Q2 2022 Shell PLC Earnings Presentation
We're all for the first half of 2022 is almost what it was in the first half of 2013, but shell has transformed since then both financially and operationally.
Over the first six months of this year, our adjusted earnings are up 65% compared with the first half of 2013.
And at the same period comparatively our organic free cash flow tripled.
And we have doubled our shareholder distributions in fact, this quarter, our cash distributions with our highest ever.
And we have done all that safely and responsibly.
<unk> achieved 83% fewer process safety incidents at 32% lower scope, one and two carbon emissions emissions from our operations and the energy that we use to run them.
So what changed well we have high graded our portfolio.
First with around $80 billion worth of assets and double down on integrated value delivery.
And as a result in our integrated gas business, we now sell over two times more LNG.
While our CFO per barrel increased more than fivefold over the same period.
And our upstream portfolio is much more concentrated leading to 21% lower production, while our upstream C of O per barrel increased by 74%.
So yes energy prices are very high today, but.
There have been so before and the real difference is that today, we are performing much better than a similar price environment.
And we are confident about the future because we have a strong capital framework.
Energy transition plan that our shareholders firmly supported at our annual general meeting in May.
So increasing our shareholder distributions with a $6 billion share buyback program for the next quarter.
<unk> can tell you more about our results and these distributions our performance in the second quarter was strong and remains volatile energy prices.
Our adjusted earnings were $11 5 billion.
We saw stronger performance in upstream products.
<unk> energy solutions or Rev.
Our adjusted EBITDA was more than $23 billion.
And we delivered $18 $7 billion of cash flow from operations.
Our trading and optimization results across our businesses with strong overall, especially in gas and power and RF business.
That brings me to our financial framework.
The 6 billion dollar share buyback program, we announced today is expected to be completed by the time of our Q3 results announcements.
And we expect a shareholder distributions to remain in excess of 13%.
With the current energy sector outlook.
Our net debt further decreased to $46 4 billion this quarter.
We will continue to strengthen our balance sheet, given where we are in the cycle.
We will be disciplined with the investment decisions, we make unexpected our cash capital expenditure to be in the $23 billion to $27 billion range for 2022.
So without doubt our delivery this quarter reflects the macroeconomic environment, but even more so it reflects the transformation of shell into a more disciplined and more resilient company.
We are using our financial strength to benefit society through secure energy supplies and to benefit our shareholders to increase distributions and to position the company for the future of energy.
Thank you.
We will now begin the question and answer session.
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Well, thank you for joining us today, and we hope that after watching this presentation you have a strong sense of how shell is transforming.
We continued to invest in energy security and the energy transition to provide the energy that the world needs today, but also in the future.
So chanel and I will be answering your questions today and pleased as usual could we just have one or two each so that everyone has the opportunity to ask questions and with that could I have the first one please elaine.
We will take our first question from.
Video reinforced from Barclays. Please go ahead.
Thank you Pete.
Two questions if I get is how.
In fact at the level of cash flow is and I know that.
A significant transformation.
Two questions one on the financial side and I'm, just wondering why there with additional buybacks and not the increase and not increase the dividend and I'm, just and just within that almost 6 billion buyback should we now be thinking about that 6 billion a quarter with this environment for next.
Yes, just a little bit more detail about.
Based on the financial side, and then a second one just in terms of like the low carbon business.
Many of the same a lot that has been done but there's still lots of phase. Following the change that has to be defined but are you seeing more opportunities.
Now in this environment.
We are seeing higher interest rates, some businesses changing that type of thing.
How do you think opportunities in that space effectively.
Yes, thanks, very much <unk> and I hope you're doing well.
Good to hear you.
I'll take the second question first and then <unk> will talk a little bit about the financial framework and the dividend question I think we sort of anticipate.
On low carbon indeed be the rest business is doing well you see very strong results, we're pleased with that.
But.
To your question Indeed also do see more opportunities.
But then again, let me just explain that the opportunities are not necessarily just more investments in commodity producing assets, we see more opportunities in building new businesses. So we see more opportunities every quarter again by companies coming to us and say, we have a plan to be at net zero or we want to reduce <unk>.
Robin emissions, but we need help to do this how can you help us.
Sort of customer back strategy and our overall strategy of basically decarbonize.
Customers use of energy is really helping us identify these opportunities whether that is indeed more sustainable aviation fuels for the aviation business offer the customers of the aviation business that come through us to find ways and means to decarbonize that travel or whether this is for instance through.
Heavy duty road transport companies, who come to us for for hydrogen or trucking companies, who see the opportunities there as well we see a lot of new business is coming up now of course, many of the business models with it still immature needs to be proven out.
So we talked into video about hold on hydrogen one the ultimate business model is going to be for heavy duty road transport that business model of course still needs to be built out so while the opportunities are there. We also see that we have to go on a on a joint learning goods beta customers and with governments to make sure that these opportunities.
Crystallized, but I am more confident than ever, particularly also but just sort of macro environment and geopolitical environment that we are seeing today that this trend will accelerate.
So, let's talk a little bit about the financial framework.
Thanks, very much and lithia good to hear from you 17, we've chosen to go with $6 billion of share buybacks this quarter and the debate of course that happened internally with Sam as well.
