Shell pledges to invest in new oil and gas production for years to come

Shell outlined plans to continue investing in new oil and gas production for years to come, as Chief Executive Val Savannah sought to boost investor confidence with the promise of a “relentless” focus on financial performance.

Savannah said Shell remains “committed” to its fossil fuel divisions as it unveiled plans to maintain oil production at current levels and grow its vast gas business on capital markets day in New York.

“It is vital 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, Savannah has pledged to focus on shareholder returns to close the yawning valuation gap against US rivals, which are more committed to oil and gas production and their cash flows. are valued at very high multiples of Rs.

The hosting of the investor day in New York, as opposed to London where Shell is based, has been seen as an open attempt by the market to attract more US investors.

Savannah told an audience gathered at the New York Stock Exchange that Shell would increase returns to shareholders through “ruthless attention to performance, discipline and simplification”.

Shell said shareholder distributions will make up 30-40 per cent of cash flow from operations, up from the previous target of 20-30 per cent.

That would start with a 15 percent increase in the dividend per share from the second quarter and at least $5 billion of share buybacks in the second half of the year.

But, even with the dividend increasing to $0.33 per share, it will still be below the $0.47 per share paid each quarter from 2014 to 2019.

At the same time, chief financial officer Sinead Gorman pledged to slash capital expenditure to $22bn-$25bn a year in 2024 and 2025, down from the $23bn-$27bn planned in 2023, and pledged to cut group-wide by 2025 Operating cost up to $2bn-$3bn by end-of-year.

“We want to improve the underlying health of the business,” Gorman said.

Shell shares were up 0.5 per cent at 23.08 pounds in London on Wednesday afternoon.

Savannah’s oil and gas message differed in tone from 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 Was.

Shell said the strategy and its emissions reduction targets remained unchanged. It pointed to the $10bn-$15bn it will spend over the next three years on low-carbon energy technologies, such as hydrogen, biofuels and vehicle charging, which accounts for about 20 per cent 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 plan to maintain oil production at current levels until 2030 will be seen by environmental campaigners as a reversal of a previous commitment to allow production to decline.

In 2021, the company said its oil production had peaked in 2019 and would be allowed to decline by 1-2 percent per year until 2030. from 1.9 million b/d in 2019.

Maintaining production would require significant new oil production to offset natural declines of up to 5 percent per year in existing fields. In addition, Shell will continue to grow its gas business, which means the group’s combined oil and gas production is expected to rise for the rest of the decade. The company said it planned to add an additional 11 million tonnes per year of liquefied natural gas capacity by 2030.

Despite that increase, Shell reiterated its commitment to net zero carbon emissions by 2050, saying it was making “good progress”.

It has committed to cutting 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, directing Shell to cut all its emissions by 45 percent by 2030. Shell appealed against the decision.