Shell outlined plans to continue investing in new oil and gas production in the coming years as CEO Wael Sawan sought to boost investor confidence with the promise of a “relentless” focus on financial performance.
Sawan said Shell remained “committed” to its fossil fuel divisions as it unveiled plans to keep oil production at current levels and grow its giant gas business on 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 pledged to focus on shareholder returns to close a yawning valuation gap against U.S. rivals, which are more committed to oil and gas production and are valued at much higher multiples of their cash flow.
Hosting the investor day in New York, as opposed to London where Shell is based, is seen by the market as an open effort to attract more US investors.
Shell will increase shareholder returns through a “relentless focus on performance, discipline and simplification,” Sawan told the public at the New York Stock Exchange.
Shareholder distributions will rise to 30-40 percent of cash from operations, compared to a previous target of 20-30 percent, Shell said.
That starts with a 15 percent increase in dividend per share from the second quarter and at least $5 billion in share buybacks in the second half of the year.
But despite the dividend rising to $0.33 per share, it will still fall below the $0.47 per share paid each quarter from 2014 to 2019.
At the same time, CFO Sinead Gorman pledged to reduce costs by pledging to reduce capital expenditures to $22 billion – $25 billion per year in 2024 and 2025, against a planned $23 billion – $27 billion in 2023, and to cut group-wide . operating costs by $2 billion to $3 billion by the end of 2025.
“We want to improve the underlying health of the business,” Gorman said.
Shell shares were 0.5 percent higher at £23.08 on Wednesday afternoon in London.
Sawan’s oil and gas message was different in tone from that of his predecessor Ben van Beurden, who launched Shell’s 2021 strategy to gradually transform the company into a clean energy supplier and reduce emissions to zero by 2050. to take.
Shell said the strategy and its emissions reduction targets remained unchanged. It pointed to the $10 billion-$15 billion it will spend over the next three years on low-carbon energy technology, such as hydrogen, biofuels and vehicle charging, representing about 20 percent of total group spending.
But that investment is dwarfed by the $40 billion Shell will spend on oil and gas production over the same period.
Shell’s plans to keep oil production at current levels until 2030 will be seen by environmentalists as a reversal of an earlier commitment to cut production.
In 2021, the company said its oil production had peaked in 2019 and should be allowed to decline by 1-2 percent per year through 2030. Shell says it has already met that target, with production now at 1.5 million barrels per day, down from 1.9 million b/d in 2019.
To maintain production levels, significant new oil production is required to offset the natural decline of existing fields by up to 5 percent per year. In addition, Shell will continue to expand its gas business, meaning the group’s combined oil and gas production is expected to increase for the rest of the decade. The company said it planned to add 11 million tons of additional liquefied natural gas capacity annually by 2030.
Despite that growth, Shell reiterated its commitment to zero carbon emissions by 2050, saying it was making “good progress”.
It has committed to reducing emissions from its operations — known as scope 1 and scope 2 emissions — by 50 percent by 2030, and reducing the carbon intensity of the energy products it sells by 20 percent by 2030.
A Dutch court ruled in 2021 that these targets were not ambitious enough and ordered Shell to reduce all its emissions by 45 percent by 2030. Shell has appealed against the ruling.