It is on your mind at the moment is whether it should be a dividend or should it be buyback and the way we looked at it was from an excess cash point of view, we want to allocate according to value and that's very important to us and frankly speaking where the share prices at the moment. It made sense to therefore go for the share buybacks and that $6 billion, just because you added the question.
There is specifically for Q3, and we expect that $6 billion of buyback to be executed by the Q3 results. So by the time, we come out with it's been I guess, just one other point to remind you of course is that in Q2, we effectively distributed seven $4 billion between the buybacks that we did in the quarter in terms of cash.
And in terms of the dividend I believe that's the highest we've actually ever done. So I hope that gives you some perspective of the thought process Lydia.
Okay. Thanks, Andy I think generic and can I have the next question. Please.
We will take our next question from barrage.
<unk> from RBC. Please go ahead.
Hi, Thanks for taking my question two please so the first one is on Capex as you're starting I guess the plan.
The 2023 budget could.
Could you say what level of inflation, you sort of baking into your spending for next year.
And then maybe specifically for a project like tactile would you recently sanctioned relative to what you put forward in 2021 can you talk about the difference in cost that project will will be.
Before naphtha.
And then the second question is on the Pennsylvania, Cracker, which are due to start up is there any sense you can give more specific timing on both the startup for that project and also the timing to get to full capacity. Thank you.
Thanks, Brian Let me take Pennsylvania.
Then.
Questions.
Bobby to outbid by Tonight.
So, Pennsylvania, we're done building it now there's always a face when you are completing construction.
And go into and to startup mode.
Trying to do it as granular as possible and of course, we have an array of been starting up support systems and utilities already for many quarters.
But over to some I'd be willing to needs to start bringing production on gradually.
It's a very important we do that safely and reliably and therefore, we do not put pressures on our teams to say you have to have product is done by X date, everybody understands that today's environment is a good environment to start producing in but I would imagine that somewhere in the third quarter and we will make a lot of good progress and I would imagine that's somewhere in the fourth.
Quarter, this will be running more or less at designed capacity next.
Next year I think it should contribute to full bound to with the results. This should be very welcome of course, because this is a very advantaged projects.
Most of its feedstock costs, but also because of the location matters.
In the middle of the large plastics demand in northeast North America.
But.
Tonight I'll do you think.
Fresh and particularly sort of two parts in a way to that first question. So first of all I think I ran into 2023, we are looking to of course start going through our planning cycle. We will start setting our capex for next year as I said for 2022 very much within the 23% to $27 billion range. We are of course seeing inflationary pressures coming through.
That's happening already and of course, a company of our size has the benefits of being able to have the size and the volume that comes through we're seeing things like steel being very much pressurized at the moment in terms of 18% to surf inflation, but we run on framework agreements, which allow us to be able to lock in prices over a period of time with <unk>.
Certain volumes, so we don't see that full lines coming through as well. It means we have a very resilient supply chain, which allows us to mitigate some of those inflationary pressures you talked about Jack <unk>, specifically, we're very pleased as you say took FID on <unk>, you're correct. It has taken longer than we would've hoped for of course that was outside of our control.
But beyond that we do see some pressures coming through with respect to Jackson, but the economics remain very signs and as I said before we have some of those contracts locked in already. Thank you. Okay. Thanks, <unk>. Thanks <unk>.
Who is next.
We'll take our next question from Christian <unk> from Jpmorgan. Please go ahead.
Hi, good afternoon.
Base stations and the results two questions first of all just in terms of the back of the financial frame and how you think about.
So thank you.
So the macro outlook.
Thanks, Don.
South Carolina sites in terms of how are you.
Think about dividend and buyback mix going forward it does feel that amendment.
Somewhat reactive to the macro outlook as opposed to sort of more proactive in terms of providing sort of a more explicit.
Frame given you have now.
Through the 30% threshold you used to provide that range it seems.
It seems like you'd be heading to 2015.
If you can put any sort of visibility.
In the context of.
Are you seeing that curve and how you think about anchoring your financial framed in the context of that.
Second question is around.
This is a high grading of your portfolio as you have done so successfully.
Are there any assets, particularly within the upstream piece that you feel.
Within the portfolio that you feel are missing and goodbye demographic region.
And would you sort of reconsider some of the assets, which which you had up for sale now.
As you pointed out then the macro outlook is very different.
And maybe being more prescriptive around it for example in Nigeria.
It looks very different now in the context of the opportunity in others.
We don't know about that.
Thank you for those questions.
Thanks Christian.
Let me, let me have a stab at both and then I am sure that she may want to add a little bit on the first one what I will cover on the first one Christian is this sort of link between the macro that you were that you referenced so.
Particularly if you look at the energy outlook, we're actually quite bullish.
If you look at where we are today, but supply demand balance as the market is very tight and there is not a lot of spare capacity around OPEC heikki has any spare capacity.
You could think of a little bit more coming out of shells.
<unk> the SPR release has actually helped but that's hardly a price management tool of course, so we are running out of steam a little bit and coming with supply side solutions and on the demand side, we haven't even seen a full recovery through 2019 type of demand. So my.
The concern is that we will have a very tight situation a lot of volatility now sometimes you can benefit a lot from volatility, but I think that will continue to persist and the other thing to bear in mind, which may not be a very popular thing to say, but it is a fact is that the impact on on Russia in terms of self sanctioning and all.
Sorts of other actions that have been taken has actually been quite minimal.
