Q3 2022 Shell PLC Earnings Presentation
Slide natural gas to the recently created LNG import hub.
We have also been providing support to our customers. For example, we have increased the hardship fund for our shell energy retail customers and.
And we will double the payments of the governments warm home discount scheme to be kind of more than 150000 customers in the U K.
To address the short and long term energy needs, we must have a resilient portfolio of assets.
We will achieve this through focused uncompetitive investments in a disciplined manner.
For example, we are further growing our partnership with Qatar energy with our involvement in the North field site expansion.
And we took a final investment decision on developing the Rosemont large room gas project in Malaysia, which will be primarily powered by renewable energy.
Once built the offshore platform, we use power from 240 solar panels, whilst the onshore plants will be connected to the Sarawak grid system supplied from hydroelectric plants.
Also we announced the acquisition of shell Midstream partners in the U S to further simplify our organization.
We are more disciplined and that sometimes means taking tough decisions when activity don't meet our investment criteria or don't perfectly fit our strategy.
For example in the U S. We have sold our majority interest in the oil and gas company energy we.
We have ended our participation in the early stage wind projects in Ireland, and we have withdrawn from a deal to take liquefied natural gas from developer Tillerson.
We do not take these difficult decisions lightly.
When I think about focus and competitiveness I also think about our marketing business up there earlier this month.
Our marketing business reaches millions of customers with a vast range of products and services.
We are already number one in many areas and intend to be competitive in the emerging ones such as E fluids electric vehicle charging as well as biofuels.
These solutions will especially help sectors that are hard to decarbonize.
Over the past three years around half of Marketing's combined capital and operational expenditure went towards activities that generate low carbon products.
Impressively these activities contributed almost 60% marketings earnings during the same period.
With all of these offerings marketing has the perfect combination of strong growth and returns diversifying our portfolio.
It is the quality of our portfolio together with our strong operational delivery that has allowed us to significantly increase our shareholder distributions this year.
We have now completed $6 billion of share buybacks for the third quarter and today, we are increasing our shareholder distributions even further.
We have announced a new 4 billion dollar share buyback program, which we expect to complete by our Q4 results.
This is expected to bring our total announced shareholder distributions for 2000 $22 billion to $26 billion in excess of 30% of our CFO for the last four quarters.
Through our share buyback from ninth in 2022, we expect to repurchase some 10% of our share capital.
And as indicated before the reduction in share count allows us to increase our dividend in the future.
So today, reflecting our progressive dividend policy, we've also announced our plan to increase our dividend per share by unexpected 15% our Q4 results.
Object to board approval.
These increased distributions show our confidence in our business its ability to fund, both our energy transition and our shareholder distributions.
Now, let's see the results for the quarter.
In the third quarter, we delivered robust results in a volatile market environment.
Our adjusted earnings were $9 $5 billion.
And integrated gas after a strong first half of the year adjusted earnings were lower compared with second quarter, primarily driven by trading and optimization.
Due to increasing market volatility there was a significant dislocation in historically correlated gas markers.
This dislocation arose as a result of Russia's invasion of Ukraine, and the subsequent impact on the energy markets and regional gas prices.
Our trading and optimization organization manages risk through hedging our physical volumes.
Due to a breakdown and correlations some hedges were less effective.
LNG trading and optimization, we're also impacted by a combination of seasonality and supply constraints, where the business is geared toward supply in the northern hemisphere during the winter.
Our upstream business performed extremely well delivering $5 9 billion. Despite a decrease in Brent prices since the previous quarter.
Our focus on value over volume as well as operational excellence continues to deliver strong cash flows and earnings.
To give you. An example, this quarter in all three of stuff that's in the Gulf of Mexico, We achieved the highest production in a decade.
This quarter, we delivered a very strong adjusted EBITDA of $21 $5 billion and our cash flow from operations was $12 $5 billion.
Working capital outflows were mainly due to seasonal gas inventory buildup as well as higher initial margin requirements at renewables and energy solutions.
That brings me to our financial framework.
Our capital allocation priorities are unchanged, we will remain disciplined and invest in opportunities align with our returns framework.
This year, we expect our cash capital expenditure to be in the range of $23 billion to $27 billion.
Another important aspect of our financial framework is net debt.
It is now around $48 billion, which is slightly higher than last quarter.
Having a strong balance sheet and maintaining double a credit rating remains one of our priorities.
So this quarter clearly shows our financial framework connection and we have demonstrated discipline and focus and managing our investments and financial position.
We have confidence in our business and its delivery, which is why we are enhancing our shareholder distributions with new share buybacks and planned dividend increase for the fourth quarter.
As we transform our business, we will continue to deliver the secure supply of energy that the world needs today and in the decades ahead.
<unk>.
We will now begin the question and answer session.
People dialed in.
Have a question please press star one.
If you wish to be removed from the queue. Please press star two.
Phone calls are requested to mute the audio on the computer webcast and listened attentively to the telephone audience.
Begin to progress through the telephone questions.
Thank you for joining us today, we hope that after watching this presentation you've seen how we are more focused more disciplined more competitive whilst we provide the energy, which the world needs today and in the feature today, Ben and I will be answering your question.
And just before we kick off band as I said earlier. This is your last quarter.
It feels like a very soft month I have to say you're being our CEO for nine years and you've led us through.
Some tough on some wonderful times, we've had the BG acquisition, which you're seeing populous and of course also had a difficult time through COVID-19.
