Royal Dutch Shell Is Setting A Path To Cover Dividends

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Royal Dutch Shell plc (ADR) (NYSE: RDS-A) released a statement for its Capital Markets Day, which outlines a target capex of $25-$30 billion every year till 2020, among other things.

Goldman Sachs’ Henry Tarr maintained a Buy rating on the company, with a price target of €27.

Company Targets

“The company is targeting capex of US$25-30 bn each year to 2020, with potential to dip below the low end of this guidance if necessary. Capex for 2016 is expected to be US$29 bn, down from US$30 bn recent guidance,” Tarr mentioned.

Management expects operating costs to reach a run rate of $40 billion by the end of 2016, 20 percent below the 2014 pro-forma level.

Of the announced asset sales worth $30 billion, Shell expects $6-$8 billion in 2016, with up to 10 percent of the company’s oil and gas production earmarked for sale.

Shell expects to generate free cash flow of $20-$25 billion, with 10 percent return on capital employed, by the end of the decade, at oil prices of $60/bl.

“This implies US$45-55 bn in operating cash flow at that point. We model US$43 bn in operating cash flow in 2018 with a US$63/bl oil price,” Tarr stated.

The targeted synergies from BG Group have been raised from $3.5 billion to $4.5 billion.

“We view the targets as positive, laying out a clear focus on returns and cash flow generation, and setting a path to sustainably cover the dividends at US$60/bl oil prices,” Tarr pointed out.

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Posted In: Analyst ColorLong IdeasReiterationAnalyst RatingsTrading IdeasGoldman SachsHenry Tarr
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