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RDSB additional distributions

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monabri
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RDSB additional distributions

#444030

Postby monabri » September 21st, 2021, 9:29 am

Bree mentioned this announcement.? I'm surprised there has been no discussion.

viewtopic.php?p=443967#p443967

"Royal Dutch Shell plc
Shell signs agreement to sell Permian interest for $9.5 billion to ConocoPhillips"

"The cash proceeds from this transaction will be used to fund $7 billion in additional shareholder distributions after closing, with the remainder used for further strengthening of the balance sheet. These distributions will be in addition to our shareholder distributions in the range of 20-30% of cash flow from operations. The effective date of the transaction is July 1, 2021 with closing expected in Q4 2021."

(for 'RDSB', read Royal Dutch Shell plc - I guess most UK holders hold the 'B' version of the share).

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Re: RDSB additional distributions

#444161

Postby Breelander » September 21st, 2021, 3:04 pm

monabri wrote:Bree mentioned this announcement.? I'm surprised there has been no discussion.

viewtopic.php?p=443967#p443967



Give it time, the RNS was only issued at 9:35pm last night ;)

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Re: RDSB additional distributions

#444214

Postby Gengulphus » September 21st, 2021, 6:02 pm

monabri wrote:Bree mentioned this announcement.? I'm surprised there has been no discussion.

viewtopic.php?p=443967#p443967

"Royal Dutch Shell plc
Shell signs agreement to sell Permian interest for $9.5 billion to ConocoPhillips"

"The cash proceeds from this transaction will be used to fund $7 billion in additional shareholder distributions after closing, with the remainder used for further strengthening of the balance sheet. These distributions will be in addition to our shareholder distributions in the range of 20-30% of cash flow from operations. The effective date of the transaction is July 1, 2021 with closing expected in Q4 2021."

Perhaps HYPers have been exposed to enough of such events to have realised that they tend not to be all that significant to small shareholders?

Basically, a company sells assets worth about N% of the company's total worth. Its earnings from the assets it retains are probably about N% lower as a result, and it finds that it hasn't any real use for the bulk of the sales proceeds, there isn't anything much that it can do with them other than keep them as cash earning low returns or return them to shareholders - so it decides to return them to shareholders. Its main choices for doing so are:

1) Pay out a special dividend unaccompanied by a share consolidation. For the individual shareholder, this looks good at first sight: money in the bank and they still have just as many shares as they did before. But with earnings down by about N% and the same number of shares in issue as they had before, all else being equal the company's ordinary dividends will need to be down by about N% on what it otherwise would have been, so the shareholder can expect their income from the holding to be down by about N%, and if the "all else being equal" applies to its yield as well, that means the capital value of the holding is down by about N% as well. Of course, that means that the shareholder can spend the special dividend buying their holding back up to about the same capital value as it had before, and that will roughly restore their income from the holding due to their increased number of shares roughly compensating for the lower dividend per share - but that ends up as an exercise in running fast to remain where you are...

2) Pay out a special dividend accompanied by a share consolidation. Earnings are still down by about N%, but so are the shares in issue, so the ordinary dividends per share can be expected to be unaffected and so can the share price. But the individual shareholder's number of shares is down by about N%, so their dividend income from the holding and its capital value can also be expected to be down by about the same percentage. Again, the shareholder can spend the special dividend to roughly restore them, but that's a case of running fast to remain where you are.

3) Buy back shares on the market and cancel them (or put them into treasury, which has pretty much the same effects). Earnings are still down by about N%, but so are the shares in issue, so the ordinary dividends per share can be expected to be unaffected and so can the share price. And assuming they don't sell, ordinary shareholders have just as many shares as they had before - but they also don't have any extra cash, so they're still where they were before, just without the 'running fast'. (Which isn't actually all that fast if the shares are tax-sheltered - just some unwelcome but pretty small trading costs incurred. If they're not, Income Tax on the dividends in options 1 and 2 can be more of a problem.)

From the taxation point of view for unsheltered holdings, buybacks are better than the dividend options, as dividends can force shareholders to be taxed when they would have preferred not to be. But buybacks carry the risk of the company overpaying for the shares to get the job done, and such overpaying is to the advantage of those who sell into the buyback and the disadvantage of those who don't. If that happens, it's a choice of not selling and being disadvantaged by that effect, or selling and having to deal with CGT...

There are a few other options such as tender offers (which are basically buybacks, but done by directly offering to buy the shareholders' shares rather than using the market) and B share schemes: the capital-return-only type still work, which are like dividends (including having the options of being accompanied by a share consolidation or not) except that the tax they may trigger is CGT, not Income Tax. But like options 1-3 above, they can all be expected either to reduce the capital value and future ordinary dividend income of holdings while delivering cash roughly equal to the capital value reduction to the shareholder, or leave the capital value and future ordinary dividend income unaffected while not delivering any cash to the shareholder. And shareholders can easily change one of those possibilities into the other by buying or selling on the market...

