Shell (LON: SHEL) is to adopt a a “ruthless” approach to “discipline and simplification” with a view to making the most of its existing portfolio.
Group chief executive Wael Sawan has set out plans to “become the investment case throughout the transition” by delivering “more value with less emissions”.
Updating investors at the New York Stock Exchange, Mr Sawan assured the room that the supermajor’s purpose – “to provide more and cleaner energy solutions” – isn’t changing.
Instead, the London-listed group will make choices, and question projects with “one goal in mind” – “every single part of our business needs to help us deliver more shareholder value, while lowering emissions”.
Speaking at the start of Shell’s capital markets day on Wednesday, Mr Sawan said: “It is our commitment to ensure that we make the most out of our portfolio, on a relative basis versus our peers – and this is what I want to drive across the company.
“We are embedding accountability for delivery through the business lines, and deeper into the organisation.
“To deliver excellent performance, you need a company that is focused on creating value and that diligently delivers what it promises.
“That takes discipline; discipline in how we invest and allocate capital, discipline in how we spend, and discipline and how we execute. Every dollar of our shareholders’ money needs to be stewarded with care.”
Scaling back spend to boost value
To that end Mr Sawan confirmed plans to reduce capital spending to between $22 billion and $25bn per year for 2024 and 2025.
In addition he intends to bring down Shell’s annual operating costs by as much as $3bn by the middle of the decade.
At the same time, he confirmed plans to hand at least $5bn back to shareholders in the second half of 2023, in a bid to improve the group’s valuation.
Shell chief financial officer Sinead Gorman said: “We continue to believe that we are undervalued, and as a result we will preferentially allocate capital to share buybacks.
“That is why we are announcing buybacks for the second half of this year of a minimum of $5bn, to be completed by the Q4 results announcement, subject to board approval.
“In short, to be more disciplined in cost and capital generates more cash to support our growing dividend, and continuing with buybacks.”
Mr Sawan did set out specific areas where Shell would be allocating cash, with $10bn to $15bn set aside for low carbon energy solutions between 2023 and 2025.
There will also be “continued investment in oil and gas” in order “to ensure a balanced energy transition”.
Indeed, the group plans to keep flows steady up to the end of the decade, effectively dropping an output reduction target set just a couple of years ago, much to the ire of climate campaigners.
Charlie Kronick of Greenpeace UK said: “Shell’s production cut was always a joke, allowing oil production to fall more slowly than natural decline while boosting gas production at the same time – now they’re showing their true colours.”
Only ‘most attractive projects’ will get cash
Ms Gorman did acknowledge that Shell’s “spend has been at the higher end of our peer group”, something the board id seeking to address.
By “constraining capital”, the company will be forced to make “tougher choices”, meaning that “only the most attractive projects will receive funding”, she explained.
“At the heart of everything that we do will be a ruthless approach to capital allocation and a singular focus on creating long term value,” Ms Gorman said.
“We will make every dollar count, be unemotional with our spend, and deliver performance not promises.
“This is not just about distributions, but also about how we drive discipline across the entire organisation, enabling us to reduce both opex and capex.”