Shell (SHEL.L) will ramp up its dividend and share buybacks while keeping oil output steady into 2030, it said on Wednesday, as CEO Wael Sawan moved to regain investor confidence that wavered over its energy transition plan.
In a new financial framework announced ahead of an investor conference in New York starting at 1230 GMT, Shell said it will increase overall shareholder distribution to 30 per cent to 40 per cent of cash flow from operations from 20 per cent to 30 per cent previously.
That includes a 15 per cent dividend boost and an increase in the rate of its share buyback programme from the second quarter to $5 billion from $4 billion in recent quarters.
The financial framework is the linchpin of Sawan’s effort to boost Shell’s share performance relative to its US peers after many investors shunned the British company even after it posted a record $40 billion profit last year.
The group has faced concerns that it was shifting away from oil and gas at a time of booming energy prices while returns from its growing renewables and low-carbon businesses remained poor.
Shell shares were up 0.35 per cent at 0750 GMT.
“Performance, discipline, and simplification will be our guiding principles,” Sawan, who took office in January, said in a statement.
“We will invest in the models that work – those with the highest returns that play to our strengths.”
The dividend increase, to around 33 cents per share, is the sixth since Shell slashed its then 47 cent dividend by nearly two-thirds in April 2020, the first cut since the Second World War, in the wake of the COVID-19 pandemic.
The higher payout ratio will make keep Shell “competitive with peers”, RBC analyst Biraj Borkhataria said in a note.
OIL STEADY
Shell scrapped its previous target to cut oil output by 20 per cent by 2030 after largely reaching the goal. It produced around 1.5 million barrels per day of oil in the first quarter of 2023.
It said it will now keep its oil production steady to 2030 and will grow its natural gas business to defend its position as the world’s biggest liquefied natural gas (LNG) player.
Capital spending will be reduced to a $22 billion to $25 billion per year range for 2024 and 2025 from a planned $23 billion to $27 billion in 2023.
Shell’s shift follows a similar move rival BP (BP.L) made earlier this year when CEO Bernard Looney rowed back from plans to cut its oil and gas output by 40 per cent by 2030.
Sawan, a 48-year-old Canadian-Lebanese national who previously headed Shell’s oil, gas and renewables divisions, has in recent months scrapped several projects, including in offshore wind, hydrogen and biofuels, due to projections of weak returns.
On Wednesday it said it is also conducting a strategic review of energy and chemicals assets on Bukom and Jurong Island in Singapore.
NET ZERO
Speculation that Sawan was set to slow Shell’s plans to reduce greenhouse gas emissions and shift to renewables have angered climate-focused investors.
Ramping up fossil fuel production would likely lead to a rise in Shell’s absolute greenhouse gas emissions, even though it said it remains committed to slashing emissions to net zero by 2050.
Shell’s climate pledges are based on emissions intensity reductions per unit of energy produced, which means absolute emissions can rise even if the headline intensity metric falls.
It currently has a target to cut its 2030 emissions intensity, including from the combustion of the fuels it sells, by 20 per cent.
Scientists say the world needs to cut greenhouse gas emissions by around 43 per cent by 2030 from 2019 levels to stand any chance of realising the 2015 Paris Agreement.
Shell also faces a Dutch court ruling ordering the company to drastically cut emissions. It has appealed the decision.