Volume of crude coming out of Russia has been diminished, but only with a few hundreds of thousands of barrels a day, not a sort of two or $3 million.
Originally foreseen that might actually change in in the new year when the real sanctions are starting to buy so I think you're going to see a tight situation for some time to come and then I haven't spoken yet about gas in Europe and the impact that it has on the global LNG market. So all together I think there is more upside risk than downside risk.
Now what does it mean for our financial framework I will say one thing and then maybe <unk> can add to it is we have changed the philosophy on a payout from one where we want to first of all earn the cash and then distribute and Thats why we are saying.
Payout that we will see in the next quarter it depends on how much room pace in the last four quarters on average.
We'll continue so it is more a payout mechanism than a sort of forecasting mechanism that you will have to get used to here.
On high grading the portfolio, we have been high grading quite comprehensively as you will have seen.
Probably sold more assets than peer group combined.
And of course, we invested quite significant DSL BG of course being the large one too but.
But I do think the trend that we have to deal with the tail assets to deal with a leading portfolio is not going to change because.
We see very supportive economics at the moment you referenced.
Nigeria in there Chris.
Christian Nigeria for Us the intent is very clear, we want to be out of onshore oil.
No matter, how the macro might.
Perhaps changed your outlook for those assets and that is a case of risk management.
And appetite for dealing with the challenges onshore. So no I don't think there will be a big change in our portfolio stands on sale of assets.
And.
But yes, the portfolio of course as a result of it is performing a lot better.
Anything you would like to add on the financial frame I think just a small add to that band, which is Christian we've talked about 20% to 30% of distributions and CFO through the cycle and that's very much what this is tobias.
But what is effectively happening here, what we're saying is in effect, we have a hard floor and we have a soft ceiling and thats, what youre, saying when the appropriate moment as there we distributed an awful lot more than that you saw it last quarter was $7 4 billion of distributions and Youre seeing it with what we're suggesting now which is of course $6 billion of share buybacks and of course the usual dividend.
At 181 9 billion as well. So these are significant sums of money.
A quarter, if you could provide us.
Absolutely Thanks, Jay Thanks Christian.
Who is next.
Our next question is from Irina Simona from Societe Generale. Please go ahead.
Thank you good afternoon and congratulations on these results two questions. Please firstly could you perhaps give us an indication of what you expect.
No.
So Todd.
Cost shell and then secondly.
As you mentioned your customers approach you.
Seeking to Decarbonize the energy can you get a sense of whether it is reasonable to expect that.
Due to the complete the maturity of these value changed due to the fact that actually markets did notice yet exist.
Ill returns can actually be quite significant.
Yes.
Thanks, Irene Thats, a really good second question I will take that first and our SG&A to talk about the windfall tax.
Well the short version of the answer is yes, we do.
Because we believe ultimately.
There is more value that customers will put on product attributes that really help them at a state that problem than what you can make if you serve commodity markets by being just a little bit better than the next person.
And take as an example.
Our V power business I've used this I think before but we make really very good profits and very good margins on the power simply because of the quality of the product and the appeal that it has for customers.
And that's not because we have better refinery so making this particular greater fuel. It is because it's a superior product that customers are prepared to pay a premium for.
The analog for that does exist in the energy transition as well customers who have needs to deal with the energy transition challenges, we will pay a premium if you provide a product that will help them, there which could be indeed, just a plain vanilla products like clean electricity or it could be a product which is.
Equipped with attributes like risk management.
Annuity of supply.
Or other attributes like for instance.
Negative emissions et cetera, et cetera, and that's where we see the value.
Harvesting that value and we believe there is a much bigger business buy out for us to go after and we believe we are Ya.
Neatly placed because we have the best Brent in the industry and we have a lot of experience with the attributes that are going to be needed for customers like risk management and indeed like superior formulations. So it's a bit of an article of faith on the one hand, Irene but on the other hand, you have plenty of analogs to prove that it works.
Sure. Thanks, Dan Thanks Irene.
On the topic of windfall tax or the energy profit Levy of course, there was an accident 14 to July so what we're saying is it's not hitting Q2, but what we expect to see in Q3 is.
Ryan to buy $420 million of an impact on deferred tax so youll see that come through in our Q3 results as well.
But beyond that very relaxed a sense of the windfall tax we know how it's going to his illness. We know that we've got the ability to continue to invest in the UK as we've discussed before.
We are very much focused on Jack door on being able to get that investment through with the associated ability take deductions with that as well. Thank you.
Thanks, so much thanks Irene.
And who is next lease.
Our next question is from Christopher Copeland from Bank of America. Please go ahead.
Thank you very much good afternoon at two.
Two hopefully quick ones for me and maybe for you.
Because it's kind of next door.
Your view on the groaning and gas fields, becoming a possible solution to Europe's gas crisis.
And I'm not asking you because shell is involved but.
Giving us a bit of an update on where you think the political debate stands today.
And secondly.
I wanted to see what your views are about the long list of potential <unk> in fresh.
<unk> LNG coming out of the U S.
And whether you believe there are some interesting opportunities there to act as an equity owner as Youre doing in Qatar, but actually as an off taker considering a number of these operators that are proposing to build these terminals may not have the balance sheet to do so without without offtake support.
Hopefully those will be quite good. Thank you.
