A Review of the Nigerian Energy Industry

Shell gives condition to buy back its $25b shares

Shell.

OpeOluwani Akintayo

12 January 2018, Sweetcrude, Lagos — The Anglo-Dutch multinational oil and gas company, Shell has given one condition for buying back its $25 billion shares from 2018 through 2020.

Shell Chief Executive Officer, Ben van Beurden gave the condition in a statement while reflecting on 2017, and setting out the company’s priorities for 2018.

Towards the end of last year, Shell said it would turn off the scrip dividend – the payment of some of the dividend in shares rather than cash – and buy back some of the extra shares already issued to shareholders.

According to the statement, buying back of shares rests on the company’s progress on more debt reduction and oil prices recovery.

“The buying back of shares is, of course, subject to progress on further debt reduction and recovery in oil prices. So we still have quite a way to go,” he said.

The CEO also said it would cancel the scrip from last year’s fourth quarter onwards, however, revealing that it was yet to start buying back shares, although plans have been confirmed for buying at least $25 billion in shares between now and 2020.

In November, Shell had announced a full cash dividend payment for its investors for the first time in more than two years.

It would be recalled that due to crash in oil prices since mid-2014 and huge spending in divestments, the company had earlier resorted to partly paying its investors in Shares.

The company paid about $16 billion in dividends in the past years, with about $4 billion in Shares, resulting in the underperformance of its Shares.

However, it had announced that as the price austerity begins to wind down, its investors will now begin to get full cash dividend.

Beurden, in a statement last year, had said the move was “aimed to ensure that our company can continue to thrive, not just in the short and medium term but for many decades to come”.

As at 12 months to September 30, Shell’s organic free cash flow of $17 billion could not cover the full dividend bill plus interest on its $68 billion net debt.

With further progress on cost-cutting and new projects landing, Shell said assuming oil price stays at or above $60 per barrel, it will have free cash of $25-$30 billion by 2020, nearly double the annual dividend cost.

For now, Shell with $287 billion of capital employed, said investment in new energy will be just $1 to $2 billion annually.

Its free cash flow projection has been boosted by cutting down on capital investment, and it said its investments in capital projects will remain trimmed even if oil prices rise.

Shell plans to use any surplus cash for debt reduction or buy back its $25 billion Share issuance for the dividend.

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