And just set us up so well for the future. So just a big Thank you for me it's been yes.
It's been wonderful to work for you.
Thank you very much two shortly.
No. Please could we have just one or two questions. Each so everyone has the opportunity.
With that can we have the first one please operator.
The first question is from Irene homeowner Societe Generale. Please go ahead.
Thank you good afternoon.
Congratulations Ben Thank you very much.
So I had two questions first can.
Can you please give us.
Estimates for U two engines too.
Cash liability firstly for the U K.
Windfall tax and then secondly for the U solidarity tax.
And my second question.
Going back to the 15% dividend increase for the fourth quarter.
Some will obviously be from the reduced share count and then theres the genuine.
Dividend decrease and for that progressive dividend increase.
You had been guiding to a sustainable 4% EU growth at your.
Restaurants oil price, obviously current commodity prices are well above that so basically equally remove the benefits there.
<unk> share count.
What was the underlying genuine.
Per share dividend increase you announced today.
Alright, thank you.
I will actually take place Infosys as the Cape Ann Yeah. Indeed, so on the first one I mean, you asked specifically about the liability that we face with respect to both the UK and EU solidarity so with respect to U K and windfall tax probably this quarter, we have not seen an impact coming through largely because of the amount of investment that we've got at this.
Moment in time as you know it depends on how much you're investing in what profits generic therefore, it's not going to apply.
Believe this year to us beyond that what we're seeing of course is that we expect given where prices are that will probably be impacted in Q1, 2023, but let's see how it plays out.
Your second part of the first was with respect to the EU solidarity because we haven't seen that enacted yet we have not actually had any impact in Q3, you're asking how is going to play out in Q4. It is quite difficult to tell at the moment because each country has to enact fast.
So what we're waiting to see what happens in the core countries as well, so I won't predict where that will end up.
Your second point was around the 15% dividend increase and.
Really it was how much of it does not involve while youre right Theres two parts to that of course, we've been talking about higher by doing share buybacks, we create capacity for future dividend increases and that's what's occurred here, if a 4% progressive dividends and thats part of that.
15%, but if I were to take a step back and look at how much share buybacks in 2022 have basically given us capacity for excluding Permian, it's around 7%, including Permian is heading towards 9% to 10%. So you can see the building blocks, there without Permian, 7%, plus 4% and progressive.
And then you'll see the difference to 15% I hope that helps.
With that operator could I. Please have the next one.
The next question is from Oswald Clint at Bernstein. Please go ahead.
Okay.
Hi, yes. Thank you very much for your time just a question. Please on the upstream just looking at some of the margins here. The EBITDA per barrel for example, $73, which pretty impressive and must be close to the highs. It I know gas prices were higher but you called out of the Gulf of Mexico, producing a decade highs and I think while it was <unk>.
Recently, telling us how breakeven in that business have been pushed all the way down and I think the $25. So is it gas or is it really a bit of evidence around these low breakeven in big basins like the Gulf of Mexico is it just the Gulf of Mexico or is it really a stronger performance across.
Much of the upstream portfolio. Please first question. Thank you and then secondly, I wanted to ask around integrated gas here. This quarter I know, there's been a lot of discussion it looks like in my model, which is not accurate, but it looks like potentially a loss in trading and optimization, which I think would be the first time ever.
So would I be wrong in saying you lost money this quarter, which.
As I said would be the first time and frankly whats your view on when these correlations start to rethink and whether you changed your hedging strategy for 2023. Please thank you.
Okay.
I'll certainly take the second one.
So with respect to integrated gas.
Salt, where youre looking at that so if I take a step back and think through we tend to look as you well know on our integrated gas business has been.
Pretty much second to none and that he has an impressive portfolio that we have and of course, you need to look at it over a number of quarters because things do happen between quarters. So we look at it like that if I look at the year to date.
Looking back at that what Im saying this year for the for the three quarters is higher than I've seen for the previous year for the similar quarters as well. So I don't have any concerns there with respect to from from that point of view. So you asked specifically around the correlations.
I'm not going to predict I know better than to try and predict where we will see in terms of.
Tcf and Jay can but what I would say in terms of the way, we hedge <unk> traders to the cost of price risk management for us and we're very comfortable with that.
And what you have seen of course is that hedges are not 100% effective on what we tend to do of course is to hedge from the perspective of a seasonality approach rather than quarterly Oswald and that's where you see just the difference across the two of course, you always end up with basis risk regardless. So in terms of that our hedging strategy is working very well for us we always review.
You hedging approaches as you go through different periods of course with volatility we always look at it too so.
Thank you.
Okay. Thank you first question indeed.
Thanks for that question as well I think it's indeed, the Gulf of Mexico had an exceptionally strong quarter.
And by the way that's in addition to having.
The strongest performance volume wise for the last 10 years I've also completed the year without a single safety incident whatsoever.
Of course, this is fantastic news too, but it's not just the Gulf of Mexico, I would say, it's very much across certainly the entire deepwater portfolio, our Brazil business has been doing very well as well and I think what you are seeing here also.
Basically the effect of the high grade and Thats, we have been doing for the last year. So we have a.
Extremely high quality portfolio I think the retail assets are.
We are getting out of the portfolio and what you see when indeed macros is okay or supportive you get very strong results. So I would say, it's just more than that it's more than just a call.
Thank you Ben.
Thank you operator could we have the next one.
Next question is from <unk> at RBC capital markets. Please go ahead.