That's very good question, Sir Christopher when you say next door I'm not sure whether you referred to next door oversees our next door to Germany because of course, a lot of the questions have come out of Germany as I'm sure you're aware of that.
On hiring at all it can be very quick on it and just say well basically just for the government to decide that it is in it.
We have no no say, nor do we want to have a say in making the very difficult tradeoffs between Bud.
Public safety perceptions of public safety and security of supply.
But.
In case you.
Haven't really picked up on the just sort of a sentiment of the dialogue in the Netherlands.
Now the government is very clear we want to use it as the very very last resort.
Only if it indeed, it is almost sort of like a matter of life and death at hospitals and schools et cetera are getting sort of stopped of guests than maybe we want to consider it.
And we are good for that I think that is.
A good position to take.
Of course, followed that debate with as much interest as many of us and in Europe .
I hope it won't come to that Bristol has to be has to be perfectly honest.
On U S. LNG, yes, indeed, we participate in U S. LNG on the terms that you suggest so as an off taker.
It can be.
Can be advantageous there's not as many by the way SB used to have.
So far this year, but.
But we are keen to understand how they can help us in our book of.
Supply sources, but to invest I'd much rather.
That's on the eco versus JK am delta than the than the Henry hub.
Two <unk>.
Europe at this point in time for the long run I believe that is a better bet for us to invest in but it doesn't mean that we wouldn't participate as an off taker and north American projects.
Thanks Christopher.
Can we have the next question please Julien.
Sorry.
Okay.
Thank you we'll take our next question from Martin Rats from Morgan Stanley . Please go ahead.
Yeah. Good afternoon, I've got two.
First of all I recognize that.
A lot of questions have already been asked about the dividend and the financial framework and I do appreciate the observation that the shares are cheap and therefore, there is a preference for share buybacks.
I was wondering if you if it had been part of your consideration.
The reason why the shares might be so cheap.
Is that the dividend is too low as in.
Im a bit worried that we end up in a sort of cycle where.
The shares are cheap then excess cash is used for buybacks, it's not translated and dividend growth the share stay cheap and the observation that the next time around fulfill D. G. So we've got to do buybacks share stocks are cheap.
I'm just wondering what you would say.
Two that logic.
And the second question I wanted to ask relates to LNG, and particularly LNG trade.
I recently visited some of the observations in the eyes.
Zero document from last year.
There was a much stronger story for gas in the long run.
And then say for oil.
It struck me, how how fast LNG trade actually declines in that scenario basically after 2030, it really starts to deteriorate very very fast and the IEA scenario and I was wondering if this is any sort of impact on Europe .
Sort of willingness or appetite.
And to do new LNG liquefaction projects on that on that type of time that Ryan is that entering your considerations.
Thanks, but then I think you did a dividend question one more time, but this particular version of it.
But let me first of all talk a little bit about to the IEA and the role of LNG in it yes.
Yes, you are right of course, we have to bear in mind that the IEA is enormous a scenario like that so it's in other words working back from a preordained outcome and then basically drawing a sort of linear aligned to how would you get.
So if you now look at step scenario, which is a bit over a year old.
And you sort of track the progress against how we are doing in that but that one year into it and we are more than two and a half years behind already so in other words, we are traveling in the opposite direction.
It shows a little bit how challenging it is to sort of tune the big ship around and we may of course have wishes and hopes and expectations that it will get better but for now it's not so therefore I don't want to put too much goals for her on the IAA report, but I think it is important to have a reality check and just say well.
Is this really happening and and if it's not happening, but why would that be and may be this has to do something with demand not being decarbonize rather than supply are disappearing fast enough.
Having said that though I am very mindful of the fact that we cannot continue to grow the LNG by.
Without decarbonising good either so therefore, we have a very clear philosophy that whatever project. We undertake so we build the assets, which is of course the portion of the value agenda could be at risk. If all of a sudden there is no carbon budget for it anymore, whatever rebuild needs to be carbon competitive and therefore.
Yes pursuing projects like LNG, Canada, and the projects that we offer assuming on top of it need to be having even better carbon credentials because the risk is indeed that would risk. The reality is going to be that that's when we get to net zero.
Have to have indeed, a reduction in LNG carbon intensity, and then LNG itself as well.
Also see that a large part of our LNG portfolio isn't needed traded portfolio should we take LNG from somebody else's assets and add value to it that comes to us and therefore, we have a lot of flexibility to flex depending on where the wells will go how fast this will go and would be towards it will take to get to net zero in 2000.
<unk>, that's our stated strategy and so far I think it proves to be derived strategy.
But on the dividend indeed is a popular topic.
With my time.
The first part of your question Am I worried about a vicious circle no I'm not this is a choice that we have to make and we're very very conscious by making that choice in the quarter, which is what we've done in this quarter. What is very clear of course is by doing the buybacks <unk> dividend capacity in the future I'm very aware of that conversation. We have regularly. So this gives us flexibility.
If you look at the dividend per share and to have a sustainable meaningful dividend.
When the time is right.
Thank you. Thank you very much and thanks My time.
Elaine kind of have the next question. Please.
We will take our next question from Giacomo Romeo from Jefferies. Please go ahead.
Yes. Thank you two questions. The first one if I can again on the.
And then perhaps just.
Looking at your decision to increase your oil price deck, and particularly at the long term.
Our view on.
On a longer term view on the oil price just wondering how that.
It's within your broader view of sustainability of your dividend.
