indicator is that the oil and gas industry is now hated by institutional investors, either for financial reasons or for environmental, social and governance - ESG - reasons and this has simply gone too far. The weighting of the Oil & Gas sector in the main stock market indexes is at lows last seen in the 1990s when oil prices ranged from $10-$20 per barrel.

This brings us to the risks of owning Shell right now. ESG is a new force in the markets, so some investors simply won’t look at Shell for a long time. Long-term oil demand has probably peaked and the switch to renewable sources of energy will be bumpy as the company is finding in its transition efforts to date. Shell also has the risk that it gets stuck with “stranded assets” with its large reserves of oil and gas. This means Shell’s book value is bound to be higher than its market value as investors price in further write-downs to its asset values. Shell has traditionally been a very reliable dividend payer, but the energy transition makes it almost impossible to balance the needs of high dividend payouts with the large investments required in greener energies. While the dividend has been cut deeply to a lower level, investors cannot assume it will rise back to its previous level quickly as the volatility in energy markets and the restructuring needs of Shell will probably dictate otherwise. Indeed, Shell's management has called it a dividend "reset".
The future

It is expected that Shell will outline a radical new strategy at its investor day scheduled for February 11th. The new strategy, likely to focus on clean energy, and to more closely follow BP’s radical restructuring plans that started last year, could appeal to investors who are looking more at the rate of change in ESG factors than in the absolute level of how good a company is on current ESG measures, specifically with respect to climate change and carbon emissions.
Strategy Day on February 11th

Ultimately, The Global Investor expects Shell to try to strike a balance between driving meaningful change towards 'Net Zero' emissions but also to maximize value from existing businesses over the intermediate period. The following are some of the topics I expect Shell to cover in the forthcoming Strategy Day which I expect to help turn market sentiment back towards Shell’s favor.

Net zero by 2050 or earlier – Shell already outlined this target back in April last year but didn’t give much detail and so wasn’t seen as that credible. Shell will probably present its business plan in more detail to get to these targets.

Upstream oil & gas to underpin cash generation. Having made the mega acquisition of gas major BG Group back in 2016, Shell is more committed to oil & gas than BP who have outlined plans to cut production by 40% over the next decade. Given Shell's project pipeline, its portfolio still has some growth potential but during last year’s Q3 results CEO Ben van Beurden said "It’s probably fair to say that 2019 was the high point in terms of oil production". So Shell is probably keen to keep a relatively flat production profile as it looks to sell non-core positions as it uses its Upstream division to act as a key contributor to cash generation over the next decade, through both operations as well as disposals. While this might disappoint ESG investors who argue for more aggressive action, it will keep dividend investors happy as this strategy reduces risks to free cash flow generation.

Strength in natural gas, the bridge fuel. Shell is the world’s largest player in LNG so it’s likely Shell will highlight the role of natural gas as the “transition fuel” helping reduce carbon emissions because of its cleaner properties compared to coal and its vital role in electricity generation. The term "bridge" comes about because natural gas can support renewables over the period where wind and solar still suffer from intermittency issues.

In 2019 Shell said it expected the LNG market to grow at 4% per year over the next few years. Last year management said Shell’s LNG business will not necessarily match the market "percent for percent" which might mean lower capex needs in this division. LNG will remain a key cash generator over the next decade so expect updates on Shell’s LNG outlook on 11th February.

Growth opportunities in hydrogen and biofuels. For renewables, Shell will likely emphasize both hydrogen and biofuels given hydrogen is a natural fit as it is already produced and consumed in Shell’s refining business. Shell already has about 50 hydrogen fueling stations mostly in Germany and California. In biofuels, Shell is one of the largest blenders and distributors globally, partly due to its 50:50 joint venture with Raizen in Brazil.

Shell will likely highlight its expansion in wind and solar, businesses which are getting extremely competitive now. Shell will look to leverage its strong Marketing and Trading positions to sell more electricity to the customers who currently buy fossil fuels from their large global customer networks.

New Energies to account for about 25% of capital expenditure over the next few years. At last year’s 3Q earnings announcement, Shell guided that capex would remain in the $19-22 billion range over the coming years. It gave high level guidance on the breakdown between segments: 35-40% for Upstream, 35-40% for “Transition business”, which includes Integrated Gas, Chemicals and Refining, and about 25% to growth businesses such as Marketing, Power, Hydrogen, Biofuels and carbon capture, utilization and storage with nature-based solutions. The Global Investor expects Shell to update this breakdown and give more detail.

Overall, hydrocarbons will remain part of Shell’s core strategy over the next decade. This gives it less execution risk on restructuring compared to its great rival BP, but makes it more exposed to oil and gas commodity prices.

While ESG investors do play a role at the margin, and maybe a larger role in Europe, The Global Investor still believes the stock market is overall, at least in the long term, amoral. Short term trends matter and ESG has driven investors away from oil & gas but it could also be argued that that’s mostly happened because of weaker financial returns in the sector. If Shell can raise its profits through higher oil prices, Shell can raise its dividends and investors will put a higher valuation on the stock because of higher dividends.

