Q1 2021 Royal Dutch Shell PLC Earnings Call (QA&)

Guidance for 2021 I said disposals, please and then secondly.

Well on the on the upstream restructuring.

Is there a timetable for completing the restructuring and starting to implement the.

Lean operating model easy it already been implemented I wasn't I wasn't quite clear on whether it's yet to come or if it's happening already and I think you mentioned the $7 per unit cost targets.

Why seven is that closer to the cost structure of the nine core areas. What is the significance of that thank you.

I mean, thanks for the questions and I'll start with the first in terms of the delivery on the divestment program.

Clearly a good start to the year in the first quarter are achieving some $300 billion in proceeds from divestments.

A number of assets are looking to to move out of the portfolio, where accelerated where for.

Finding I think in general pretty supportive environment.

And that playing through in terms of delivering on the divestment program and importantly that they're there the assets that were.

We are on the list in terms of how we're trying to upgrade the portfolio. Some of what wild was referring to earlier and importantly, achieving good value on those disposals as well.

So you know our target is to do some $4 billion on average per year. It can be a bit lumpy. We can do it more than one year and a bit less in the next but kind of through the cycle. If you will to achieve the $4 billion. So obviously feel very good in terms of where we sit today, but we're not we're not going to upgrade or update the target at this point in time so for.

Per year on average is a good number.

I hope to be above that this year, there's that potential, but we're not going to upgrade the target and to think of it as kind of an average number per year. Thank you.

Well, thank you Jessica and thank you for the question, let me start maybe with Alaska for questions why for $7 per barrel.

Importantly, what we tried to do in every single one of our assets is to use the benchmarks that are available in the market to be able to see what is the true potential of the assets that we have and when we look at the aspire port for you that because we want to try to get to and we look at the potential of that port for you, we see it as being around $7 a barrel.

So it's very much based not on a generic number that are that we compare but really asset specific and really understanding you know everything from supply chain ability to productivity of labor and so on and so forth and so that's how we get to that number and every single assets are not only in upstream.

And by the way across the organization needs to know what its potential is and that's how Ben and Jessica for example will challenge me and in the course of the reviews around how are we doing against the potential of those assets.

If I then move towards the upstream restructuring.

I think it's important to recognize.

It is fully inflow already and the lean operating model is only a portion of a much bigger change.

The lean operating model has been in operation since the beginning of the year, we haven't waited for that and we're seeing some real real benefits already.

Looking at potentially up to 30% reduction for example, in our Netherlands, a joint venture and similar a similar reductions and in Norway. So where we are really sort of running that model very differently.

But the restructuring is a lot more than than just lean versus core.

Firstly, we're in the midst of.

<unk> of people appointments at the moment and so by August of this year a number of folks will have a will have left shell and that will that is going to be the future organization moving forward. We are reexamining all of our workflows at the moment for how we do work, how we integrate and fully leverage the full strength of shell.

How do we really embed digital into the way we work to simplify the work and make sure that we are unlocking the full value that sits in those assets and so it is a journey that indeed has started a lean as functional already but I would say that this is a journey of a few years with some important milestones coming in August another milestone I would say and.

For 2022, and then real ambitions to achieve the step change in performance over the next two to three years.

Hey, thanks for them.

Next question please.

Yeah.

And that would take our next question from Roger read from Wells Fargo. Please go ahead. Your line is open.

Hey, Thank you good morning.

Or I guess good afternoon to you it's still morning over here in the states.

Just to jump in Jessica on the 65 billion and it sounds like you're probably going to cede share reducing debt by more than the 65 billion target.

And probably coming back around on one of the questions asked earlier about overall capital structure.

Five years out.

Significantly less than 65 billion or do you think that's the right sort of net debt level to think about the company overall and I'm thinking.

Thinking, especially with the energy transition.

Essentially creates a little more.

Uncertainty, whether or not you'd you'd want a lower debt level as we progress through that.

Great I was waiting for the next question, Roger but I'll I'll take this one oh sorry.

Over here, we ask one then we wait for you to answer to ask another [laughter] okay. Good.

So in terms of the 65 billion debt that was always a way point it wasn't kind of a destination. So we would.

It looks to continue to reduce debt over time.

We look at debt levels relative to the overall strength of the balance sheet and in the company in particular the relationship of debt levels to cash flow levels would.

