Shell outlined plans to keep investing in new oil and gas production for years to come as chief executive Wael Sawan sought to increase investor confidence with the promise of a “ruthless” focus on financial performance.
Sawan said Shell remained “committed” to its fossil fuel divisions as he unveiled plans to maintain oil output at current levels and grow its giant gas business at a capital markets day in New York.
“It is critical that we avoid dismantling the current energy system faster than we are able to build the clean energy system of the future,” he said.
Since taking the top job at Shell in January, Sawan has promised to focus on shareholder returns to close a yawning valuation gap against US rivals, which have remained more committed to oil and gas production and are valued at much higher multiples of their cash flow.
The hosting of the investor day in New York, as opposed to London where Shell is based, has been viewed by the market as an overt attempt to attract more US investors.
Shell will boost returns to shareholders through a “ruthless focus on performance, discipline and simplification”, Sawan told the audience gathered at the New York stock exchange.
Shareholder distributions will rise to 30-40 per cent of cash flow from operations, up from a previous target of 20-30 per cent, Shell said.
That will start with a 15 per cent rise in its dividend per share from the second quarter and at least $5bn of share buybacks in the second half of the year.
But, despite the dividend rising to $0.33 per share, it will still remain below the $0.47 per share paid each quarter from 2014 to 2019.
At the same time, chief financial officer Sinead Gorman promised to trim costs, pledging to reduce capital spending in 2024 and 2025 to $22bn-$25bn a year, down from a planned $23bn-$27bn in 2023, and cut group-wide operating costs by $2bn-$3bn by the end of 2025.
“We want to improve the underlying health of the business,” Gorman said.
Shell’s shares were 0.5 per cent higher at £23.08 in London on Wednesday afternoon.
Sawan’s oil and gas message was different in tone to that of his predecessor Ben van Beurden, who launched Shell’s 2021 strategy to gradually transform the company into a clean energy provider and cut its emissions to net zero by 2050.
Shell said that strategy and its emission’s reductions targets remained unchanged. It pointed to the $10bn-$15bn that it will spend in the next three years on low-carbon energy technology, such as hydrogen, biofuels and vehicle charging, representing about 20 per cent of total group spending.
But that investment is dwarfed by the $40bn Shell will spend on oil and gas production in the same period.
Shell’s plans to maintain oil production at current levels until 2030 will be seen by environmental campaigners as a reversal on a previous commitment to allow output to fall.
In 2021, the company said its oil output had peaked in 2019 and would be allowed to decline by 1-2 per cent a year until 2030. Shell says it has achieved that target already, with production now at 1.5mn barrels a day, down from 1.9mn b/d in 2019.
Maintaining output will require significant new oil production to offset natural declines in existing fields of up to 5 per cent a year. In addition, Shell will continue to grow its gas business, meaning the group’s combined oil and gas production is expected to rise over the rest of the decade. The company said it planned to add an additional 11mn tonnes per annum of liquefied natural gas capacity by 2030.
Despite that growth, Shell restated its commitment to cut carbon emissions to net zero by 2050, saying it was making “good progress”.
It has committed to cut emissions from its operations — known as scope 1 and scope 2 emissions — by 50 per cent by 2030, and the carbon intensity of the energy products it sells by 20 per cent by 2030.
A Dutch court ruled in 2021 that these targets were not ambitious enough, instructing Shell to cut all of its emissions by 45 per cent by 2030. Shell has appealed against the ruling.
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