Shell will increase its dividend and cut future spending as part of new chief executive Wael Sawan’s efforts to “simplify” the energy major’s business and increase investor confidence.
Europe’s largest energy company outlined plans to increase shareholder distributions to 30-40 per cent of cash flow from operations, up from a previous target of 20-30 per cent. 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, Shell said ahead of an investor day in New York.
Capital spending in 2024 and 2025 will be reduced to $22-25bn a year, down from a planned $23-27bn in 2023, while group-wide annual operating costs will be cut by $2-3bn by end of 2025, the company said.
Since taking the top job at Shell in January, Sawan has promised to focus on performance in a bid to close a yawning valuation gap between Shell and its US rivals, which 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.
“Performance, discipline, and simplification will be our guiding principles as we allocate capital to enhance shareholder distributions, while enabling the energy transition,” Sawan said.
Despite speculation that it might reverse course on a previous commitment to allow oil production to decline, Shell said that it will maintain oil production at current levels until 2030.
In 2021, the company said its oil output had peaked in 2019 and would be allowed to fall by 1-2 per cent a year until 2030. It argues it has achieved that target already, with production now at 1.5mn barrels a day, down from 1.9mn b/d in 2019.
Keeping production at current levels will allow the company to generate more cash from its oil division for longer, Shell said.
Among other announcements, Shell said it will keep expanding its integrated gas business, invest in hydrogen and carbon capture in a “disciplined manner” and conduct a strategic review of certain refining assets.
In total, it plans to invest $10-15bn between 2023 and 2025 in low carbon energy technology, such as hydrogen, biofuels and vehicle charging, representing about 20 per cent of group spending.
Although Shell will increase gas production and maintain oil output, it 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.
Shares were flat in morning trading in London.