Q1 2022 Shell PLC Earnings Call (Q&A)
Color.
We will stay disciplined with our investments and any incremental capex will be to provide energy security and accelerate the energy transition.
Including our investments in spring energy, our cash Capex will remain within the $23 billion to $27 billion range for 2022.
Strong cash flows and healthy balance sheet and continued disciplined delivery of our strategy gives us a solid foundation to invest in the energy transition whilst also safeguarding the company.
With the current macroeconomic outlook, we expect to be distributing more than 30% of our CFO in the second half of the year subject to board approval.
We will provide more details on our capital allocation framework at our Q2 results announcements.
Our delivery this quarter demonstrates leading role we intend to play in the world's energy security and transition to a low carbon energy system.
<unk>.
We will now begin the question and answer session.
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Thank you for joining us today, we hope the presentation shared how we continue to invest in the energy transition and energy security, whilst navigating a complex geopolitical and macro environment.
Today ban, while and I will be answering your questions, while we'll not address Russian with ask your questions to two sanctions restrictions.
Please can we just have one or two each so everyone has the opportunity.
With that could we have the first question please for failure.
Thank you <unk>, we will now take the first question from Oswald Clint from Bernstein. Please go ahead.
Yes, good afternoon, everyone. Thank you very much.
Yeah, two questions, perhaps the first one on gas and the second one on the power portfolio just in terms of natural gas. The video talks about how you are engaging with governments and of course, you've been nimble to sign up this Mou with Germany.
But I wanted to ask your question and see could we see a European corporate our European government really hand shell, a 15 to 20 year long term LNG contracts.
I just think that that's something that may not have been possible a few years ago, but could actually be possible going forward and obviously has big implications and I see you have brought forward some QVC gas from pre IND to under construction it looks like Youre moving a little bit faster here on the on the LNG options. Perhaps you are while could could actually talk about that.
Please my.
My second question was just on spring energy in India. It didn't have a lot of detail without one so curious about if you could explain that the criteria youre looking at the select candidates like this I'm sure you look at hundreds up and apart from the financial aspects what makes it truly integrated as <unk> just mentioned in her comments. Thank you.
Thanks also to struck three questions in there, but I think I'll pass buyers with American Airlines, while over to you of course. Thanks Oswald. Thank you for the question, maybe starting with the first one around natural gas indeed.
We've now moved to sign an agreement on the Burns brittle terminal in Germany.
And it's important to recognize right now it's not that Europe is necessarily short of import terminals.
In general, but they're concentrated potentially in some of the places where you don't necessarily have the interconnectors to northwest Europe , where we simply have shortages and of course into some of the eastern European countries as well and so it's how do we create although <unk> to be able to do that.
It's difficult at the moment, given the infrastructure of the importation into Europe to see anyone looking at term contracts here, but I do think it's going to be a critical part of the overall puzzle. If you are to have truly the sort of energy security that you need in Europe .
Who knows how it's going to go so I'm not going to speculate as to whether from a government perspective or private entities step into that void, but I do think if you're going to attract longer term volumes, you're going to have to see some of that.
You touched as part of that first question on LNG, and where we're going with that.
I do want to sort of flag, the 2 million tons per annum that we signed up with venture global from Plaquemines.
Angie exports facility that adds to the 2 million, we had already taken from venture global.
From Calcasieu.
I think these are great opportunities for us to continue to add to our build portfolio. The likes of an LNG train seven the likes of LNG, Canada first two trains.
Some by volumes and that gives us the global reach that I think makes this portfolio incredibly unique and I think the leading integrated.
Integrated gas portfolio in the world.
If I touch on spring energy. So what are the criteria, we use and maybe just to provide some context on spring I think firstly.
Incredibly excited to have the opportunity to play in the third largest energy market in the world.
And in a country that welcomes foreign investment and in a country that is moving ambitiously on the renewables targets why did we like this one we start from the perspective of creating value customer back we have a number of customers and particularly with C&I customers in India that wanted to be able to have a 24 hour power.
I want to be able to have.
Leaving of gas with power and maybe in future Green hydrogen so we need the foundational platform to be able to give us that.
We have line of sight towards the north of 10% returns on.
That allows us to be able to build these integrated value chains.
With this platform, we achieve that we bring in a team of over 100 people that have real expertise demonstrated capability. We bring in a demonstrated capability also in terms of serving utility markets, which we will hone into more and more C&I a supplier.
And I think we also add of course immediately some three gigawatts of operated and contracted capacity and another seven in the house Gigawatts funnel beyond that.
So I'd say the key elements or is it in the right ZIP code does it show a pathway towards achieving with our customers want and does it give us the sort of returns we would expect and finally of course can we buy it at the price that's going to make this overall and attractive value proposition on all those fronts. The answer was yes, and Thats why we went forward with it.
Thank you while Cvs could we have next question. Please.
The next question comes from lithium reinforced from Barclays. Please go ahead.
Maybe I'm not hearing you yet John .
Sean.