So at this point, when the company has done the deal that leaves it with surplus cash to return to shareholders but not yet decided how it intends to return it, there is very little HYPers can do in practice about it - contacting investor relations to ask the company to go for the cash-return mechanism they prefer is one, though their views will almost certainly be swamped by those of large shareholders, and the other I can think of is that if they have cash to invest in more shares in both tax-sheltered and unsheltered accounts and want to invest both in RDSB and other companies, it would probably be a good idea to buy the RDSB in the tax-sheltered account to avoid the possibly imminent larger-than-usual taxation event.

Of course, there is also the question of whether the company has done a good deal, and that question may well be interesting, but the practical reality is that it has been done and nothing looks at all likely to change that.

Gengulphus

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Re: RDSB additional distributions

#444241

Postby csearle » September 21st, 2021, 7:03 pm

Gengulphus wrote:Its main choices for doing so are...
Excellent post. Thank you for laying that out so clearly. C.

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Re: RDSB additional distributions

#444247

Postby monabri » September 21st, 2021, 7:20 pm

I don't agree with #1...that is effectively saying that the asset it is selling contributes to the business in a 1 to 1 percentage ie. sell N% but suffer N% lower earnings as a result.

- The asset might have the lowest return on capital employed of all the other business units and thus the the overall business might be more efficient when it is flogged off.

- The current owners of said saleable asset might be disposing of something that might be problematical to them at a later date either from a political or legislative viewpoint or they realise that this part of the business cannot be run competitivelyor there is a technology change coming rendering their product obsolete.

- that part of the business they are selling off commands too much of the senior management team's attention for the value it adds.

- the funds can be deployed to reduce debt, invest or simply as a sweetener to investors ( after a major shock such as cutting the divi previously during a sticky period).

- a change of direction for the business.

Future dividends might actually increase if the asset is sold.

monabri
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Re: RDSB additional distributions

#445129

Postby monabri » September 24th, 2021, 6:58 pm

I see Brent Oil is near a 5 year high at ~$78 per barrel....almost 4x the price it fell to in April 20. Hopefully, Shell will make good use of these prices!

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Re: RDSB additional distributions

#445146

Postby Dod101 » September 24th, 2021, 8:38 pm

monabri wrote:I see Brent Oil is near a 5 year high at ~$78 per barrel....almost 4x the price it fell to in April 20. Hopefully, Shell will make good use of these prices!


As a shareholder in Shell I like it but on the other hand I am due to fill my oil tank in the next couple of months.......

Dod

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Re: RDSB additional distributions

#445149

Postby Dod101 » September 24th, 2021, 8:46 pm

I am not altogether with monabri on the sale to Permian. I think that in this case, it could be that the sale is entirely neutral to shareholders whilst relieving the Company of some long term liabilities. It looks like an appropriate, opportunistic sale to me.

Dod
Moderator Message:
Unnecessary remark about another poster's posting style removed. Clariman

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Re: RDSB additional distributions

#445155

Postby csearle » September 24th, 2021, 9:42 pm

Dod101 wrote:I am not altogether with monabri on the sale to Permian. I think that in this case, it could be that the sale is entirely neutral to shareholders whilst relieving the Company of some long term liabilities. It looks like an appropriate, opportunistic sale to me.

Dod
I think I must be the born pupil because I am well suited to receiving clarification from anyone that really knows better than me about something (could almost have written anything). C.

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Re: RDSB additional distributions

#445170

Postby Dod101 » September 24th, 2021, 11:28 pm

Hi Chris

Do not rely on me please!

Dod

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Re: RDSB additional distributions

#445173

Postby MDW1954 » September 24th, 2021, 11:54 pm

Dod101 wrote:I am not altogether with monabri on the sale to Permian. I think that in this case, it could be that the sale is entirely neutral to shareholders whilst relieving the Company of some long term liabilities. It looks like an appropriate, opportunistic sale to me.

Dod


On a point of clarification, nothing whatsoever has been sold to an entity called "Permian". What Shell said, as user Monabri correctly reported, is that Shell's Permian assets have been sold to ConocoPhillips.

As an aside, it's probably not in the best taste to publicly criticise a poster's posting style. I hope you won't think I'm carping if I point out that at least G understood what was being sold to whom.

MDW1954

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Re: RDSB additional distributions

#445176

Postby Dod101 » September 25th, 2021, 12:37 am

MDW1954 wrote:
Dod101 wrote:I am not altogether with monabri on the sale to Permian. I think that in this case, it could be that the sale is entirely neutral to shareholders whilst relieving the Company of some long term liabilities. It looks like an appropriate, opportunistic sale to me.

Dod


On a point of clarification, nothing whatsoever has been sold to an entity called "Permian". What Shell said, as user Monabri correctly reported, is that Shell's Permian assets have been sold to ConocoPhillips.