Hi.
Congratulations.
And best of luck with your retirement.
Two questions. Please the first one is just getting back to <unk> question on the on the hedging and <unk> impacts.
My understanding is this year has been quite hard to offload hedges secondary market because of the huge margin requirements.
So you can manage the margin calls that some smaller companies can't do that.
But at the same time, I guess investors want some comfort around the <unk> result, and then not being a structural issue.
And given the basis or the spreads have been blowing out since March April can you talk about what you've been doing since then too so.
Sure that this is a sort of a one off rather than a structural issue.
And then the second question is.
Kind of just going back.
A few months ago.
You've moved your listing from from a dual listed U K. There is actually a European company in a different sector recently announced intentions to move to the U S and they talked about.
Market structure issues and constraints on valuation and you are seeing here is greater than 10% weighting in the FTSE 100, So I appreciate and you're probably not going to want to kick this off.
On your way into retirement, but you probably would have studied a potential U S listing a few months ago.
Considering the move to the UK. So can you walk us through your Youll takeaways on that analysis and how you ended up where you are thank you.
Excellent. Thanks Raj two very different questions. There ill take the first one I suspect we'll tag team on the second cause be interesting to hear their perspective, as we made in the U K.
Approach. So you asked in terms of a few things there first of all it is not structural.
Comfortable with that without a doubt very comfortable with where we are and the way I would frame it as well garage is that when I look at our integrated gas business I look at it from three different areas I look at it from seasonality supply and then paper versus physical.
Seasonality perspective of it as you know we tend to be very much set up for the northern hemisphere winter.
And that's what you see here some tend to be shorter than Q3, a bit more length in Q4, and Q1 and that is consistent.
Other thing that we look at it as the supply side of things as you know premiums was done for a large part of the quarter and therefore, we didn't see some of those cargoes coming in so we were even tighter than we were before and then paper versus physical I mean, we talked a little bit about the hedges just a moment ago, where I mentioned by the facts.
We ask for price risk management and of course, you don't get perfect hedges, you don't get 100% effective hedges as well so what we see there is the need to look at it our hedging program from a seasonal perspective versus the core from your perspective.
Very very frankly, I'm not as well when you're one of the largest LNG players out there any small move of course gets magnified quite considerably as well.
I will go back and remind us of the very good results that we've had earlier this year as well so definitely not structural.
Right.
Second one was on dual listing and.
Ben would you like to start in terms of consideration well, yes. Thanks barrage also for your kind fluids.
Yes of course, we've looked at a number of options at a time.
We're clear what needed doing in terms of the simplification of the SaaS structure of course you'd have to look at what options do we have.
UK was obvious option in the U S was one Dara as well I think you have to also look at what is the art of the doable because of course moving not only tax residents, but also then most likely.
The indexation.
Indexation out of both.
The U K and the Netherlands would have been a tremendous amount of upheaval for our shareholders.
And then yes. This was meant to be a shareholder friendly move.
Its R&D sure whether that would have voted for us to work to move the head office and the listing into the U S. No matter how much you can look at it right now and say well you tend to get a better multiple if you use based on your businesses.
Okay.
Thank you Ben.
Because we have the next one please.
The next question is from Lucas Herman at Exane. Please go ahead.
Yeah.
Thanks, very much and good afternoon.
And then thank you for putting up with me for the better part of the last 910 years.
I guess to some good extent congratulations as well.
Thank you leave behind US that's a business then you inherited.
One can also see custodian.
Two questions sorry, the first one is back to the dividend, it's a little conceptual.
You show concepts are kind of difficult because of history.
What's the right level of distribution.
Those dividends and I ask because when I look at the <unk>.
Okay.
The mix of dividend and buyback across your major peers, not least your U S peers, all when I look at the <unk>.
<unk> cash flow from operations in a normalized environment and by that I mean, something nearer 50, 60, which based on your past presentations was adjusted cash flow from operations was somewhere around 45 billion.
The indications you're paying out on the 20% of cash flow that was dividends you're peers are public right.
<unk> 35, a normalized basis. So what was the discussion within the board around this increase.
And more broadly.
Just commentary around what you think.
The right level as to why this is the right level.
And then slow recent night I wanted to ask about storage and the gas that's gone into storage, which clearly has had a very significant working capital impact this quarter, but more to think about I guess, it's twofold, Hey can you give us any indication of what the level of working capital associated with that chassis.
And b, what the benefits that we might anticipate should be because I am presuming that you've hedged it and you've not left yourself exposed to whats the very volatile markets any observations there would be helpful. Thank you alright, so long winded answer.
Okay.
Actually I'm going to take part of Hudson, Okay Ben.
So on the first one in terms of the the right level and data C art versus science system that as you go through those we've been very clear in terms of distributions looking sometimes of Bessie, saying high floor soft ceiling, 20% to 30% of our CSR and you've seen us go through with that.
So as we've gone through we've looked at where do we go from there. We've created as we said many times the capacity through the buybacks to be able to increase the dividend as well, but it is about sustainability going forward and this is about us having the confidence in our future cash flows.
But of course, it's twofold to that we have many shareholders are very interested in the buybacks and many others that are income really assist them very much pushing for higher dividend as well and we've heard the message around that as well and felt it was a good timing to be able to give some clarity around that so given where we are we way out but that was a discussion at the board the way up between both the fixed element and the variable element I'm, making sure that.
Keep both in our tool kit has been going forward and you'll continue to see that as well.