Yeah.
We should move on to the next question from <unk> <unk> from RBC. Please go ahead.
Hi, there.
Two questions first one I actually wanted to start with the observation youre looking at your underlying cost of $22 billion.
You're generating more free cash flow. This quarter, then youll two U S competitors combined.
This is actually happened before in the two times that happened before as well this quarter and then.
Second quarter of 2020.
We had significant volatility in both periods and you seem to be able to benefit a lot more than your peers.
From the volatility. So my question is on trading.
One of your peers has talked about a 1% to 2% improvement in roissy from from trading on a ratable basis as a rough guide for shell it intuitively across oil and gas and electricity. It feels like it should be higher than that but it's very difficult to quantify.
Is there any guide or comment you can provide and help quantify.
What trading typically has to see that over the medium term.
And then the second question is on.
Secondly in LNG I appreciate you've taken it out of.
Kind of your guidance.
In the near term, where you're still contracted.
And presumably the product still exporting is your guidance on in the LNG from effectively understated by the second an amount just trying to think about how that will flow through to earnings.
Thank you.
Makes sense, thanks, Brian I'll take the first one and while our past Sakhalin one tier.
Thank you for the question and thank you for the comments on our very strong cash flow.
<unk> of course as you would expect.
I won't comment on our competitors or anything around that but what I would say of course is trading pays an integrated part in our results always on it hits across all of the different elements, whether that's in an upstream where its looking at highly offtake from the likes of Brazil, whether it's in integrated gas, which of course, you have hired why I'll talk about but also in our <unk> business.
As well, where we've talked about of course, some of the pipeline gas moving through and the power sales, but particularly this quarter, it's fair to say that NR and chemicals and products area, particularly on the product side, we had very strong trading and optimization results and the team did an excellent job there.
Fundamentally this is all about integration for us it flows through across all of our portfolio and what you would have seen this year in terms or sorry. This quarter, specifically is as you move from our EBITDA or adjusted EBITDA intra <unk> you would have seen particularly on the derivative side $2 2 billion coming through in terms of a help on that which.
It helps towards that $22 billion as well.
Fundamentally you will continue to see our trading business stayed very close to the assets continue to drive some of the results that we see.
Yeah. Thanks Shannon.
Just I'll keep it simple.
Sakhalin in essence, it has been delivering roughly 90000 barrels a day for us and 0.8 million tons a quarter.
That comes out as of the second quarter.
In terms of when you will no longer see it. So when we talk about guidance I would say seven four to 8 million tons of course that is net of taking out that 0.8 million tons from cycling and when it comes to the financials of course.
Until we are able to totally get out of it which is which we hope will be soon.
They're.
Essentially that flow through the normal dividend flow that plays into it.
Thank you Al just hey can we have next question. Please.
Next question from Erin <unk> from Societe Generale. Please go ahead.
Thank you very much good afternoon most of my.
My question is around marketing following your new disclosures today so firstly.
When I look at your adjusted Lubricants earnings in Q1.
We're down 13% year on year mobility is down 29% I Wonder if you can talk about.
The trends, you're seeing particularly in demand with Covid lockdowns, but also on margins. Obviously, there's a time lag before you can pass prices on except they're now various government efforts to limit that so across the global shell portfolio are you seeing some earnings recovery in lubricants and mobility. So far in Q2 and then.
Any any guidance you can to share financial year importantly.
Q1, marketing free cash flows 1 billion negative in the quarter and.
You gave us today.
Quota hysteria that it's only the third quarter. When you had a negative free cash flow marketing, so any guidance would be used for furniture.
Thank you.
Thank you great questions in there as well so sorry, I'm just kidding.
I look towards some of the questions answer Youre right in terms of marketing volumes, we are seeing that as Don that's a little bit about seasonality of course driving season et cetera, but also of course knock on effect of some elements of kind of it as we see in particular in China et cetera, I'm really pleased however, when you look at the lubricants and results, yes always a struggle in terms of the knock on impact.
In terms of demand, but the margins are strong and the team is doing a great job there.
Specifically, what you asked about as well as R&D and <unk>.
$1 billion of negative free cash flow as you flagged that.
Now remember of course in this sort of hiring it's all about our working capital. So of course if prices like this that's what you would expect and you're really seeing that flow through but in terms of further upside just bring you back to of course. The fact that we have an incredibly strong libs business at one eight machines around the world are protected by shell lubricants and that's a fantastic.
Set of results I think that and of course, we serve more than 1 million customers as well. So I hope that helps a little bit within look forward.
Thank you.
Cecilia can we have next question please.
Hey, Dan <unk> from Barclays. Please go ahead.
Thanks, and hopefully I've got it would sound this time.
Two questions if I could if I just come back to.
Makes it associated with the Russia, Ukraine invasion has anything changed within Michelle chassis and other things that youre accelerating your looking at ethane from outside and other than exactly additional buybacks and then the second one.
