Shareholders set for £100bn Shell windfall

INVeSTOrS in royal Dutch Shell are being promised up to £100bn in dividends and share buybacks over the next five years as europe’s biggest oil group reshapes for the post-fossil fuel age.

The bonanza will be paid out of the anglo-Dutch oil major’s surging cash flow as it reaps the benefit of cost cuts and pays down the debt it took on when it bought BG Group in 2016 for £42bn.

at the time the deal was widely criticised by investors for taking a gamble on a strong oil price and greater exposure to natural gas. Turmoil in the Middle east together with rising demand for natural gas, seen as a cleaner fuel than oil, have transformed Shell.

The higher distribution to shareholders was unveiled by chief executive Ben van Beurden during a strategy update.

The cash bonanza should benefit savers across Britain through their direct holdings, as well as through pension funds and ISa accounts. It comes at a time when FTSe companies including BT, Vodafone and Marks & Spencer have slashed dividends.

Shell will increase capital spending on oil and gas exploration in spite of the search for cleaner fuels. But the decision to give heavier priority to cash returns to shareholders is a tacit recognition that oil is a sunset industry.

Van Beurden conceded that oil demand ‘might peak in the next decade or so’ but that even in a period of decline existing fields will need greater investment.

The group plans capital spending of £24bn per year between 2021 and 2025.

Shell can fund the higher dividends and share buybacks and continue to increase capital spending because of rising cash flow, expected to reach £28bn a year by 2025.

Most of the sums are based on an average Brent crude price of $60 a barrel. There is a view the price will weaken as the US becomes self-sufficient in oil and gas and no longer has to import from the Middle east and latin america.

For investors, the decision by the Shell board to favour cash payouts over exploration and production is an important change of direction.

The majors recognise rapidly changing attitudes of governments to climate change could instantly change the economics of big oil. New projects take decades but in that time higher carbon taxes and the switch to renewables and electric motors could render costly drilling uneconomical.

Shell is planning to become one of the world’s largest suppliers of electricity by the 2030s and has begun installing charging points on forecourts. But Van Beurden says: ‘as long as people are showing up at filling stations with diesel cars we cannot do it (convert to electricity) with renewable power.’

Shell shares slipped 0.3pc, or 8.5p, to 2479p yesterday.