Second question, sorry, flipping to a very different topic with Orion storage as you say and you saw that flow through Lucas in our renewables renewable energy and storage solutions business that is coming through on that so indeed, we have fed into storage, particularly in Europe really what Europe needed as we went through in terms of the working capital what would you say.
Just over $3 billion I would say is around the number in terms of how much is in storage at the moment around that and yes, we are hedged.
I hope that gives you some perspective.
Dan maybe have a next question please.
Next question is from Roger read at Wells Fargo. Please go ahead.
Okay.
Yes. Thank you good afternoon, Ben congratulations.
I Hope your next chapter is as.
As far as fulfilling or maybe more fun and more fulfilling.
The most recent ones here.
Questions for you all I just wanted to understand the <unk>.
Capex range, obviously youre going to come in at the low end or below it for this year, how should we think about it next year at least conceptually in terms of inflation.
Jackson are underway any other.
The headwinds are tailwind on that.
And then my other question to follow up is the dividend raise obviously, it's been so I think people have wanted to see and all but just curious as you think about just raised and how it sets up future rates or just how youre looking at the overall picture of shareholder returns in terms of the dividend versus share repo.
<unk>.
Thanks.
Okay.
That's what you'd like to take the Capex, one I'm very happy to just.
Yes.
Let me first of all Roger Thank you for your comments.
Your remarks or was it some or fulfilling actually it was definitely fulfilling.
Been quite a consequential term and that has quite a bit of fun as well so don't worry about that.
On the Capex, we normally don't make any announcements of course of the third quarter. When it comes to Capex, but what's the and I would say if you wanted to make statements about capex it should be for the new CEO to do rather than for the outgoing CEO . What I can say, though is that we are a disciplined company and we have worked very hard to.
Demonstrates that we are disciplined.
And therefore, what you can expect.
This is again, a very disciplined approach to how we invest.
Understanding that we have to have to invest for the future. We have to also return to shareholders and we have to continue to strengthen the balance sheet. So in that sense philosophically there is going to be no change in how we think about allocating capital.
Thank you Ben actually that's really a large part of the answer to the second question as well, which.
You were asking me to run terabytes, how do we consider the dividend range et cetera, and how do we do that way up it is very much a piping looking at the balance sheet is strong balance sheets, ensuring we have discipline around our capex and our investment range and then making sure that we deliver compelling returns to our shareholders and as I've said before it really is that mix between the fixed.
Which is the dividend side of things and the variable which is the share buyback since making sure we weigh those off as each time on making sure that is sustainable into the future as well.
So it will take some balancing.
Thank you.
Dan May I have the next question. Please the.
The next question is from Giacomo Romeo Jefferies. Please go ahead.
Yes, Thank you and Ben Good luck with whatever comes next for you.
Two questions.
They are on issues there.
Being discussed but would like to go back to the sustainability of the dividend.
I completely understand that you want to keep a level that is sustainable through the cycle, but it could go back to in the second quarter. You have raised your long term oil price so that in theory should support.
A higher level of dividend right and.
15%.
Increase the data as you discussed.
Is that basically just barely reflecting the reduction in shares in the 4% annual growth that you already have a policy. So just wanted to understand how do you.
Uh huh.
The increase in dividend today versus your change in terms of long term views on the sustainable oil prices.
The other question is goes back on on the gas trading in it.
Uh huh.
Just wanted to understand because obviously, we don't see we havent seen as much.
Volatility in some while you're on other peers, obviously I understand there's a scale issue here, but.
I'm just wondering what the following what happened in the summer you up we are reassessing the way you sort of.
Look at your basis risk within the portfolio.
Whether we should expect.
Youre trading business to be back to you the gain should that the DTF JK M spread.
Widen again.
As it did in the third quarter. Thank.
Thank you.
Excellent color I will take both of those.
With respect to the first one you're correct. We did raise our long term outlook with respect to oil and that has been factored into as we consider where do we believe we're going for it I would say I think the 15% is a compelling and change we are feeding back in capacity that we've created plus more plus the 4% as well and if I add up what we have.
<unk> in terms of buybacks plus.
Dividend as well for this year I would say, they're talking about $26 billion of returns back to shareholders is a compelling number without a doubt.
The $4 billion share buyback is also sizable and we need to remember that as we go through so well.
When you said, it's also about the gas trading business and just thinking through your question that Youre asking really is should we expect more I will never predict where the markets are going to carry through into the future I think what ive learned watching these last six months, saying that there's a lot of volatility and it is not sensible for me to try and go there.
What I would say of course is that we are very focused in terms of where we hedge what we put in place and being quite measure it in what we do so our traders are doing exactly what we ask them to do and its price risk management as well again as I said, we tend to hedge seasonally so I wouldn't look at the basis risk carrying into other quarters things tend to move quite quickly and you have to see what occurs.
Thank you for the questions.
Dan maybe half the next please.
The next question is from Amy Wong at Credit Suisse. Please go ahead.
Hi, good afternoon. Thanks for taking my questions and then also like to wish you. Good luck on your journey.
For your vision and all these years.
Couple of questions I have firstly is on the renewables segment, we've seen a few more low carbon transactions.
And Mark has whether it's in renewable power generation or in the circular economy space and I believe shell is also mentioned in the news as potentially being interested in some biogas.
In Europe as well so can you.
Comment a bit on the M&A pipeline that you are now seeing some of the bid offers there and compare that to the conditions say a year ago like what youre seeing there.