Are you seeing difficult from a cash amongst different stakeholders, because clearly energy prices at the highest levels that they can interact with that I think just because it's how you balanced disciplined prospectus different stakeholders. Thanks.
Thank you thanks, Andy Yeah, and Great. Let me forget your backend sorry about the issue of previous bank.
Can I suggest you take the first one and then I'll take the second one on cash.
Sure.
Thanks for the questions.
Well the maybe the short version of the answer is nothing has changed our strategy is still very much the strategy that we want to execute.
I believe it's the right strategy also for the circumstances that we are facing.
And of course, you have to bear in mind that.
The purpose of the company being providing more and cleaner energy solutions that is exactly what the world needs in response to the crisis that we're facing but we need more energy I mean definitely it's cleaning cleaner energy, but we also need more energy security. So the energy transition. Therefore can also be seen in that light.
We've talked about share buybacks, maybe change well kind of also say that's the performance that we are seeing this quarter of course has been helped by the macro and the macro has been impacted.
By the war in the Ukraine, but at the same time, the macro was already strengthening in the run up to two this quarter.
We're also seeing of course is a much better operational performance and a stronger portfolio. So it's not necessarily a windfall in that sense coming from Ukraine more do have a better company, we do have better performance and yes. Indeed.
<unk> will benefit from that as well.
Thanks, Dan.
Lydia Your second question really was around that balance with different stakeholders, how we deal with cash of course first and foremost we have to think about our customers and of course, it's a difficult time, what we have done there is to ensure that we have some support mechanisms in place or if I look to the UK as an example of course, where we are seeing some of those.
In terms of the cost of energy, we put in place millions of pounds worth of funds to be able to support. We're also looking at things like payment holidays timing of bills et cetera, just to make sure that we are that as much as we can be for the customers as well.
Beyond that of course, it is about continuing to invest and particularly if I take it to the U K again by investing in the transition and making sure. We continue to spend our dollars wisely fundamentally making sure. We're very focused on where we spend that money and of course, keeping within the capital discipline that we've talked about before of 23 to 27 billion.
And that that if we take a tour.
Shareholders can we talk about that as well as you can see we've said that we expect in the second half of this year to be distributing.
In excess of 30% of our <unk>, but at the same time of course.
The EM progressive dividends that we have going through as well and as you know rather than trying to firm up the balance sheet. So it really could see and the stability coming through on that in the balance sheet of course, you saw the net debt to go down to 48 5 billion, which was great.
Lithia.
Cecilia can we have the next one please.
Your next question comes from Mackenzie <unk> from Jefferies. Please go ahead.
Thank you very much bench you need then while and congratulations on the very strong cash flow two questions. If I may 1st on the new renewable energy solutions line very strong start at 500 million EBITDA clearly strong contribution from trading but I was wondering if you could give us a 3% too high.
Your outlook of where you expect EBITDA to grow in such an important business for your long term strategy and secondly, also very welcome the increase in net cash.
Cash returned to shareholders in the second half to over 30% of CFO , which if the current macro environment and George May mean.
<unk> <unk> billion in the quarter and I was wondering if there is a limit to how much buyback you can execute in a quarter given the liquidity in the market and whether that may need to entail some form of special dividend. Thank you.
Okay. Thank you Mikael.
Well would you mind, taking the first one I'll take the second one of course, thanks, Shannon Mccann and thank you for the question.
<unk>.
Of course, it's nice to be able to start the reporting of brands with healthy half a billion dollars of EBITDA.
But of course. These are these are times, where both the macro has significantly helped and of course seasonality is while Q1 tends to be a very strong quarter.
From a demand and trading perspective, we're not giving at this stage and outlook over the coming years. What I can say is we are really looking at building the foundations of many of what I would call the <unk> assets.
And to be able to over time get that that becomes a larger portion of the overall contribution trading is doing a fantastic job. I mean, we are one of the largest gas and power traders in the U S.
Pleasingly there has been a lot of progress in our European trading desk as well.
And what you will find is that we will continue to build out capacity over the coming years, but.
But it's also important to recognize as we bring that transparency. This is an area we're going to be spending on so this is going to be for the next few years and an area, where we are building. The foundation that hopefully is going to generate the sort of returns the sorts of.
Cash flow contributions that we expect towards the latter part of the decade, where it becomes I think much more much more of a meaningful contribution in the bigger scheme of things, but very proud of what the team has done I'm pleased with the trajectory that they're on.
Thank you will.
And you asked specifically about the cash returns and the more than 30%. So of course, we fully intend to come back to you in the Q2 results and be able to go into more detail. So I won't speculate where we will end up on that but we'll come back with a lot more details, but you also asked whether or not there is a limit to how much we would do in terms of the buybacks.
What I would say of course as we've already done $4 billion of the $8 5 billion for the first half that we talked about doing in terms of buybacks, we expect to see the remaining $4 5 billion to complete before the end.
<unk> results that we come out with but that doesn't mean, we are heading with the technical limits in terms of the buybacks that we can do it.