Would be one element as well as Gary and others. So it is always relative to kind of other things that are happening.

Given the company, we are today and our current understanding odd.

Aye.

Moving more towards something like 55.

I would be Directionally is what I would say based on the company. We are today, but it is a function of the cash we're generating as a company in the circumstances that we're operating in which May mean, it could be slightly higher or slightly lower the other thing I would say is that the.

The balance sheet as a.

It gives us resiliency. It also gives us flexibility. So you can also choose.

To just create a bit more flexibility and b, even stronger balance sheet, depending on where you are in the cycle that might be the most prudent and wise thing thing to do so.

Directionally 65 was a milestone will keep thought.

Deleveraging for the reasons, you mentioned, but also to build an inherent financial flexibility in the organization as well as to provide the right level of resiliency for the company.

Okay and then.

My follow up question on.

The energy transition and just sort of looking at some of the additional disclosures you were you put into the presentation here.

B specifically.

Slide 26.

Integrated gas and it shows.

Destination pipeline, LNG and gas to liquids I guess I've always thought of gas to liquids is a fairly energy intensive process and so as you think about the energy transition and moving things along.

Is that the type of project that ultimately doesn't score, particularly well or am I misinterpreting the b overall process there.

Thank you Roger and given that while he used to run the G. T. L. S [laughter].

I'll, let you answer that for sure.

Good morning, Roger Thank you for the question.

I think I think firstly, you're right to say that the carbon intensity of the GTR processes is higher than for example, the LNG one.

In reach.

Recently, we have announced that we are not going to go forward with with more GTO projects in the ports for you we will really focus on maximizing the value out of our existing portfolio of GTO projects, which is mainly.

But also in Malaysia.

And that has multiple reasons, including just being very choice for in the way, we allocate capital, but also of course every single one of our investment decisions right now as has been for a while has a significant.

Carbon intensity lens on it as well and therefore, that's a that's an element that we keep in mind.

The fact that it has carbon intensive we continue to look at opportunities as has for example, the Pearl GTA altium and cause us to be able to operate within envelopes that minimize the carbon intensity of those assets and they've been making good progress and we continue of course to explore opportunities at the right time for for example, carbon capture and sequestration.

Where possible and supported by partners and so I think I think strategically don't expect.

New GTO projects, but indeed, we continue to make sure that we manage what we have at the moment.

Got it.

One thing I would add is alright. Thank you.

The emissions profile of a G. T L product is actually quite good. So when it is burned it burns as a cleaner fuels. So if you want to lower.

Nox and Sox submissions.

When fuel is used it's actually our preferred products. This is some of the dilemmas that can emerge through the energy transition you can have a more intensive process.

Actual product once it's used can have more beneficial environmental attributes to it which many of our customers appreciate.

Next question please.

Well now move to our next question from Lucas Herrmann from Exane. Please go ahead. Your line is open.

Thanks, very much Jessica thanks for the opportunity and it's great to see another strong quarter, where the cash flow is excellent.

I mean, if I look back over the last two years you know your cash flow has tended to be your operating cash has tended to be 30% greater from your largest peer.

Yeah, but you still continue to trade it broadly hall, but largest kids value when he's also trade more loaded them for most of your European peers and I appreciate that Youre doing a lot in terms of.

The information Youre, providing us with.

If adopted around the individual businesses from my mind anyway seems sensible and very coherent.

But is there a point at which you decide what the market's really telling you is the structure of show per day, just doesn't work for it and the like.

Actually you know the volume that you're leaving all the volume that you're effectively taking away from shareholders, but not reconsidering business structure.

<unk> expenses relative to the potential maybe of the balloon to them, but you know the adjacencies in your business and your business structure overall.

As to the broader group's ability to transition.

And sure at what point do you decide that you got to do more for half the value that sits in your business, but I think many people believe your business recognized in your share price.

Okay.

Lucas Thank you for that really important question.

And let me, let me start by saying that I I personally believe that where we are.

Undervalued in the market and that the fundamentals of the company arent being fully reflected and.

And in our equity value in the market.

We have consistently delivered industry, leading cash flows.

By business and and in totality, we've got key differentiated strength and in our portfolio today and frankly I believe we've got the right strategy.

To ensure that we create value for the feature as well.

Yeah.