And then the second one is a rather quick one just on your <unk> business I know its always difficult to disaggregate the operations from the trading and all of that that would be helpful to understand whether you're with renewable power Gen assets are generating positive EBITDA.
Okay. Thank you.
Great I feel bad as always passing across I'm never sure, which ones go with Sir and I'll take the second one and then pass the first if that's okay. Ben too. So in terms of just keeping us shortly I mean, you're basically saying what are they generating.
Marshall law side, let's say coming through it changes those are investments into the future.
At the moment so of course, we're in that startup phase, where we have to have.
I have to move through them. So it is as you say that primarily what youre seeing coming through this quarter relates to the volatility that you see in the gas and power markets as well occupied shortly thank you.
Yes, thanks for your comments Amy.
Of course comment very much on M&A rest assured that we still have an M&A team that is looking at opportunities and not just divestments also looking at opportunities in the market of course, we live in a very.
Hello to all time, not only for commodity prices, but also of interest rates that for also valuations of companies.
And indeed opportunities may come up that are.
Interesting and attractive and that we may want to execute within the capital framework that we have.
Let me know specifically comment on that.
One company that you referenced but we always look at a whole range of options.
And we wanted to make sure that not only do that strategically fit and as we have if you take on these opportunities you have a long term strategic plan for growing value with them, but also that if we were to transact on companies no matter what.
As we take them at the right point of the cycle.
Thanks, Ben and maybe we have next question then.
The next question is from Matt Lofting at Jpmorgan. Please go ahead.
Thanks for taking the questions two quick ones if I could please first following up on the earlier points around integrated gas of the trading and optimization contribution in the third quarter can you just talk a bit about.
The extent to which legacy derivatives and hedging structures that were put on prior to the market development is post Russia, Ukraine contributed to the third quarter, the extent to which if they have had an adverse effect, particularly in the context of Jacob TTS movements et cetera.
Those structures roll off as we move into <unk> in 2023, and therefore become more quarter specific as opposed to recurring in nature.
And then second in the upstream business I think you highlighted the strength. This morning, it's a contribution from some of the deepwater business is across the E&P. If you could elaborate on that one of the portions of the portfolio.
Functioning, particularly well in this environment. Thank you.
Excellent okay.
With respect to the first one your you are completely right, Matt hedges tend to be put on.
Over a period of time and often well in advance as you can imagine we don't tend to hedge by cargo we tend to hedge by portfolio when you're at her size and particularly by seasons. So.
So you're right a lot of these are very historical and therefore, yes. There has been considerable dislocations, which is exactly what youre leading to in recent months certainties those changes have come through.
What you also see of course is they will roll off at different periods in time, and that's also what we're saying as well if I went to predictions and into the future. You Secondly asked around upstream and I'll ask Ben to build on that if he doesn't mind as well just our upstream business has had a fabulous quarter I should say $5 9 billion of earnings is exceptional and I think it's.
I'm trying to remember I think the highest earnings in the last 12 years. So it's it's really doing well we talked about Gulf of Mexico are there as being high value, but also performing really well and just just to talk I mean, its reliability is top quartile, we're hitting 96% in the Gulf of Mexico, and those are the sorts of elements, which are driving.
Our our underlying business.
Yeah.
That's fine I think.
Our entire portfolio of course over the last few years has been high graded significantly. So therefore, many parties on all parts of the portfolio doing well and certainly also in todays environment I must say, though that there is also a storage play that has done, particularly well for us in this quarter.
And that is contributing to the strong effects that we're seeing at the moment.
A one off.
Thank you.
May we have the next one.
The next question is from Martijn rats at Morgan Stanley .
Yes, Hi, Hello, Thank you for taking my questions and then I would say congratulations.
With a very even full sort of nine years and thanks for taking all of our questions. So patiently over that period you have been very.
You've been very helpful with all the time, you've given to us.
I wanted to ask you two things first of all so very briefly on the dividend I know many questions already been asked but I think just wanted to suitably difference.
It builds have been somewhat Lucas has said.
So the dividend.
Increase of 15.
15% is sort of 4% the underlying rates plus 2% being the shares bought back over the last four quarters broadly that is the math and I was wondering if the if you would suggest to us that that is.
It's broadly a framework that we could use to think about dividend growth going forward can we use this as a.
I was just sort of a mechanism or a framework to do dividend forecasting sort of in years ahead.
And the second thing I wanted to ask relates to the chemicals business.
First off the biggest one in your portfolio.
It seems to be sort of struggling somewhat overweight, perhaps Europe and Asia, maybe EBIT underweight U S. I'm just wondering if you would be considering any sort of.
Structural changes to improve the profitability there given what we've recently seen.
Excellent thanks for your time.
And I am definitely pass and chemicals to you given your expertise.
The first one.
Indeed, so indeed, the way to calculate that as you say is where we're basically saying we intend subject to board 15%.
And the Q4 results how does that play out 4% is the progressive and then if I were to look at where am I with ice.
Pardon me and its 7% to 8% where am I.
<unk> brings me up to the 10% 17 so.
That's how the numbers come together as you add them up.
Asks specifically is there something you can predict for the force for the future I think what I can say is that we've been very clear that this created capacity for this year and we still view buybacks very favorably, but we are going to have a combination of both going forward and in the same way as we're going to remain disciplined on Capex you should expect to see us disciplined in terms of shareholder return.