Saying that one of the things Youll see at the AGM of course is that we have at a resolution to alive for and in fact off market share buyback for allows us to go broader to go into other markets like China in a variety of places to be able to buy excess shares.
So that gives us a little bit more flexibility as Macau as well.
Wind it up we'll come back to you with more at the Q3 results. Thank you.
Thank you David can we have the next question. Please.
Yeah.
Next question from Henry Patrick <unk> from UBS. Please go ahead.
Yes, Hello, everyone. Thank you for the update.
Couple of questions. Please the first one.
On the Capex.
You made in the opening remarks with the.
Capex remaining moving mid $23 million to $27 million range flow for this year I. Appreciate you talked about the lower end of differential we took and what I can do in the middle of this range now and the second thing on the Capex when you mention.
With any incremental Capex Rodman and I'm just curious.
The energy transition.
What does that mean that the.
The PSC is very much.
Around the low carbon or could you see we will see some more around gas and LNG.
And then Tony just a question on the refining side, where you still have some maintenance in the second quarter.
Should we expect that utilization to increase in the second half of the year and where do you see that stabilizing.
There's been quite a lot of change in the portfolio.
Okay.
Okay. Thank you. So a couple of questions I had the first here I think really around Capex, which I will take a I think the third one was really around effectively utilization.
LNG with refining refining sorry, Ben I'll ask you if you don't mind, sorry, I didn't quite catch it.
Catch that Henry so with respect to the Capex, yes in terms of we've been very clear nothing has changed in terms of our capital allocation framework, we will remain disciplined and we will remain within the 23% to 27 billion.
Let me give an example of that is as you've just seen the spring acquisition, which which while actually just talk device and of course that remains within the 23% to 27 as well so staying disciplined within that range.
In terms of where we spend as we're looking at the opportunities that are available to us, but you are correct that we are focusing more on in terms of energy security and in terms of the energy transition so youll see that come through in spring.
Super example of that as well.
And on refining Henry it's indeed, Q2 typically is a maintenance.
Quarter four refining as a matter of fact, we did have a very large turnaround in Q1 as well in bonus. So that's why you have to take that into account also in judging our Q1 results and our Q1 utilization.
It makes sense.
In Q2, there will be some more which is just a normal season.
The seasonality that we see in our maintenance strategies about the second part of his question was about the stability of the refining portfolio and there are no changes.
Our strategy to Abbvie said, we would bring our refinery portfolio back to five core sites, which will not just be refineries, but energy and chemical box, so where we have the benefit of strong integration and where we have sites that we can also use as a platform for biofuel investments even hydrogen.
<unk> and later on also since fueled investments.
Not quite at the five yet Theres a few refinery is still to go but they are all in the process of being divested one that we are almost done with over almost done with Westy second German refinery PC game shred.
Thats was preempted that sale by Rosneft.
Now we will have to see how that plays out but our intentions are very clear we will bring back our portfolio to these five refineries, which will then be part of five energy and chemical box.
Thank you Pam.
Could we have next question please.
Next question comes from Lucas Herrmann from Exxon. Please go ahead.
Hello, Thanks, very much and thanks for your upstream and welcome to the crew.
Two if I might.
Perhaps this is something cool cool cool Q2, perhaps I shouldn't give you the excuse to deploy.
You're clearly relative to where you were 18 months ago you clearly.
Redeeming shares much more off the pace.
Most of the case the base level of dividend the cash level of dividend is obviously going to all move dramatically.
Who'll move dramatically.
4% seems a sensible growth rate I guess my question is very simply given the pace at which you were able to redeem stock at the moment and the reduction in absolute dividend rise as a consequence.
How do we think about well how should we think about the potential to replace Sigma dividend, albeit we're tightening the future growth rate.
To date.
Secondly, can I just.
I'll ask you about volatility and planning and how youre thinking about the world today, and how long you might expect the dislocation that we are seeing particularly in product markets in Europe to extend for can you give us any advice or guidance on how we should think about the margin elevation that were seeing at this time and I'll show manages the dislocation.
There aren't a lot of product that refinery sounds very cool.
Period, Thanks very much.
Thank you thank.
Thank you for the welcome to the career much appreciated.
Two questions really the first one and turns off the dividend I'll take and then if you are okay take second in terms of the product coming through.
So on the first one look I think you predict where I'm going to come on this.
We expect to see more than 70% distribution coming through but we will of course give more information in terms of our Q2 results as well and as you know dividend.
Dividend and buybacks in Q1 at the moment are exceeding those that we had in Q1 2020. So it is a significant pace as you say that we're doing on the buybacks at the moment.
But it does look like we're hitting our technical limit for.
The next periods.
Hopefully with the AGM, we will actually have more space on that as well.
Later.
Yes, absolutely.
Thank you Lucas for your question I think give us a bit early to exactly call. How the market is going to pan out.
It is absolutely dramatic disruption that is happening to the products market at this point in time.
And I don't think we are stabilized yet bear in mind.
