Shell’s gushing profits raises hopes on shares

Gushing third-quarter profits at Royal Dutch Shell are raising hopes that the oil giant will finally cancel a policy which sees it issue almost $1 billion (£753 million) worth of new shares every year.

Shell’s earnings for the quarter came in 47% up on last year’s at $4.1 billion, considerably higher than the $3.6 billion forecast by analysts.

The profits were boosted by a stronger downstream refining and trading business, which has prospered as the oil price strengthened.

The strong results mirrored those at BP earlier in the week and show the oil industry has made a comeback after three barren years of low oil prices.

Brent crude, which has rallied more than 40% since June, has hit more than $60 a barrel in the past week, marking a two-year peak. But analysts think the profits mean it’s time for Shell to cancel its so-called scrip dividend, which allows investors to take their dividend in shares rather than cash. Nicholas Hyett, analyst at Hargreaves Lansdown, said: “The scrip has served a useful purpose, allowing Shell to maintain its dividend when cash was strapped.

“But the pressure is easing and issuing shares that are equivalent to over 1% of the company’s market cap is not only diluting existing shareholders but increasing future dividend liabilities as well.”

Shell did not follow BP which this week revealed share buybacks to offset the impact of its scrip dividend.

Production rose 2% to 3.7 million barrels per day and Shell said it had produced $27 billion of free cashflow over the past four quarters.

Ben van Beurden, chief executive, said Shell’s growing momentum strengthened his belief that his growth strategy was working.

Shell has been making disposals, including a $3.8 billion sale of assets in the North Sea, to focus on higher-quality earnings and reduce its net debt.