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 a promise of a “reckless” focus on financial performance.
Sawan said Shell remained “committed” to its fossil fuel divisions as it 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 important that we avoid dismantling the current energy system faster than we can build the clean energy system of the future,” he said.
Since assuming the highest position in Shell in January, Sawan vowed to focus on shareholder returns to close a yawning valuation gap with US rivals, which have remained more committed to oil and gas production and are valued at much higher multiples of their cash flows.
Holding the investor day in New York, as opposed to London, where Shell is based, was seen by the market as an apparent attempt to attract more US investors.
Shell will increase shareholder returns through a “reckless focus on performance, discipline and simplification”, Sawan told an audience gathered at the New York Stock Exchange.
Shareholder distributions will rise to 30-40 percent of cash flow from operations, up from a previous target of 20-30 percent, Shell said.
That will start with a 15 percent increase in the dividend per share from the second quarter and a share buyback of at least $5 billion 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, CFO Sinead Gorman pledged to cut costs, pledging to cut capital expenditure to $22 billion to $25 billion a year in 2024 and 2025, down from a planned $23 billion to $27 billion in 2023, and cut operating costs across the group by 2 to 3 billion USD 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 in London on Wednesday afternoon.
Sawan’s oil and gas message differed from that of his predecessor, Ben van Beurden, who launched Shell’s 2021 strategy to gradually transform the company into a clean energy provider and reduce its emissions to net zero by 2050.
Shell said the strategy and its emissions reduction targets remained unchanged. She pointed to the $10 billion to $15 billion it will spend on low-carbon energy technologies such as hydrogen, biofuels and vehicle charging over the next three years, representing about 20 percent of the group’s total spending.
But that investment is overshadowed by the $40 billion Shell will spend on oil and gas production over the same period.
Shell’s plans to keep oil output at current levels until 2030 will be seen by environmentalists as a reversal of a previous commitment to allow production to decline.
In 2021, the company said its oil production peaked in 2019 and could decline by 1-2 percent annually until 2030. Shell says it has already met that target, with production now at 1.5 million barrels a day, down. from 1.9 million b/d in 2019.
Sustaining production will require significant new oil production to offset natural declines in existing fields of up to 5 percent per year. In addition, Shell will continue to grow its natural gas business, meaning the group’s combined oil and gas production is expected to rise for the rest of the decade. The company said it plans to add an additional 11 million tons per year of liquefied natural gas capacity by 2030.
Despite this growth, Shell reiterated its commitment to reduce its carbon emissions to net zero by 2050 and said it was making “good progress”.
It has pledged to reduce emissions from its operations – known as Scope 1 and 2 emissions – by 50 per cent 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 and ordered Shell to reduce all its emissions by 45 percent by 2030. Shell appealed the decision.