“Patience has been the name of the game for Royal Dutch Shell Plc (LON:RDSA) (LON:RDSB) 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.
Q2 2021 hedge fund letters, conferences and more
Royal Dutch Shell Is Back In A Position Of Strength
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."
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
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