And then the second question is on LNG and I think you talked at the end of last year about a return to normalized liquefaction volumes by the end of the second quarter.
Obviously, a lot has changed since then Sakhalin in particular, but just wondering where we stand.
In that respect, particularly regarding Atlantic LNG in Nigeria, LNG, where.
What sort of timeline do you think you'll be able to go back to a normalized level of utilization.
Okay very good thank you Andrew Cuomo and.
Let me take the first question.
And we'll.
We'll talk about LNG utilization and the normalization of the outages that you are referring to.
And I think I already partly answer that's in response to previous question. So yes, Indeed, we do have a.
<unk> outlook on.
On oil and gas prices generally and then of course, particularly of course in areas of greater stress like like in Europe .
And that is why we are also quite confident to say that hey, if the conditions that we are witnessing today.
Assisting.
Then we yes, we expect to be paying out more than 30% of our cash flow and of course. This is a cash flow that is also already significantly higher. So it is a higher percentage of our higher cash flow and you will see indeed, the effect that it has some numbers like $7 4 billion records payouts in Q2, which we are going to be.
In this quarter so indeed.
Confidence in the macro should translate for you in confidence and payouts that we are going to be able to.
To pay.
And therefore, I do think that if you wanted to sort of come back to the dividend. The dividend is very sustainable at the level that it is seven $5 billion a year roughly.
And a 4% growth with the buybacks. If we are doing the absolute dividend quantum is actually declining and therefore I would like to add to the point that <unk> made just now. So we are building every time, we do a significant buyback we are building significant capacity for a dividend per share increase sort of buybacks eventually.
Crystallized in terms of value in the Dps increase and that is the model that we have that is the financial framework that we launched over a year ago and that is how we intend to prosecute it.
Now on the on the LNG portion indeed, Jacqueline and thank you for that I think.
You're referring to back to where are we in terms of the strength of our equity volumes RM production volumes across the LNG plants. So we have very strong performance in Q2 really proud of how the integrated gas business has operated there while we saw a costless trace it back up and running in Q2, we will deal with some of the action.
Afterwards, that's coming through particularly we saw Peru, and Trinidad and Tobago, Okay back again, all being able to produce where they should be and of course <unk> has been added to that as well, but we do see of course, Thats, Nigeria LNG is still being impacted by some of the security issues.
That is well known and not a surprise there.
Do you see going forward of course is that we have taken out the sakhalin equity volumes.
Our predictions for Q3, and that's what you'll see in terms of the noise going forward.
Thanks, very much and Elaine Theyre going to have the next question. Please.
We will take our next question from Henry Patrick Hummel from UBS. Please go ahead.
Yes, hi, everyone and thank you for your data of two questions. Please.
First one pulling up on the topic of LNG in the long term opportunity for you you mentioned that you've added you've taken the correct me if I could.
Comment on some of the other options.
Whether you come to the point where.
If you already have quite a lot in the portfolio and to maybe a pause are you still looking to kind of accelerate thinking in particular about the.
Canada LNG expansion.
And then secondly, I wanted to ask about.
With renewables.
Segment, which had an exceptional quarter.
Uh huh.
And I wanted to get a sense here to what extent you can continue to maintain.
Maybe not quite the level of performance, but something close to the first half results and continue to see significant price with <unk>. Thank you.
Thanks, very much Henry good questions would you like to take the second one I'll take the first one.
Yes, so with respect to the renewable sector, you're exactly spot on and Henry We've had some very good first half performance and of course, what you saw was a Rev segment, you saw actually $700 million of adjusted earnings in Q2 last question, what you're seeing there is that's coming from significant volatility, particularly within Europe .
So remember what we're seeing there is of course gasless input power as night spark spreads really giving us some room to make some money around the volatility that is very much payoffs in our results that will change over time that is not going to be a prediction of quarter by quarter, but will occur of course is that we have many underlying businesses in there could you with solar.
To deal with when many others that are beginning to come through as well so you'll start to see those coming more and more large part of our results as well.
Thanks, Janet and online LNG of course, we have actually quite a big program going on at the moment.
Through the middle of building the LNG, Canada project very large project and you are right and we see also potential to do with third and fourth trend, but it is not an imminent we want to first of all of course finish trains one and two.
But.
Then we have Qatar, which we will be in construction and spending phase on as we speak more or less.
Of course, we have another set of opportunities that can come behind that.
Hope they are familiar to you so things like <unk> for instance, we are working by the way also in train seven in Nigeria, and some other opportunities that are a bit further back in the funnel, but at this point in time, but it is also really important that we look at market developments. So we are focusing on new LNG imports.
Capacity in Europe . So we seen has signed an mou for capacity in the brutal terminal in northern Germany, but we've also taken capacity in the Ames haven't which is the the large board that is actually on the border of.
Germany, the Netherlands close to call and have a close to.
European gas infrastructure.
And of course, we are looking at other opportunities as well in addition to what we already have in Europe , but that's an important part two which not only at this point in time about developing new supply points, but also developing more optionality on the demand side.
Thanks very much Henry.
The next question. Please your line.
Our next question comes from Peter low from Redburn. Please go ahead.
Hi, Thanks, Yes, it was a strong quarter, but chemicals is one area, which is still struggling can you perhaps kind of curious what the primary driver of that weakness is kind of what has to happen to turn that around.