Lucas I think we've spent a lot of time over the last couple of years thinking about the energy transition thinking about the future of energy and the role that we can play and where we've landed is we have unique differentiated capabilities that we think are needed are necessary and will make a difference in terms of providing real solutions.

<unk> as soon as possible, but also creating differentiated value our presence throughout the energy value chain the existing assets that we have.

You know starting from the strength of the cash flow we generate in upstream.

The strength of our LNG business from a midstream perspective, and and and the strength of our chemicals business, which is coming through and as we reshape our refining assets for a low carbon future, we can use existing assets and existing capabilities to provide the fuel that's needed in the future leveraging over 100 years of expertise.

Across that entire entire value chain. So I think Lucas it's a story about continuing to demonstrate day in and pay out we've got the right strategy. We've got the right assets, you've got the right people and you can see that in our financials and.

We'll provide more information, we'll provide more disclosure, we're going to push hard on transparency and I think as these dots get connected better by society in terms of understanding what the energy transition will require.

What we have to offer our ability to manage these challenging complex issues and to redesign energy systems.

Are things that few companies can do that shell is uniquely placed to do.

I I believe that you know we stay at it we we focus on the things that we can control.

Which is our strategy, which is our portfolio, which is our performance and I think these things will come right and will be reflected in our share price over time.

Yeah.

Next question please.

Well now move to our final question from James Hubbard from Deutsche Bank. Please go ahead.

Yes, hi, thank you.

The number two and a half million charge points for our 2030, just catches my eye and I know you. So I've mentioned earlier for ex the oil products of what you actually produced but still two and a half million that's like 25 times.

The target of your newest per that I'm aware of anyway.

And.

And then I look at the detailed in and then it says including owned by customers and third parties. So I guess I'm just wondering.

Just two and a half million charge points does that have value in its own right like each charge points will make your money, even if it's owned by customers third parties franchisee holders.

Or is it falling on from the question earlier, just that's just part of your.

Trading strategy by having the outlets you can see it in the middle and have this monster trading business in electronics.

Day that you have in the oil at the moment. So that's my first question and my second question was again just following on from the question just now about LNG and GTO, you'll you'll fly does kind of imply.

And LNG into GTO chain.

It is.

Beggars belief that that's actually the plan. So did I read that wrong is that some projects, where you're thinking you're feeding LNG into GTO.

Okay.

No on the second point, so apologies that the chart wasn't sufficiently clear on that point. So now it's if gas into G talent as it is not LNG into detail since that was.

Uh huh.

So sorry for any confusion that may have caused.

On the first question in terms of the ambition on the charge points. There are a lot of numbers that fly around with respect to charge points and all companies are representing differently.

There are different flavors. So there are charge points that are shell owned and operated at our sites. There are charged points that are owned and operated by shell not at our sites.

There are charged points that our partners own, but perhaps maybe we operate and then there's getting access to a network a little bit like your bank card you can use any I E.

American term its ATM, you know any any cash distribution site.

And your your bank provides that interface for you.

So this two and a half million touches on all of all of those different models and a couple of points, there's different value propositions with with each of those models ones on our site will have their own proposition.

You Beatrice City, which we purchased in the quarter, that's gonna give charging at light Poles.

And in cities, so, creating more infrastructure and dense urban areas and to allow people to charge cars, which is a I think a really interesting and innovative solution for a for a growing need across the world.

Each of us will have their own value proposition as you said, though in the middle of all of this which is core to shelf.

Value creation today, and how we can see even for our value creation in the future is our trading and supply and how we match demand and supply whether it be going back to the question at the beginning on these the the virtual power plants.

Or how were work with these different charging stations those will be sources of demand those would be essentially short electron physicians. We will have different long entered electron positions and we use trading to optimize that and discharge points in different degrees will offer that platform as well in terms of us being able to Maxim.

The value, we can get associated with the electrons that flow through those charge points. So hopefully ive answered both of your questions and I think that was our last question for today. So I'm going to go ahead and close down and say thank you for your questions and for joining the call today.

I Hope this is giving you insights into our performance in the first quarter in 2021, we will host our annual general meeting on May 18th.

And we look forward to seeing you at our upstream strategy day on May 25th have a great rest of the week and please stay safe everyone.

And this concludes the session. Thank you for your participation you may now leave the call.

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