Shell Pledges To Surprise Investors with $7bn Payout On Shale Deal

Barely two months after raising dividends by almost 40 percent and starting a $2 billion share buyback, Shell has again pledged to give its shareholders and investors an unexpected $7 billion payout on shale deal.

The cash pledge by Royal Dutch Shell Plc comes after the company promised to give them three quarters of the proceeds from the sale of Permian shale oil fields to ConocoPhillips.

This development shows that the energy giant is working hard to regain the faith of investors after making a historic cut to its payout last year in the depths of the Covid-19 pandemic.

“For investors elsewhere, a divestment immediately allocated into a buyback to the tune of $7 billion, with balance sheet strengthening on top, is rare,” analysts from Bernstein Research said in a note. It “proves without any doubt that Shell are focused on winning shareholders back.”

Shell’s upstream director, Wael Sawan, said in an interview after the deal was announced, “Of the $9.5 billion Shell will receive from Monday’s sale of the Permian, $2.5 billion will go toward debt reduction. For the remainder, the base case is for that to go as share buybacks”.

The final decision will be made by the company’s board, likely in the fourth quarter when the transaction formally closes, he said. The $7 billion payout will be in addition to the company’s prior pledge to distribute 20 percent to 30 percent of cash flow from operations to investors, Shell said in a statement.

The world’s top oil producers and US shale explorers have increasingly focused on shareholder returns over growth, following years of expansion. Oil prices near the highest level in three years have provided them with abundant cash to do that.

“Being able to transact with a healthy, robust oil price compared to where it has been in the last few years, and in a market that is hotly consolidating at the moment, is a prudent opportunity for us to grab,” Sawan said. The deal gives Shell the equivalent of more than a decade’s worth of cash flow from the Permian assets, he said.

The deal will give ConocoPhillips additional daily production in 2022 of about 200 000 barrels of oil equivalent, it said Monday in a statement. That will make the Houston-based company one of the Permian’s biggest producers.

Omotayo Araoye

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