So, it comes back to dividends ultimately. That has always been the driver of Shell’s share price. Assuming oil prices at about $50/bbl over the next few years – more conservative than my actual view – I think Shell will generate $13-14 billion in free cash flow each year. At current dividend levels this implies dividend cover of about 2.5x, a very high number for Shell historically. This means Shell's balance sheet will start to de-leverage quickly. Management has indicated that when net debt falls to about $65 billion it will re-start its share buyback program. This could happen around the middle of next year if oil prices hold. Currently, Shell is guiding for 4% dividend growth per year, but there is big upside potential to this number. Before the dividend reset last year, Shell’s dividend had become unstainable given the investment needed in the energy transition.

Shell’s dividend yield over the last 10 years had bounced around the 6% level as it was always assumed the dividend was unstainable. After the reset a much lower more sustainable dividend yield would be more like 3.5% or 3.6%. Taking 3.6% to be conservative, and a forecast full year 2022 dividend of $1.39 per share for the “A” class ADRs would give us a stock price of about $39, or about 6% higher than where it is at the time of this writing. While this isn’t massive upside, the dividend yield of 3.6% and dividend growth of 4-5% per year offers us good stability. All this assumes conservative oil price forecasts and gives Shell ample room to de-lever and increase share buybacks or accelerate dividend growth, which should further put a bid on the stock price.

Value investors and income seekers should continue to own Shell. Shell is very likely to always be a “Supermajor221; but with its focus shifting gradually towards energy in general and away from its historical reliance on oil but gas will play a major role for a long period. Energy is a core need in society so Shell is likely to be able to keep its large size and retain its status as a core “income portfolio” position thanks to strong and stable dividends. In the short term, rebounding oil prices should help near term cash flows and hence drive stock price appreciation. A successful investor day on February 11th could help change Shell’s perception amongst the sustainable investment crowd and market sentiment towards companies through lowering the climate / sustainability / reputational risk for institutional investors in owning Shell. This sustainability focus for investors accounts for a very large section of European institutional investors now. So things are improving now and it's likely we've seen the low in the Shell share price. The bottom line is that Shell is worth holding as a small part of your portfolio.

Posted at 30/11/2020 11:30 by the grumpy old men
The Shell share price rallied 10% last week. Here’s what I’d do right now

Jonathan Smith | Monday, 30th November, 2020 | More on: RDSB

The Royal Dutch Shell (LSE: RDSB) share price was one of the best performing FTSE 100 stocks last week. If we extend the time period to look at the past month, it’s up almost 50%. It’s true that the FTSE 100 has enjoyed a strong performance as a whole, but the Shell share price is still outperforming its Footsie peers. What’s been going on here?

Why have Shell shares rallied?

One of the reasons the Shell share price has performed well in the short term is the oil price. Crude oil was trading around $35 at the beginning of the month. Now it’s trading above $45. Historically, there’s been a strong correlation between the Shell share price and oil. After all, the business is what we call “vertically integrated” with oil. This means it’s active in all stages of the process. From exploration projects in oil fields, to refining it and then selling it in different forms.

Therefore, it’s logical that the share price is heavily impacted by the oil price. On top of this, there’s been another external factor benefiting the company. The positive news last week, and in preceding weeks, about several different vaccines proving effective is a huge boost for Shell.

If we rewind to Q2 results, oil products sales volumes were down 39%. This was mostly due to the aviation and retail sectors, as the pandemic meant consumers were staying at home. Demand for oil products simply wasn’t there. Now, if we flip to the prospect of a viable vaccine, flight demand should increase. I wrote a piece recently on how this could benefit the easyJet share price. Indirectly, demand for the refined products Shell offers will increase. This should have a knock on impact via a higher share price.

What would I do now?

The Shell share price still sits at a large discount compared to its level in January 2020. At 1,340p, the January level of 2,200p seen a long way away. So as a long-term buyer, Shell is definitely on my watchlist.

But would I buy today? Perhaps not. In the short term, the reasons causing the rally aren’t really Shell-specific. The oil price and vaccine news benefit lots of other businesses as well. The rally hasn’t come from Shell doing something amazing.

This makes me cautious of investing right now, and so I’m going to sit on the sidelines for the next few weeks. More in-depth Q4 results should be due in January. This, along with guidance for 2021, should give me a clearer picture on whether Shell should be my oil major of choice, instead of BP or other oil-related stocks.

A big driver for me would also be any news about reinstating the full dividend that was cut earlier this year. I remember when I used to own Shell stock, I picked up a dividend yield of 5%-7%. A very generous yield returning would likely further boost the Shell share price as income investors buy the stock.

Motley Fool UK

Shell share price data is direct from the London Stock Exchange
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