And we will use the balance between them because this is about making sure you've got the balance sheet compelling returns, but also the ability to invest into the future.
So I will at that point passed you got it thanks very much and thank you very much for your comments mark that and I always enjoy to taking your questions and many of the other questions as well.
On chemicals, it's a cyclical business. We all know this and of course as we can see the cycles can be quite severe.
It can be also quite.
Quite a long lasting.
The last time of course, we saw something closely like this was 2008 2009 and this looks to be indeed as bad it will recover to one over the cycle, what we see that our chemical business has been performing very well strong double digit returns.
Having said that I do think that indeed, we need to change the makeup of our portfolio.
Much more commodity exposure, so about 80% of our volumes are commodity volumes, either base chemicals or commoditized intermediates like styrene.
GE et cetera.
We have been working on that so today, we are under process of starting up a very large.
Polyethylene plants in Pennsylvania that will give us a different type of exposure to different markets different margins.
And hopefully also made it of course, the shift to the Americas, which look to be more structurally advantaged certainly now and maybe for some years to come but that of course is going to be a process that will take years now remember conceiving of the idea of the Pennsylvania chemicals complex.
In chemicals and heavy.
So many yesterday to starting it up so yes, indeed, we are.
Looking at J&J to makeup of the portfolio.
But at the same time, we also have to bear in mind that this business is cyclical and from time to time, you would've enjoyed very much from time to time.
Going to be tough like it is today.
Thank you Ben.
Maybe ask the next one please.
Next question is from Peter low Redburn. Please go ahead.
Oh, hi, Thanks, the first was on the working capital again, so over the last eight quarters, it's been over $26 billion business now I appreciate there'll be a lot of different factors behind that but at a high level should we achieve that as commodity prices fall a large chunk of that should flow back in.
Or is it a more structural piece driven by some changes to the business mix.
And the second one was just another clarification on upstream could you quantify the contribution from the noncash provision releases and gains on storage transfer effects I'm trying to understand whether that 1.3 points up a 1 billion dollar rates you've guided to the trading statement. So just wanted to get a better understand why that result was so much stronger.
Consensus thanks.
Excellent Thanks, Peter two great questions.
So on the first one with respect to working capital specifically.
I'll ask is it structural.
So what should we expect to see our working capital was $4 2 billion as you saw coming through and it varies across the businesses, but if I look at it at the at the group level I would always look at the frame I look at working capital is my initial margin I then look at my inventory and then I'm looking at effectively BN.
Accounts receivable accounts payable, so if especially across and you mentioned the fact that if prices are coming down should you see is coming back on the inventory we did see it coming back for our downstream business, we saw it in chemicals and thoughts in refining effectively around product side of things, but what we saw specifically was rebuilt storage position in our renewables.
<unk> energy solutions business. So he built up stories when we talked about are there some $3 billion as he saw that those two are in effect almost offset each other initial margin. We had as you would expect you make the point high prices marching and that comes through and of course on our accounts receivable accounts payable we saw that as an IPO because of course.
The value and Kim Dine in terms of the receivables. So that's where it played out so the difference of what was intuitive I think for many is the fact that we were building our storage position in the quarter because of energy security because of where we believe markets may go.
That was your first one with respect to your second one sorry, just before I forget it was around the noncash provision you are correct that it remains within the range of what we guided to in the key U N.
Quarterly update nice.
Thank you Don maybe you have the second next question. Please sorry. The next question is from Patrick <unk> at <unk>.
UBS. Please go ahead.
Yes, listen I have been in diamonds and wish you all the best for the future as well.
Two questions on.
On the refining business and we were seeing.
<unk> high refining margins at the moment I was wondering if you can share.
Share your views on what you expect to see over the next few months quite a few moving parts with you embargo.
Hi, Chinese exports Petra.
And then secondly, just in terms of your own ability to capture these high margins you are guiding to a fairly high utilization in the fourth quarter.
So it looks like it should be in a good position to capture the high margins that you said.
Anything cheap to remind as we look at the full quarter refining performance.
Yeah.
Dan would you mind, if I pause for finding too.
I expected it.
Thank you very much for your nice remarks, I think refining is going to be very difficult to get right.
Best of circumstances, if you look at it.
Slide you put up C was a refining margins have done.
Reduced by a factor of two or 50%.
From last quarter to this they are still high compared to historic numbers.
Who knows where that will go next there is a number of things to consider so first of all as the.
Sanctions further tighten in the at the end of the year.
I think we will probably see more pressure on getting.
Product tender for refinery capacity in Russia excluded from global markets on the other hand, we are also seeing is China, taking more advantage of that.
In our refining system to now harvest value within international markets.
How that dynamic will play out I think is very difficult to get an exact read of what I do believe in the long run is that refining is going to be structurally long and for what you have seen us do is to really concentrate our footprint to first of all fewer refineries, but Moreover, during the refineries into <unk>.
<unk> energy and chemical box, so that indeed, we are still being exposed to the refining margin, but at the same time also using these as springboards for growth.
Diversification of products.
And of course also.
The platform upon which we will build.
Low carbon fuels business, our hydrogen business et cetera, et cetera, but we are not in the refining business in the long run to enjoy very good refining margin I do think these years are behind us.
Thank you Ben.
Maybe we have an excellent team.
The next question is from Christopher Copeland at Bank of America. Please go ahead.