Not just a metro often these crude now go into different places being refined in different places, but nevertheless, having to come back to the markets where the product is being used it's also Russian products that are dislocated as a result of it and quite crucially also Russian components that would typically go around to the logical places to fill up.
Refining capacity that are now also not available any more for free optimization think golf heavy bottom of the barrel products that would traditionally go to the United States to fill up refineries that are predominantly otherwise running on light oil from from Michelle's operations. All of these things have been disrupted.
It will take some time to rebalance all of this and then of course. It takes some time also for the shipping fleet, which by the way are also impacted by the Russian dislocations in Russia, Russian shippers et cetera. It will take some time for that to settle out as well so I predict that.
And I know predictors of difficult words, but I expect that it will take us some time to wait to see where this settles in.
And in that period, we will probably see higher cracks.
Also because of the factors that I've just mentioned.
But ultimately of course, if it settles.
Our Barnett settles of course, I think we will be reverting back to normal again and reverting back to more traditional and historical cracks because there is no reason for that matter.
For markets too.
To give more rent to refine us and therefore, our strategy still remains the strategy that it is bitches concentrate our refining footprint to five energy and chemical box.
Thank you Ben.
Can we have next question please.
Next question from Paul Cheng from Scotia Bank. Please go ahead.
Thank you.
Good luck to them.
For you guys.
Two question please.
And you mentioned earlier that second quarter refinery one way yes.
Because you have a happy.
Maintenance downtime, but just too with that.
Then the impact at least in the European operation.
The Russian sanction or that.
Decisions that will reduce.
So that impact on the feedstock as.
That's more or less on the <unk>.
Who.
It may have some difficulty to bomb total replacement also.
The high natural gas quite there at impact the economic in that budget.
You guys decided to Glen.
At somewhat lower.
Optimum way so just wanted to see if the loan one way is it solely a matter of the.
Maintenance activity or somewhat.
<unk> driven by the market condition.
The second question yet.
I just wanted to cave renewable you anticipate visits.
In the wine thing power price environment generally that how would that translate into your earnings.
Net benefit to you guys or that you would have given you probably have some peak.
Pipe concho or PTA.
Want to understand that.
And then finally I just wanted to comment that maybe I. Appreciate you got to be the first company breakout and renewed focus.
Emma and go why the information that we may appreciate.
Thanks, Paul.
Thank you for the appreciation on the re segmentation I have to say that upfront.
Glad you appreciate the transparency.
Ben on the first one.
Yes, absolutely.
Youre right, there is a need and impacts on our refining system as well.
We had to.
Basically for goal.
Buying short term crude cargoes on the open market.
Contrary to what many other players do in the market react should we program. Our refineries were relatively short term. So that means that most of the crude we buy for our refining system is actually spot or short term that allows us to optimize better that's the whole idea behind our integrated trading and optimization business.
But it does mean that we have indeed more transactions and therefore more intervention on the spot market.
You saw in the first quarter is that.
We had to stop and we wanted to stop buying Russian crude on the spot market. We would only go to term and that meant in the debt in the first quarter we.
We have two under load our refineries, particularly in Europe , because you cannot stop buying euros for instance for loading in the black sea and fill it up with a crude coming from somewhere else.
The the trade routes weeks or months longer.
So that's point number one but thats behind us now.
I think we are back at loading up, particularly our European refineries at full capacity, but potentially the exception of <unk>, which is supplied by a pipeline from Russia that Bruce by pipeline.
Four we cannot easily of course run in a different way, we're looking at ways for doing that together with the German government, but it will probably mean that that refinery will be turned down quite significantly because the incoming logistics constraints and the refinery is configured for anything else plus euros, so that will be the impact but more.
Have it actually at Rhineland at Burns, that's all behind Us.
Well, Thanks, Shannon and thank you for the question.
And thanks for the SG&A depreciation for the breakout I think we'll be able to provide more details as we go on this rest journey together.
I think on the on the power price, so I think firstly to recognize that.
This is very very local structures of contract so.
Whether we are operating in the U S and even within the U S. Whether you're playing on ERCOT or your archives Oreo in PJM fundamentally different structures that we see and of course, we now have a presence across the world all the way through to Australia, which was an important contributor to the results of this of this past quarter. When we do have ppas, which we typically do for many of our.
Sure.
Take agreements of course, those are the realized prices at the moment those are those are fixed prices.
And it's important to recognize that in essence, the way we work R.
Our power business is we have the sales and purchase contract that are physical transactions, which we then look to hedge so we look to.
Minimize the exposure that we have but we we choice fully take some merchant risk which of course can really enjoy some of the benefits of the current of the current price price upside. So what I would say is it's market dependent firstly and then secondly, I would say that it is very much related to the split of <unk>.
<unk> versus PPA that we choose in that specific market.
Thanks Kyle.
Can we have the next question please.
Peter low from Redburn. Please go ahead.