As an aside, it's probably not in the best taste to publicly criticise a poster's posting style. I hope you won't think I'm carping if I point out that at least G understood what was being sold to whom.

MDW1954


I am totally confused . It is as if something has been frozen on 4 September. Something is not right.

Dod

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Re: RDSB additional distributions

#445188

Postby monabri » September 25th, 2021, 9:03 am

Are we looking at an additional distribution of ~88 cents per share?


Source: https://reports.shell.com/annual-report ... eID=148334

Image


7,881,194624 ordinary shares.

( I checked with the Royal Dutch Shell Annual Report to verify both the A and B share quantities.

As a side note, when I looked at Morningstar for RDSB alone, it quoted the combined share value ( ditto RDSA))

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Re: RDSB additional distributions

#445201

Postby JohnnyCyclops » September 25th, 2021, 9:42 am

monabri wrote:7,881,194624 ordinary shares.

( I checked with the Royal Dutch Shell Annual Report to verify both the A and B share quantities.

As a side note, when I looked at Morningstar for RDSB alone, it quoted the combined share value ( ditto RDSA))


I've just divided our holding in RDSB by the number of shares in issue to work out the percentage of the business we own. I think we own one fuel nozzle on one pump someplace in the world. Perhaps I'll find it one day!

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Re: RDSB additional distributions

#445202

Postby Dod101 » September 25th, 2021, 9:46 am

MDW1954 wrote:
Dod101 wrote:I am not altogether with monabri on the sale to Permian. , I think that in this case, it could be that the sale is entirely neutral to shareholders whilst relieving the Company of some long term liabilities. It looks like an appropriate, opportunistic sale to me.

Dod


On a point of clarification, nothing whatsoever has been sold to an entity called "Permian". What Shell said, as user Monabri correctly reported, is that Shell's Permian assets have been sold to ConocoPhillips.

As an aside, it's probably not in the best taste to publicly criticise a poster's posting style. I hope you won't think I'm carping if I point out that at least G understood what was being sold to whom.

MDW1954


Slip of my finger. I meant to say 'Sale of Permian' not 'Sale to Permian' Sorry, an important and misleading slip. However I still think it is basically relieving the company of some long term liabilities.

Dod

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Re: RDSB additional distributions

#445217

Postby monabri » September 25th, 2021, 10:39 am

Just running the numbers through....

2021 dividends
Q1 17.35 cents
Q2 24 cents
Q3:Q4 24 & 24 cents ( a reasonable assumption based on current oil prices?).

Total 89.35 cents

Assumed extra distribution of 88 cents. That would increase the annual dividend to 177.35 cents (129.6p with an exchange rate of £0.7311 = $1).

Yield for the year, 129.6/ 1528, equivalent to a yield of 8.48%.

Hopefully, Shell will be able to increase the 24c dividend next year? This would help pour some oil on last year's dividend cut bonfire. I see this extra bonus as a " sorry for last years shock".

( an off the cuff remark - buyers at sub £10 per share must be pleased).

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Re: RDSB additional distributions

#445219

Postby Dod101 » September 25th, 2021, 10:44 am

monabri wrote:Are we looking at an additional distribution of ~88 cents per share?


The distribution might of course be via a share buyback. In fact is that not quite likely given that a big planned share buyback was aborted because of Covid and the low oil price?

Dod

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Re: RDSB additional distributions

#445223

Postby monabri » September 25th, 2021, 10:57 am

Dod101 wrote:
monabri wrote:Are we looking at an additional distribution of ~88 cents per share?


The distribution might of course be via a share buyback. In fact is that not quite likely given that a big planned share buyback was aborted because of Covid and the low oil price?

Dod


Yes, possibly and maybe likely given the aborted buyback....I was 'travelling in hope' only to be shot down in flames ( ;) ). Looks like we will have to wait and see unless others have more information.

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Re: RDSB additional distributions

#445224

Postby monabri » September 25th, 2021, 11:11 am

A short 5 min videoclip from 2017. ( '$51 per barrel Brent, Shareprice RDSA over £20, cigars $20 ).


https://www.cnbc.com/video/2017/03/09/s ... rmian.html

Shell CEO: Break even price is $40 in Permian
Ben Van Beurden, Royal Dutch Shell CEO, speaks to CNBC’s Brian Sullivan about the volatility in oil and outlook on the industry. With Tilman Fertitta, Landry’s Restaurants Chairman & CEO.

THU, MAR 9 2017

(Interview in a noisy restaurant bar!).

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Re: RDSB additional distributions

#448016

Postby monabri » October 5th, 2021, 12:22 pm

monabri wrote:I see Brent Oil is near a 5 year high at ~$78 per barrel....almost 4x the price it fell to in April 20. Hopefully, Shell will make good use of these prices!



Now over $82 p.b.


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