And then secondly, just on Capex I think on the last call you intimated you'd be towards the middle of.
$27 billion.
Is that still the case or is there any other color you can give on that today.
Okay Orange related Capex, one I'll take the chemicals one Anthony.
So on Capex. Indeed, a range is there anything it was 23% to $27 billion and we intend to remain very disciplined to remain within that range in terms of will it be at the middle or will it be at the end it's difficult to tell at this point in time, Peter So what we are saying is within the range. What youll see is some of the new projects that are coming in whether that was the fifth.
This quarter the payment of the signature bonus in Brazil for assets or whether that is project spring, which is the acquisition.
In India in terms of the renewables acquisition all of those will come in within that range as well. So I won't go further than that apart from 23 to 27 and remaining disciplined.
And on kind of goals, indeed chemicals results or.
Im not strongest quarter that is because the chemical sector that we are exposed to is actually at still at the low end if not the bottom of the cycle.
It's always difficult to come back chemicals with chemicals, if you look between the chemical competitors, which we are exposed to a different type of.
Product package basically because we are not large in polyolefin, particularly not in North America, a fixed set of course once we have Pennsylvania on stream, but that's of course, a very significant moneymaker at this point in time that we don't take it.
As a matter of fact, we are more exposed still too based chemicals and therefore, two main cracker margin rather than the derivative chemicals.
The derivative margins products that follow from that.
Top of it.
You again to do compares and contrasts.
Of course, we are more exposed to European chemicals bevy of course, the high energy cost as well.
A typical by the way our chemicals performance is good and if you look across the cycle chemical is just one of the best performing segments in the portfolio with strong double digit returns, but it is a cyclical business and it is a cyclical business that behaves differently for different companies, depending on how they are exposed with our products to different parts.
If the economy.
Yes.
Can we have the next question please.
We will take our next question from.
<unk>.
Okay Herman from BNP. Please go ahead.
Thanks, very much in the months to have the opportunity.
Couple of why Mike.
The first.
Refining and to try and better understand the moving parts.
Clearly the market margin moved pretty aggressively I can see the volumes were somewhat more modest in the first quarter.
Just what's is there anything that we should be or you can make us aware of but should have led to lower cat. So I don't think most would have assumed going into the quarter.
Clearly evident.
Trading statement.
And secondly, apologies I kind of want to come back to the dividend and Rebase again.
I agree entirely with its already can take in terms of.
Maintain the absolute given the particular level, Jack counsel and so forth.
You are about 400 million shares down now and where you are.
By the end of the year.
And on price, obviously, but given the guidance of president it looks like Youll be about 800 million, which is a 10% reduction.
Reduction in.
And the absolute level of them against the lines of the increase 6% below right.
Your breakeven is improving all the time and you breakeven low anyway, not least given the more bullish view on oil and gas prices into the medium term. So when do you actually prosecute.
On a potential rebase and dividend can you give us any indication of how you may be thinking sorry, it was a bit long winded.
No thats, Okay Lucas.
I think that to a very good questions.
I will take them both.
On the dividend I think we more or less at everything and then I think you summarized it very well.
And you also.
Illustrated a bit numbers rich R&D, the correct numbers Lukas we will be significantly retiring.
Sure. So we will buy back a very significant part of the company and therefore as I said before and as <unk> also said they are building up a significant capacity for <unk>.
Dividend per share increase and that's the way, we want to have dividends and dividends and share buybacks interacting with each other so rather than say, let's raise the dividend and I will buy back some shares I would much rather do it the other way around and that is the way we articulate the financial framework can be launched.
Back in 2021.
But the timing of that I think.
The only thing I can reasonably say about it is when the board has decided to do so.
And there is no news on that today, so I'm afraid we do not have some sort of formulated guidance of this is the moment when but I hope you can see what it is that we are trying to achieve and your logic is indeed completely impeccable.
On refining I heard you say lower capture in the marker margin.
Yes.
<unk> margin has gone up significantly you will have seen that in the in the Q U S. Note as well if you are referring to well, but account work out and how would you rule of thumb you have come to the results that you booked it is basically because extrapolation, but the rule of thumb in a single quarter over such a wide range.
Simply don't work anymore. There is just too many variables and put it through mathematically workout. It works a small range, but not in a large range, but what is really working or what's really happening in the refining business. Luca. This is of course that we are very short refining.
Short products.
And that is largely because of Russia of course, because a lot of Russian refining capacity is basically.
Locked out.
Constipated, because they cannot get every.
Stream of the refining system out of the country.
That's part of the sanctioning of self sanctioning is working very well.
But it's also because the products like.
Diesel for instance.
Difficult to place, particularly because they tended to go to Europe . The same chemical feedstocks and therefore everything in that field is going to be very tight and there's going to be very tight for a while to come I think the refining segment is going to be driven for a long time by the availability of middle distillates of diesel jet fuel produced there is actually.
Very limited price elasticity.
But on top of it we also see China not exporting for all sorts of reasons. So I think this tightness is going to persist for some time know forever. So we're not in the Golden age of refining or if it is a golden exits will be relatively short lived one so ultimately everything will refer back to the mean again.
But at this point in time, yes, we are seeing a dislocation that we are indeed.
Benefiting from not only in our refining system, but also because we have the most capable trading team to really take advantage of the opportunities that it brings.
Thanks Lucas.