Thank you very much Ben I am sure Youre getting some mix all of us and the challenges that you managed through that I did want to finish by asking you a very open question. What do you think is the biggest challenge that you are leaving on the desk of your.
Of your success in a while.
Anything.
Very open question.
More detailed one perhaps for <unk> could you give us an indication of your assessment.
The gap, which I think is quite considerable close to $10 billion between your tax charge.
What actually flows through your cash flow payments.
Any help in terms of outlook for Q4 and beyond would be much much appreciated. Thank you.
The first one is definitely yes.
Barack I'm Dutch definitely.
Christopher Thank you very much for for your very nice words.
I will Miss you, but I hope that it will still be opportunities to meet up or come across each other.
Well, you know where to start with the biggest challenges for for a while it's not as if I designed a few for him to take care of I think the world is presenting all of us in the industry with tremendous challenges.
Basically come back to the energy Trilemma, how are we going to balance on the one hand, making energy more sustainable, but also making it affordable keeping it as affordable and at the same time securing supply.
And of course, if you Peel that onion back there are so many challenges in data already does have to be managed with different expectations quite often not exactly compatible with each other and navigating that I think will be anybody's challenge in the industry, including wells.
The other thing more specifically I think.
Is the operationalization of our powering progress strategy.
Of course has been bought in the member a core member of conceiving in designing that strategy.
I think we are well on our way to implementing the strategy you can see is making progress but it is indeed, a financial turnaround of the company, but also the carbon doing around that a focus that we have on on supplying energy and protecting nature.
But of course, the authorized it operationalization of that strategy.
There will be very much further done on his watch now the good news is wireless incredibly smart he is incredibly competitive.
He has a laser sharp focus on value.
So I consider myself lucky being able to handle this challenge to well, who I think they'll be doing a fantastic job and the operationalization of our borrowings broker strategy, but indeed navigating the trilemma I think there'll be a biggest challenge.
Thank you Ben I was quite intrigued to hear the answer to that one myself.
The second one was very specific Christopher so youre asking around training the difference between the tax charge that you're seeing come through on the tax paid and you're seeing a difference of Orion by $2 2 billion and this quarter the consumer and the difference which is is timing as you know the way. It plays out typically is that we see.
We are having in terms of the charge coming through the books, depending on the price that you're paying at that point in time, but actual payment tango and different countries have very different structures can be once a year. It can be fortunately many things like that since 2.2, it's a difference at the moment, which fell by $2 one last quarter as well. The difference is that typically Jason are deferred.
<unk>.
Movements, but also the phasing of it as well so I would say, yes, you are seeing an increasing tax pays coming through which is natural with the prices. The way they are at the moment as well.
Thank you and Don maybe we have another question. Please.
The next question is from Jason <unk> at Cowen. Please go ahead.
Okay.
Hi, Thanks for taking my questions, maybe just one clarification first.
On the dividend you typically announce.
<unk> in the first quarter is that still expected for this upcoming first quarter and then maybe I'll add.
Two other questions quickly.
On LNG there's been.
Since last year, maybe lower output coming out of your portfolio, that's limited the ability to capture.
Spot prices is that still ongoing is that something that effective <unk> with prelude down I'm just trying to understand.
What the segment in <unk> versus the actual earnings capacity and then.
Given this is your last call and thanks for taking all the questions I did want to ask kind of an open ended question Europe clearly faced.
Facing its own energy crisis.
<unk> been a lot of proposal suggested out there you said that the.
The crisis, maybe will last not only list winter, but into next one are there any easy fixes short term government intervention that could be done to.
To help alleviate some of the pressure we're seeing on prices in which you expect to persist.
Well into next year.
Yeah.
Thanks, Jason and then last one definitely shape and I'll take the first two quickly with respect to the dividend you're right. We typically announced that with our Q4 results and then you see the payments coming around if I may what we have done now is to say that actually we will make sure. We are non said actually at Q4, and we will pay us in March sorry to be clear it has no additional <unk>.
4% is already in the 15% so I need to make that very clear out there in terms of LNG in terms of lower output. As you asked what were saying of course is that in third quarter. We did have pregnant Don just to the industrial action that is came to an end just before the end of the quarter. So those cargos.
We're not there and we hope to see them now of course, we're in the middle of a pit stop at the moment, which was always anticipated and unexpected just a normal maintenance that has to be done, but then we expect to have it up and running as well so I'll pause there.
Yes, thanks very much Jason.
I could give you a very simple one line or.
Open.
Answer to your question.
But there isn't really I think this is a very difficult position, we find ourselves in in Europe , it's not necessarily a global picture of course, but it's a European challenge.
Will be managed to solve this yes, we will.
But it won't be without pain.
Won't be.
It won't be easy.
So very simply put if you have to deal with such a significant drop away of supply of natural gas coming out of Russia.
Only a few things that you can do of course to help with <unk> first of all it.
It is responding that's reducing demand then I think.
That is happening quite quite effectively if you have seen how much already in Europe demand has been reduced.
That's quite encouraging.
Some of it has to do with <unk>.
Reasonably well met are still.
Some of it has to do with tuning down industrial activity, which is not a great way to reduce demand, but there is definitely a very strong response.
The other thing of course is to bring on more supply and this is exactly where we come in.
In addition by the way to reducing demands we have reduced demand very significantly in our operations as well, but but bringing more gas into Europe , we have.
Doubled the amount of gas LNG coming into Europe already.
Here in the U K is three times as much compared to the last 12 months or 12 months before that.