Hi, Thanks for taking my questions. The first was just on some of the divisional level Capex guidance, you gave for Q and whether that still holds I think marketing for example, you guided to $5 billion to $6 billion of spending in 2022 have you done less than 10% of that in the first quarter.
The thing that would cause that to ramp up significantly in the rest of the year or have you, perhaps we reallocated some of that capex between different divisions.
And then secondly, it was a strong quarter of LNG trading and optimization.
All of the supply disruptions you suffer from last year have been fully resolved can you, perhaps give us an update on your LNG supply from places like Trinidad and Nigeria, and indeed anywhere else in the World, where you might have had some outages, which are still to come back if they are already thanks.
Thanks, Peter Great questions and.
I'll take the first one in a while of course. Thank you so in terms of our.
What I would say is in terms of the capital allocation framework, it's not changed we're very comfortable with the 23% to 27, and we intend to remain disciplined within that and I think I can for example are at HSN for instance, spring as an acquisition is within that as well we of course still alive for flexibility to allow the allocation across the segments and our financial framework if the returns.
Correct and it fits within our overall strategy, but in terms of its Q1 I would say Peter you have a lot of time to combination scenario things take quite a while to develop as a country. So I wouldn't use Q1 <unk>.
<unk> at all of what Youll see going through message to take away is the frame.
Work remains as it is.
Thanks, Shannon and thank you Peter for the question.
You started with the with the acknowledgment of the strong performance by the LNG traders. Thank you for that and it was a.
A very strong quarter and important to recognize that was after us tying their hands a bit.
Given the significant volatility we saw this quarter and the decision at the top of the has to be able to make sure that we operate within a safer window until we saw some of that volatility level off so.
Really good results by the team and important to again remember that when we talk about trading and optimization here.
A lot of it is really sort of supply chain optimization more than naked trading and I think thats, an important point to make.
You asked around the supply picture. So we have indeed seen continued improvements in both Nigeria in Trinidad and Tobago those worthy at the heart of some of the challenges and of course <unk>.
Just a couple of months of December was.
It was down.
<unk> does now up as of Middle of April So that's that's running.
The Nigerian supplies continue to improve but clearly in Nigeria has multiple challenges.
Not least of which of course is the real security challenges.
Can you see in the country.
Trinidad has been helped of course with last year is bringing barracuda, which is an upstream gas project onto production. So thats helped now as it's ramped up to full capacity at late March we broke on another project to Liberty and that's in the process of ramping up so that will add to some of the sustainability and we look forward to the longer term, where we have a project called manatee and that'll hopefully more.
Structurally fix some of.
The shortage there so improvements and I'll just remind you what we said a few months ago, which is we really see the majority of these issues continuing to some extent at least until the second half of or at least to the.
We ended the second quarter, which we which we are right now on track to be able to achieve we hope.
Thanks, while Cecilia can we have the next caller please.
Christopher Copeland from Bank of America. Please go ahead.
Thank you and good afternoon, let me, let me start by putting something to you and I think there are two questions in there but.
But I wanted to perhaps with <unk> you can talk to us a little bit about what your responses to Europe's policymakers that are trying to as fast as they can get to energy independence from Russia, and I'm not asking you to defend.
The windfall tax perhaps is not the right way of going about it but what is your message to Europe and of course you are unimportant.
Consumer in Europe , as well as you as you highlighted in your downstream strategy.
How quickly can Europe achieve energy independence, what do you think that means medium term, how we're resetting gas prices.
In Europe , and how much more excited therefore argue about projects like Penn Kim.
Which to me looks now structurally even more advantaged when you consider your global downstream.
Downstream portfolio. So I think there is probably around two questions in there.
Many thanks.
Well, let you away with it Chris Thank you.
Quite a few actually to talk to Chris but.
Thank you very much for those questions.
Well as you can imagine we have been talked an awful lot with policymakers over the last.
A few months.
Hi, its levels in multiple countries.
I don't think my message consistently has been make sure you really understand what you're doing is not for us to say.
Politically this is appropriate or whatever else.
But Europe needs to do needs to be decided by Europe's electric leadership.
But we have been very clear to point out that these are the things that's.
Could be a consequence of that decision or here or levers that you can pull or if you want to pull this particular lever. Please be mindful of our different ways in which you can put it a good way in a not so good way.
Thank you.
You will have seen so far with China I believe is probably objectively also true is that Europe . I think has acted in a very measured way too.
Due to the crisis of course for some that is not that's not enough. We should have done more in Europe , and et cetera, but I do believe.
European leaders have acted in a very.
Measured and controlled way.
And that is partly also because I realize that it's very tough to we'll go cold Turkey on se.
Russian crude oil, but even more so on Russian gas.
I think the measures that are now being talked about and let's focus on the gas because the crude is actually.
The way an easier story.
The measures that are being talked about which is yes can be bring more LNG into the market more liquefaction or regasification capacity.
Also can we think of more pipeline.
Supply from Northern Africa from the Scandinavian markets from from Norway, I think they're all sensible things to do but it will inevitably also require an acceleration of the energy transition for the midterm.
