Last time around, we mentioned that Royal Dutch Shell (RDSB) had “got the jump on its rivals, at least in terms of enhanced corporate disclosure, following the introduction of an update to the third quarter 2019”. Probity is always to be welcomed, but shareholders in the Anglo-Dutch energy giant will have to contend with “post-tax impairment charges in the range of $1.7bn-2.3bn” for the fourth quarter. There were other smaller write-offs linked to unsuccessful wells and decommissioning, though these issues will have a limited impact on full-year accounts.
The group has warned of “materially lower” margins in its chemicals business, while oil product sales have been under pressure. Upstream production is expected in the region of 2,775 and 2,825 barrels of oil equivalent per day, while capex is expected to be at the lower end of the $24bn-29bn range, so while the group has sizeable obligations to replace lost reserves, the sheer scale of its operations affords optionality. Trading conditions and pricing are weighing on valuations, bur the principal kicker of the share price – primacy among the FTSE 100 dividend payers - is aided by the fact that Shell’s dividend coverage has clearly improved through 2019.
There is next to nothing we can say to alter the group’s share price trajectory, particularly given mandated support and a low interest rate environment. After all, would you opt for US 10-year T-Bills or a risk asset with an implied forward yield of over six per cent, assuming oil averages out at $60 a barrel through 2020?