Can I have the next question please.
Our next question will come from Paul Cheng from Scotia Bank. Please go ahead.
Thank you and good afternoon.
But the world seems to be in.
Well between the recession fear and the supply concerns and commodity prices remain strong.
Under this cost curve I mean, how.
Internally when you guys looking at next year.
Let's say I think the T lab or shareholder return answer positioning.
You bet.
The fear of recession or the recession risks.
Into their thinking and if any.
Positioning that you guys would do differently, but we so that's the first question.
Second question with the natural gas situation.
In Europe .
In any shape or form change the way how would you look at the hydrogen investment over there.
You change the pace or that.
That's not how you guys will we would.
This time or that the decision process.
Yes.
Thank you Paul at all.
I'll ask <unk> to talk about a recession fear.
The only thing I will say about it.
I noticed that there's a lot of people out when it comes to recessions.
On on Europe on natural gas.
Well it's.
Let me say two things about it first of all the whole idea that we can also do blue hydrogen and.
And in Europe . So in other words take natural gas the reform at Ccs with Sidoti <unk> that I think is a little bit difficult of course, but just sort of gas prices that we're seeing so I think for some while.
Europe will focus very much on making green hydrogen so hydrogen out of electricity renewable electricity.
And maybe overtime. Indeed, we'll also look at importing hydrogen which can then be also blue hydrogen for instance, if it comes out of guests which countries.
But when it comes to hydrogen.
We are driven.
In the long run by the value of hydrogen into transportation system.
<unk> is at the moment there is no hydrogen based transportation system that has to be built so the large hydrogen plant that we are building, our rotterdam will actually be using the hydrogen too.
Feed a refinery and make the.
The products in that refinery little bit greener for which we get a regulatory premium which base more or less for the capex.
And then ultimately of course value uplift needs to come from building out a transportation hydrogen infrastructure through Europe .
It's not going to really compete will be driven by by natural gas.
That is going to be much more driven by how competitive can you make this against the middle distillates.
And again, how fast do transportation companies, where the customers are transportation companies want to Decarbonize, the logistics of that depend on and we believe there's a tremendous potential there and of course also a tremendous driver.
From governments to make these things happen and then I think it's much more determinant for how to hydrogen business will develop in Europe , and what might happen with natural gas.
I am Paul you asked about what really what happened in terms of how do we plan for whether thats going to be a recession or not and we're going to plan.
Just kicking it off so it's great timing to ask the question was around that time of scenarios. We look at the water what could happen in different scenarios and we plan. Accordingly. So we look at if that scenario were to happen what would be the capex level, we would be comfortable with to ensure our balance sheet remains strong and our returns to our investors equally remain compelling.
And strong we run that through and that means we will vary the investments that we made a fundamentally what we're looking for is for each of the investor feedback what is that time, we're going to gas and we look at that investment by investment and stress tested high <unk> low <unk> in our base scenario and that allows us to be prepared without wait for it to have.
We know what our cleaning service and we know what we're going to do when it hits us.
Thanks, Shannon Thanks, Paul Elaine who is next.
We have Jason Kenney from Santander. Please go ahead.
Well, thanks for taking the time to answer your question Greg.
Looking for some guidance on the renewable and energy solutions business because it was a relatively low key contributor to EBITDA 2000, 2021 and then.
<unk> rolling.
$1 5 billion.
Quite a step up actually and so I don't know if you've got in your mind.
And EBITDA.
That business could be by the middle of the decade, I know you are aiming to.
Several of the external power sales terawatt hours by 2030, but what kind of.
Let's say you're going to get from pipeline gas sales.
What portion of revenues do you think renewables.
It could be a portion of that.
Any kind of split in that business in the direction of travel and the magnitude of change over the next few years would be very interesting. Thanks.
Great question Jason.
And I'm going to give it to originate first and then see that or I can add something to it.
So a difficult one Jason as well.
I think there's two parts.
There is the fact that we have as I said before the gas and power trading around it being able to deliver that to the end customers I am one of course youre seeing at the moment that what youre pointing out perfectly is that over the last year that spark spread that difference between <unk> and power IC IP that is create a huge amount of volatility between them and we have been able to trade.
At around that incredibly well and Thats, what youre seeing on I think you used one 5 billion, which is approximately <unk> <unk> in terms of the full year.
Sorry, the four quarter EBITDA.
I would say on that of course is subject to the market and it depends what happens in the market alongside that we have significant number of other businesses in there as well we have delivery of power and gas to homes in the U K, we've got carbon capture and storage, we've got hydrogen all entitled and that's.
Ben alluded to earlier all of those of course are building up and were really at the startup phase as well so you're right to suggest that by 2025, you will see that much more heavily as part of our portfolio.
Those are developing markets and there's price signs are also developing as well. So we're focusing in on making sure that we can get great returns from them, but that will take time for us to build on this as well.
And 2025 would indeed be an important year, but not so much a year to targets, but a point that we will see the great inflection.
It is really taking off.
Okay. Thank you very much.
Elaine who is next.
We will take our next question from Roger read from Wells Fargo. Please go ahead.
Yeah.
The questions that are really good have been hit but I was curious as we think about the energy security aspect of.
The overall market competing a little more of the energy transition what kind of discussions if any are you having with any of the host governments in the countries you're working on in terms of.