Because there is no way, we can just bring more pipeline gas or bring more LNG and somehow replace all the Russian gas. We currently consume that is simply and feasible.
And I think we have to go significantly into energy conservation metrics missiles and strategies.
Which I think is also happening now what does it mean for <unk>, yes. It was already a good project, Chris but looks and the very competitive.
Compared to European.
Chemical projects.
Because of the cost of energy, which is a very significant gap at this point in time, so therefore over concern, particularly out of Germany that you're here.
I am sure you pick up on that as well.
The competitiveness of the.
Jim and chemical industry is absolutely correct, but also that I think companies like ourselves are very far advanced in the energy transition by.
By either more efficient furnaces or hydrogen furnaces or electrical technology, etcetera, etcetera, all not solutions for tomorrow, but definitely good solutions for the mid term.
Thank you Pam.
Can we have next question please.
Next question from Martijn rats from Morgan Stanley . Please go ahead.
Yes Hello.
Two relatively straightforward ones I think first of all I wanted to ask you talked a lot about the fuel products markets already.
Being them sort of disrupted and sort of quite volatile, but I was wondering.
And your marketing business this you're seeing actual demand destruction.
As a result of these high prices you were all trying to figure out where the price level mice that sort of induce.
If there's anybody in the world that have should have good insights into that.
I would imagine.
Sort of shallow given your sort of off sort of marketing business and I was wondering if you'd be willing to say a few things about it and then.
Perhaps a little bit of a technical one but I was wondering if a tender offer for your shares would be.
Sort of a tool in the toolbox to execute a share by program either in the second half or sort of into next year is that something that you could consider.
Thanks, very much more time.
On the first one I have very limited to say apart from I think it's very early to be talking about.
Something that would be sustainable like demand disruption, but Ben is there anything you'd like to add on that no I think the answer is indeed.
Early in the day demand is not that easily destroyed.
That's one.
Are we seeing it at the moment no we're not seeing it as a matter of fact, if you just look at the performance including in this year.
See a continued increase in and product demand around the world.
What we also see by the way is a continued decrease in investment in supply hence the difficulties that we are all experiencing price wise, but we definitely do not see a reduction in demand.
Thank you and on the second one in terms of the question around tender offer.
There is going to be a lot of tools that we can look to you slice of course and as you know tangible offers coming from risks of course, there are always completed they tend to come after large divestments, but frankly my time I'm quite comfortable that we have a range of different options to us we have our approach as we do.
Today in terms of the buybacks, we have a progressive dividend, but beyond that as I said, we've gone to the AGM and we will ask for the ability to buy off market. So we have quite a range of options available.
You.
Can we have an excellent place.
Hi.
Our next question from Christian Mark from Jpmorgan. Please go ahead.
Hi, Tim and thanks for taking my questions been answered.
Congrats on the new roles.
All the best.
Just one question, but it just speaks to more.
Macro framework, which can be as well.
As it pertains to your capital framework and then in the past.
<unk>.
It's been difficult really to sort of line of sight around the macro, particularly at the long term view of oil <unk> gas, but.
In this period, where actually the security for LNG and sort of the need for more investments you've highlighted it couldnt be more.
More important.
Have you do you plan to produce at a firm if you will.
Where you see the outlook.
Linda Chang choices for oil.
In the context of that.
Third the view around Capex, because it's what the language has changed from the.
A range the range and I wonder whether in the spirit of leading to invest.
Okay.
Whether there is a greater call when youre ready.
It's ingestion.
In securities, particularly that Keytruda administered usage and so I wanted to look at it should generate a high range in the future only because the macro backdrop.
You can see what I'm asking the question about the macro backdrop, because that <expletive> relevant if we can't understand you.
The capital training the balances of the medium term Michele thank you.
Yes.
Christian I think its fair to say that we look at it in its entirety. So this is quite a robust financial framework. When it comes time to now in terms of where do we sit in terms of the macro actually when we look at our investments we look at it from a range perspective. So we're looking at as to what will be the position.
At the moment is what what could it be intensive than the lower end and sometimes at the higher end to hi, Bob could a guess in terms of investments and that gives us.
Ability to really stand back and say what would it take for me to regret doing this this investment fundamentally which is very very helpful. So I would say we will continue to do that we will continue to stress test that as we go through and that will help us remain disciplined on the capital side of things as well does that scenario planning as one might think but curious on price in terms of oil in the <unk>.
So we also showed on carbon as well in terms of Capex I would say now I'll go back to it I don't think our capital allocation framework has changed really is within the 23 to 27, and we said we're remaining disciplined on that.
What will come up will it be at 'twenty three 'twenty four it what will it be as you will see the opportunities that come through and see what the returns are and make sure we make a disciplined and focused decision line Dave.
Christian.
So this area can we have next question. Please.
We will now take the next question from Jason <unk> from Cowen. Please go ahead.
Hey, Thanks for taking my questions.