And of course, we are bringing on battery can shorts.
Projects like for.
For instance, the.
The North Sea project peers.
Jack door.
Looking here on what we can do better.
Sort of near field, tieback et cetera to bring new supply on the all these things will have to be done on both bring some form of relief.
And then finally, what we also have to do is accelerate the energy transition at the moment, what we're seeing out of necessity almost there's a certain amount of guests with goldsmith gene have you have to reverse that again, we have to make sure that if you bring on more renewable capacity, that's not going to be a short term fix Idaho.
But just better be the wake up call for policymakers to see whether we can accelerate permitting processes, but we can do other things to award contracts just to make sure that we are seeing an effect over the next few years, but a short term fix I'm afraid, it's not going to be available other than demand response.
Thank you Ben and then I suspect we have time for two more questions. So let's take one. Please so the next question is from Alastair Syme Citi. Please go ahead.
Thanks.
Do you currently get.
Prices in Europe have collapsed as Ben just mentioned.
I was wondering if that persisted through the fourth quarter.
Would that have an impact on the inventory position that we've built.
As the inventory sold Florida load is really a good question.
And then Ben.
I think one of the very positive aspect.
To show them appropriately to the industry.
It's been the way you sort of push will report when management compensation.
You yourself are tied to metrics.
Shell's financial proposal to market performance.
So your global peers I appreciate what you said, it's sort of a U S domiciled.
Thanks.
It might be observation that unfortunately for you two of those global peers of the U S.
Pretty spectacular market performance.
It really means that.
You will target to become quite difficult to hit.
So my question to you is as you leave the helm here to show you with respect.
Show, you think Joe compete on a level playing field.
This is all of the industry peers, and where the change in the peer group.
Mike Your.
Success are better equipped to make investment decisions on the future direction of the company.
They take from two very different questions first one very short Alastair yes, we are hedged which is really the underlying question you're asking me there with respect to the majority of the portfolio in storage at the moment.
Okay.
Yes, we can.
Pete on the same level as USPS.
I'm not entirely sure whether I heard your question correctly on compensation.
Got it.
But I think what you are seeing if I take it a little bit more.
Generally Alastair is that there is indeed, a diversions and how the industry peer group.
Choosing as often.
In choosing its priorities.
I think we belong very firmly in the camp that believes that while there is still a very long term need for oil and gas.
We can tap into that we can make value from that we have to also develop responsibly for the benefit of the world Theres also more future value in the.
And the new forms of energy.
Different fundamentals also how value gets created value gets created closer to the customer.
And sorry, that's created by advantaged products, rather than advantaged projects.
So, yes, we have chosen to somewhat different path.
Indiana, So we'll have to see which part plays out well all of which Bob will have more longevity I think the part that we have chosen plays to our strengths and Thats why we have chosen it.
In the past we have chosen also plays more closely to who we think we are as a company identity and the people that make up that identity. So.
So I'm very comfortable with what we are doing it is indeed different.
And it will probably take a few years, if not longer to find out ultimately who is right.
Meantime dough.
Im absolutely certain that we can also in terms of underlying financial performance take on USB group and very much.
Look forward to doing that as well or at least whats our wireless doing it.
Thank you Ben Don This is gonna Hospira last one I'm going to ask the IR team to go back.
To anyone else, who asked the question my apologies have you seen it down.
So the final question is from quinine molder.
Financial markets. Please go ahead.
Yes, good afternoon first of all Ben.
Thanks for everything.
I would like also to congratulate you with your with your retirement effective probably know done for it but also your auto half as well.
Yes.
And then with regards to the let me say did the whole geopolitical.
Political situation and the behavior of the quotations.
Any any any reason to think that there will be some acceleration in the <unk> next year in 2024, and I'm sure with regard to what developer projects, especially in the north sea or maybe.
On other places in the world because of the geopolitical.
Situation.
I think you have already answered this question or half of weakness maybe you can elaborate on that somewhat that that's my question.
Thanks Kurt.
Ben I think.
Youre passing to me.
I was going to say I was going to allow you to have the last word on the geopolitical out. Okay. Thank you very much I think it will be very interesting to watch this quarter, Ryan as I've set another four as well.
Been a long time since we've had so many and so many good discussions with governments.
Who for a long time of course have taken certainly the availability, but maybe also the affordability of LNG as a given.
And how does somewhat singular focus on one side of the threat armor.
Taken together two for granted I think we have a better discussion now.
And I'm sure that will lead to new insights.
And therefore, it may well be indeed that governments are going to significantly focus also on <unk>.
Developing their own natural resources again, I think it is and.
And then for companies like us to decide whether that is where we want to play.
Or whether we want to play our upstream and integrated gas business in areas, where we have established strength.
Maybe from the way I posed that question you can probably deduce that the answer is going to be but but let's see how that plays out.
Indeed be new opportunities for us for instance, in the North Sea.
But.
Let me also say that I will look at Europe , much more as a play for us to demonstrate energy transition capacity and credentials or find out how are we going to make money with many of our customers on counterparts here, particularly also needs that's even more.
More so than that needed it before.
But I'm sure that's the.
Geopolitics of the moment, we will continue to shape the energy system for a long time to come and the other way around for that matter.
Thank you very much for your question.
A nice way to end on thank you. Thank you to all of you for your questions and for joining US on this call and we wish everyone. A pleasant to end of week. Thank you.
Yeah.
[noise].
Okay.
[music].