# Shell’s strong cash generation supports additional shareholder distributions in H2 2021

- Link: https://www.directorstalkinterviews.com/shells-strong-cash-generation-supports-additional-shareholder-distributions-in-h2-2021/4121008184
- Published: 2021-07-07T07:29:12+01:00
- Author: Amilia Stone

As a result of strong operational and financial delivery, combined with an improved
macro-economic outlook, **Royal Dutch [Shell plc](https://www.directorstalkinterviews.com/ftse-company/shell/shel.l)**(
LON:RDSA) will move to the next phase of its capital allocation framework and, subject
to final Board approval, increase total shareholder distributions to within the 
range of 20-30% of CFFO, starting at the Q2 results announcement. The level of additional
distributions will be determined with full visibility of the Q2 financial results.

In the second quarter, Shell expects to have further reduced its net debt, although
the extent of the reduction will be moderated by working capital movements. In conjunction
with the increased distributions, Shell will retire its net debt milestone of $65
billion and will continue to target further strengthening of its balance sheet and
AA credit metrics. 2021 cash capex will remain below $22 billion.

**Shell second quarter 2021 update note**

The following is an update to the second quarter 2021 outlook. The impacts presented
here may vary from the actual results and are subject to finalisation of the second
quarter 2021 results, which will be announced on July 29, 2021. Unless otherwise
indicated, all outlook statements exclude identified items.

**Integrated Gas**

**Adjusted EBITDA**

 * Production is expected to be between 900 and 960 thousand barrels of oil equivalent
   per day.
 * LNG liquefaction volumes are expected to be between 7.1 and 7.7 million tonnes,
   reflecting additional unplanned maintenance activities, which are expected to
   impact trading and optimisation results.
 * Trading and optimisation results are expected to be significantly below average
   and similar to the first quarter 2021.
 * Underlying opex is expected to be between $400 and $500 million lower than the
   first quarter 2021, which included higher provisions related to counterparty 
   credit risk.

**Adjusted Earnings**

 * Pre-tax depreciation is expected to be between $1.3 and $1.4 billion.
 * Taxation charge is expected to be between $300 and $600 million.

**Cash flow from operations**

 * Tax paid is expected to be between $200 and $400 million.
 * CFFO excluding working capital is expected to be positively impacted by cash 
   flows related to variation margin.

**Upstream**

Adjusted EBITDA

 * Production is expected to be between 2,225 and 2,300 thousand barrels of oil 
   equivalent per day.
 * Any positive impacts from currency effects are expected to be offset by higher
   Underlying opex from increased planned maintenance activities compared with the
   first quarter 2021.

**Adjusted Earnings**

 * Pre-tax depreciation is expected to be between $3.2 and $3.5 billion.
 * Taxation charge is expected to be between $500 and $900 million, which includes
   a one-off release of non-cash tax provision of approximately $600 million.

**Cash flow from operations**

 * Tax paid is expected to be between $750 and $1,100 million.

**Oil Products**

**Adjusted EBITDA**

 * Marketing margins are expected to be higher than the first quarter 2021, reflecting
   strong retail unit margins, partly offset by lower lubricant margins due to base
   oils and additives shortages.
 * Refining indicative margin is around $4.17/bbl. Definition and formula are provided
   at the end of this release.
 * Sales volumes are expected to be between 4,000 and 5,000 thousand barrels per
   day.
 * Refinery utilisation is expected to be between 75% and 79%.
 * Trading and optimisation results are expected to be average, similar to the first
   quarter 2021.
 * Underlying opex is expected to be between $200 and $400 million higher than the
   first quarter 2021, mainly due to an increase in marketing volumes.

**Adjusted Earnings**

 * Pre-tax depreciation is expected to be between $800 and $1,000 million.
 * Taxation charge is expected to be between $100 and $600 million.

**Cash flow from operations**

 * Tax paid is expected to be between $150 and $350 million.
 * CFFO excluding working capital is expected to be positively impacted by the lower
   cash cost of sales.
 * Working capital outflows are expected due to the higher commodity price environment.

**Chemicals**

**Adjusted EBITDA**

 * Chemicals margins are expected to be in line with the first quarter 2021.
 * Chemicals sales volumes are expected to be between 3,500 and 3,800 thousand tonnes.
 * Chemicals manufacturing plant utilisation is expected to be between 81% and 85%.
 * Underlying opex is expected to be between $100 and $150 million higher than the
   first quarter 2021.

**Adjusted Earnings**

 * Pre-tax depreciation is expected to be between $250 and $300 million.
 * Taxation charge is expected to be between $50 and $200 million.

**Cash flow from operations**

 * Tax paid is expected to be up to $100 million.
 * CFFO is expected to be positively impacted by $200 to $300 million due to the
   timing effect of dividends received from Joint Ventures & Associates.

**Corporate**

 * Corporate segment Adjusted Earnings are expected to be a net expense of $300 
   to $450 million for the second quarter, impacted by favourable movements in deferred
   tax positions. This excludes the impact of currency exchange effects.

**Full-year price and margin sensitivities**

The Adjusted Earnings and CFFO price and margin sensitivities are indicative and
in relation to the full-year results. These exclude the short-term impacts from 
working capital movements, cost-of-sales adjustments and derivatives. Sensitivity
accuracy is subject to trading and optimisation performance, including short-term
opportunities, depending on market conditions.

| **$ million** | **Adjusted Earnings** | **CFFO** | 
| Integrated Gas |   |   | 
| +$10/bbl Brent | 1,100  |  1,200  | 
| +$10/bbl Japan Customs-cleared Crude – 3 months | 1,100  |  1,200  | 
| Upstream |   |   | 
| +$10/bbl Brent | 3,000  |  4,000  | 
| +$1/mmbtu Henry Hub | 350  |  450  | 
| +$1/mmbtu EU TTF | 150  |  200  | 
| Refining |   |   | 
|  +$1/bbl indicative refining margin | 500  |   |

**Indicative refining margin**

The indicative margin is an approximation of Shell’s global net realised refining
margin, calculated using price and margin markers from third parties’ databases.
It is based on an approximation of Shell’s crude intake and production from refinery
units. The actual margins realised by Shell may vary due to factors including specific
local market effects, refinery configuration, crude diet, operating decisions and
production.

Q2 2021: $4.17/bbl

Q1 2021: $2.65/bbl

Q4 2020: $1.59/bbl

Q3 2020: $0.84/bbl

The formula provided will be reviewed and updated annually, reflecting any changes
in our refining portfolio.

Calculation formula ($/bbl) – note that brackets indicate a negative sign

Brent*(25%) + MSW*(11%) + LLS*(24.5%) + Dubai*(24.5%) + Urals CIF EU*(13%) + NWE
Naphtha (RDAM FOB Barge)*8% + NWE Mogas premium unleaded*12.50% + NWE Kero*11.50%
+ NWE AGO*24.5% + NWE Benzene*1% + Sing Fueloil 380 cst*6.50% + Edmonton ULG Reg*
3.50% + Edmonton ULSD*3.50% + USGC Normal Butane*1.50% + USGC LS No 2 Gasoil*7% 
+ USGC Natural Gas*(2%) + USGC CBOB*15% + RINS*(20.50%) + NWE Propylene Platts*0.50%–
$1.7/bbl

**Consensus**

The consensus collection for quarterly Adjusted Earnings and CFFO excluding working
capital movements, managed by Vara research, will be published on 22 July 2021.

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