I wanted to first go back to refining then I think you said the European asset setup what are running.
At pretty elevated levels, I guess, excluding maintenance something that we had.
We heard from.
Some of your competitors is that some of the secondary units were running at lower rates to higher natural gas prices and that was kind of impacting diesel output and tightening an already tight market.
Yes.
I'm wondering if you're seeing that in your refineries in Europe , and if so has that changed as natural gas prices.
Have come off and then my second question is just on your investments in renewable power I think in the past you've talked about having an asset light model.
Model and being able to hit your emissions reduction and return targets with that asset light model.
Put in your press release this morning kind of a backlog of 50 Gigawatts of renewable power you can invest in and I wonder given the spring energy acquisition in that number are you.
At all looking to maybe invest in more hard power assets than you had been.
Previously and if so what's driving that thanks.
Yeah.
Thanks, Jason I think first one claiming to ban second two aisle.
Thanks, Jason.
Short version of the answer is no we do not see under loading because of high natural gas prices.
B of course continuously optimize refining kit.
For the prevailing price conditions as we see it indeed already for quite some time, we have been doing everything to bring back our gas consumption in our refineries are making sure that some of the units that we also have the crudes. If your bio feedstocks that we buy actually allow us to minimize.
Sort of a fresh natural gas intake. The other thing of course that we have done is really concentrated our refining footprint to very complex asset. So you actually can play that game much more sensibly and of course, the core assets that we have in Europe to play that game with <unk> and Rolland both highly complex assets <unk> is a different story.
<unk> is not strategic.
Strategic anymore, I guess <unk> will be curtailed much more by logistics rather than by natural gas prices.
Good thanks.
Thanks, Jason for the question.
I think to the fundamental have we changed the strategy. The strategy is unchanged. So we continue to focus on an asset light model, that's looking at creating a double digit return across the entire value chain I think the hard reality is that renewable generation on its own will not give you double digit returns and so our fundamental.
Our belief is that you can get some of those double digit returns through both the trading and ultimately through being able to package that with other forms of energy that we can supply our customers something we are of course advantaged compared to many of our competitors.
Why do you see a significant.
Our pipeline of renewable generation. The reality is you will not be able to offer your customers what they want which is additionality. If you don't have a fundamental base and the generation that so we are doing what we need to do to be able to at least have the platform to have those green electrons to be able to sell to our customers. If I can just for a moment take an example here.
And or close by in the Netherlands.
<unk> for example, we had a an equity position of 40, 50% there we overtime diluted that but kept to 50% of the green offtake or green electron optics that is what we will look to do we will look to capital recycle.
Jewelry or the developer premium for many of these renewable generation assets dilute and make sure that we keep our hands on as much of the Green electrons is we can get and that continues to be a core part of our strategy.
Well see.
Can I have one last question in the interest of time I think we're going to have to ask for that and just and apologies to anyone we didn't get to but we'll make sure. The IR team comes back to you directly last one this is Terry.
Thank you we will now take our final question from Henry Tarr from Bahrenburg. Please go ahead.
Thanks Scott.
Squeezing me in.
At the end. So two quick questions. One is we've seen obviously some pretty material working capital moves with derivative effects et cetera understand this is an extremely volatile environment.
Is there anything that we should think about.
As we look over the next few quarters from that sort of working capital and for fair value effects unwinding.
Or something similar.
And then just lastly, I'm sure it will come up again at Q2.
Shareholder returns above the 30%.
The third level.
Because if you sort of crushed to cross the threshold on the net debt side is it linked to gearing in that sense.
Okay.
Thanks, very much Henry I will keep it somewhat short given the interest of time working capital sitting on about seven $4 billion. As you say say what do we see that are two elements to it largely one of which was really around inventory, which was just over 6 billion. Now we did of course offset by really with just seeing the volumes. So we're very active in that space and the remainder.
It was really around initial margin, which isn't surprising in this sort of market that you would be having an initial margin outflow in terms of working capital I'm very comfortable that we manage it closely that we're very much on top of that second question. You asked was about the shareholder returns is the greater than 30% anything to do with the fact that our task is where it is now we.
We manage it as an entire team we're really looking at it from the perspective of the entire financial framework and yes. Our net debt has not gone to $48 5 billion, which is grant but fundamentally this is about the cash generation that we're seeing from strong really strong operations, which we're very proud of and of course, the macro that also plays into that.
I apologize a bit of a quick one there.
Henry.
Like to thank you for your questions and for joining the call today I Hope we've given you some insights into our powering progress strategy delivery and how we are striving to ensure the security of energy supply chain one of the most challenging periods for the world. We have to see you in person and Senator annual ESG update event on May 10th and in London, and we also invite our shareholders to.
Support the progress we have made in our energy transition over the past 12 months and to cast their votes at the annual General meeting on May 24th.
I wish you a pleasant end of the week and I Hope you and your families stay safe and well. Thank you.
And this concludes the session. Thank you for your participation you may now Lisa Cohn.
Okay.
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