Royal Dutch Shell announces increased Q2 profits of $5.53bn but concerns remain over ‘green transition’

Anglo-Dutch energy firm Royal Dutch Shell has today announced adjusted earnings rose to $5.53bn, the highest quarterly profits since the Q4 2018.

The results exceeded industry analyst forecasts by more than %500m.

The global firm also boosted its dividend by 38% to 24 cents and launched a $2bn share buyback programme, following the rapid rise in oil and gas prices – which was also a primary driver of this quarter’s profits.

Royal Dutch Shell Chief Executive Officer, Ben van Beurden, said: “We are stepping up our shareholder distributions today, increasing dividends and starting share buybacks, while we continue to invest for the future of energy. The quality of Shell’s operational and financial delivery and strengthened balance sheet have given the Board confidence to rebase the dividend per share from Q2 2021 onwards to 24 US cents. We are also launching $2 billion of share buybacks, which is targeted to be completed by the end of this year.

“Total shareholder distributions for 2021 are expected to be around the middle of the 20-30% range of CFFO from the previous four quarters. Our progressive dividend policy to grow dividends per share by 4% annually, subject to Board approval, remains unchanged.”

Shares rose by more than 3% in early trading.

Patience rewarded at Royal Dutch Shell but concerns remain over speed of green transition

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown spoke to Business Leader about the financial results.

Patience has been the name of the game for Shell investors who have been forced to watch and wait as the energy giant has been undergoing a painful green metamorphosis while grappling with the price shock of the pandemic. That stoicism, was sorely tested, but is now being rewarded with a slap on the back of rising returns, with $2 billion of share buybacks and an increase in the dividend to 24 cents a share.

The jump in oil and gas prices pushed up adjusted profits to $5.53 billion, beating expectations and putting Shell back in a position of strength, following the plunge in earnings to $638 million a year ago and the scrapping of the dividend.

There will be questions raised about whether the pay outs planned are far too generous given the scale of the mountain Shell still has to climb to reduce its carbon emissions. Although Shell says it will now move to the second phase of allocating capital to power its transition strategy, these results are likely to lead to fresh calls to accelerate its move to renewables. Already Shell has been ordered by a court in The Hague to intensify its efforts in a case brought by climate campaigners, and that round of legal action is unlikely to be the last to hit the big energy giants.

Shell is trying to be leaner and more efficient by shedding operational costs. The higher cash flow from operations flooding in is helping reduce net debt, which fell by 5.5% over the quarter. But a debt pile of $65.7 billion is still a millstone at a time of costly energy transition.

So Shell still has a tough time ahead, it needs higher oil prices to be sustained to keep on the front foot, and it could also be tripped up as its comes under increasing pressure to step up its renewable shift.