Changing some of the investments pushing faster on some of the others. I mean, you mentioned earlier to Paul's question on hydrogen it probably has more to do with demand more so than just the cost structure, but I was curious from a policy standpoint, or a request standpoint anything thats changed on that in the last roughly six months.
Since the Ukraine conflict brought a lot of this to the fore.
Yes, Thanks, Roger and you said lots of good questions being asked already well. This one is a really good question as well.
I think in the last six months since the conflict scientists.
Sadly I should say.
Never had as many good discussions with governments since then compared to before.
And yes, a lot of them on the energy security a lot of them Indeed, well how does this work what can you do a deeper realization of the depths of the challenge that we are in with when it comes to energy security also a better appreciation that.
If this is what it takes to deal with conventional energy.
How difficult the energy transition and really be and so I think the quality at a depth of the discussions the intensity is definitely stepping up.
I think governments are also realizing that would need to work harder on the mountain, which is of course, what we have been saying for a long time and you see the policies coming into effect as well.
I think at this stage, it's probably fair to say that Europe is still leading when it comes to demand side policies, but I think soon enough that will go across the world, but different discussions more effective discussions and I think also much more enabling discussions for us to make the investments to take on the risks also.
New business model risks that we're looking for and that is across the board. It's not just in power. It's not just in hydrogen. It's also a sustainable aviation fuels and other ways of bringing both energy security and energy transition, which in a way of course go hand in hand.
Thanks for the good question.
And who is next.
We will take our next question from Amy Wong from Credit Suisse. Please go ahead.
Hi, Good afternoon, two quick ones from me please firstly.
In your prepared remarks, you gave a very interesting exercise comparing and contrast, your financial results today to the 2013 period. So clearly it's a reflection of the hard work. The organization has gone through to streamline the business and do some cost savings there.
First question is what's the scope to improve that profitability.
Then my second question is in your upstream business and you mentioned that the on an underlying basis their field decline was offset by growth from new fields. So my question is what is your decline rates in your field at the moment and given some of the comments around inflation. How are you managing those decline rates.
Are the fields behaving the way you expected them to when you set out your upstream strategy and is the capex allocation to the upstream.
Business appropriate thank you.
A lot of questions in there.
And let me let me have a go at some of them.
I think if youre <unk>.
<unk> question was really about comparing 2022 with 2013 interesting, but what really can you do going forward.
2022.
And I would say well first of all it is very important to look back on how much we have strengths of this company and the reason for doing it really is because there's also a narrative out there that the results. We are seeing today are accidental.
Or actually just a windfall because that happens to be a war on the continent.
And while indeed war as a driver of a lot of the pricing that we are seeing if you reference it back to the last time. We saw this prize of course, you cannot just explain it away by just the price effect and indeed, we have significantly improved the portfolio. We have significantly improved the strength of the organization, we just pick.
The number of indicators I could've picked another dozen to just show that the company has become a better company higher quality companies and on the back of that I would say that yes. We can therefore also grab more opportunities.
More discipline not only demonstrated but we just have a better discipline discipline. So in other words, let me take decisions right now we have just better able to understand what is right what is wrong and we.
Basically high grading all of the decisions that we if we can make into the best the best decisions possible.
So I would say, yes, there is more running room when it comes to <unk>.
When it comes to the performance going forward.
On the field decline.
You sure whether I got your question to ride spirits that for a little so.
At.
Sure Nate to add if you if you look back.
On the upstream side.
Actually we juice production compared to 2013.
By 21% that's not field decline of course, there's also portfolio, but it's also taking into account a very significant acquisition with BG. So in other words again, you see that we have significantly upgraded the portfolio.
In terms of production.
Because at 21%.
Behalf.
Coincides with 74% <unk> per barrel increase.
I think in general field declines I don't have the number of the top of my head but.
But I don't think we see surprises no R&D then.
Pardon me and what we expect to see between now and <unk> five is around about 1% to 2% decline and coming through I mean, what I would say is I mean, you look at our upstream business at the moment and you look at $4 9 billion of adjusted earnings in this quarter, which just shows you that.
By the way a significant actually the last time I think we got near that was 2011% even beyond the data set we're looking at now at.
Similar prices. So what we are seeing is significantly lower production, but we're really the value over volume coming through and it's really working so quite relaxed from that perspective or that just one you asked a little bit about <unk>.
Sorry, the capex as well coming through so we're spending $7 billion to $9 billion. That's the intent.
For our upstream business, what we're seeing there is an awful lot of new things coming in you saw you saw of course Pierce will come back online Choctaw F. F E questionnaire, one starting up this quarter as well.
In our upstream business and clearly that's a business that we're very proud of as well.
Thank you very much.
That was actually the final question I am very mindful that there's still quite a few questions in the queue and apologies for those that haven't had time to speak but we will get to you and make sure that your question is being taken care of as well.
Now I would say thank you so much for all your questions.
We really enjoy doing this call together with you, but I also hope that you have enjoyed it and that is giving you some insights to the delivery of our strategy.
Driving to ensure secure supplies of energy during one of the most challenging periods to will have space, but we also hope to see you in person at our shell insights events of marketing on October six which will be here in London, and which will be hosted by hydro <unk> and our marketing team and of issue.
The end of the week and I Hope you and your families stay safe and stay well. Thank you very much.
Okay.
Okay.
Yes.
Okay.
Yeah.
Okay.