Q3 2023 Shell PLC Earnings Call

November 2, 2023

Thank you for joining us today, we hope that after watching this presentation you've seen how we have delivered robust results and how we continue to focus on our guiding principles today, she nader and I will be answering your questions and now please could we have the one or two questions per person so that everyone gets the opportunity and with.

That could we have the first one please look.

Oh first cooler is also hold Clint from Bernstein.

Good afternoon to both of you. Thank you very much I like the slide today, showing them some of the high grading moves and some of the longevity decisions you've been taking recently I, probably it is only a snapshot but.

It seems to be a lot more high grading moves then longevity moves on and in terms of the map. So it always begs the question of pipeline depth and pipeline length. So I know we discussed this a little bit back in June but just in the context of some of the recent let's say chunkier deals in the sector are you still feeling as confident in terms of the portfolio depth.

That's the first question.

And then on the topic of high grading like my second question was on the underlying Opex trends I think year to date 28 billion, it's about flat versus last year and I'm just thinking ahead to the two to 3 billion structural cost elimination by the end of 2025.

Maybe you could help us think about the big buckets or decisions that will help us get closer to seeing that number come out of the cost structure. Please. Thank you.

Thanks for that Oswald.

Take the first question and I'll come to you she made for the second one.

First you always want to your point around the strategy and where we are.

We have real conviction and the continued pathway that we have taken and that we announced just four and a half months ago on capital markets day.

And we are seeing the fruits of that labor right now with that focus on performance disciplined simplification. If you look at what we said at the time, our focus was and continues to be growing the per share value.

Clearly that has multiple threats to it one is the funnel, which I'll come back to in a moment to is making sure that we continue to drive our performance and the assets that we have and you have seen now quarter after quarter, a steady drumbeat of a steady performance.

And then thirdly, we continued to exercise the discipline and simplification that allows us to rightsize, our capex and reduce our opex. So that we can unlock the full potential of the company.

From a portfolio perspective, we continue to be very confident with the run rate that we have and what you see for example in LNG.

<unk> work of charge points in the country is growing to 25000 and he's already C. F O pulses.

The 20% to 30% that we expect to grow by 2030 represents around 11 million tonnes per annum of new equity capacity, that's coming in whether that's from Qatar or whether that's from LNG, Canada or Nigeria. They are all important barrels into our portfolio on the upstream side we've had some.

This demonstrates a pathway to the profitable decarbonization of our global mobility network.

Another performance highlight comes from our joint venture Ryzen, and Brazil, which started producing biofuel made from sugarcane waste at its new second generation ethanol plant the world's largest ryzen is helping customers to reduce their emissions and it's already returning cash to Michelle whilst continuing to invest in the energy transition.

Of course important milestone with Vito ramping up way and now having just moved to NGO side. So that's going to bring some new barrels you're going to have mero, two mirror free and meera for in Brazil, and so on and so forth and that is going to be an important funnel that we're going to continue to liquidate over the coming months.

We continue to maintain discipline and have taken the decision to further lower our 2023 cash capex outlook to $23 billion to $25 billion.

The one I will remind you of is north of 500000 barrels per day of new production expected to come by 2025 at a breakeven price of just under $30. So the funnel is strong and we continue to believe that executing the strategy and the way. We described it is absolutely the right thing for us.

This already puts US ahead of schedule in terms of delivering the ranch targeted for 2024 and 2025.

We are able to do this as we have kept the bar high for all opportunities, reflecting our strong commitment to capital discipline and value generation.

Thanks, and thank you Oswald.

On our journey of simplification continues to progress.

He is in terms of the Opex I, specifically, you're asking why it seemed flat amendment do we have confidence what are the big buckets. So the way I would characterize it is of course it takes time with the loss in the funnel at the moment. Some of what you are seeing very much talked about in terms of the structural ones and the news is enough news articles. It would appear so we're very much looking at taking costs out in terms of the way we do.

We have agreed to sell our home energy business in the U K and in Germany, as well as our shell Pakistan business.

Following the strategic review, we announced earlier this year divestment is a priority focus for our Singapore refining and chemical assets at the moment.

And then secondly of course, because the other bucket, which is around the divestments and you've already seen us announce Pakistan of course now you've seen several of them as many others as well coming through so I'm pretty confident in terms of are we going to be able to deliver it. Yes. It takes time you don't get it in a month or two Oswald I'll take the time to get those items and funnel through and of course, we'll update you in Q4. Thank you.

These have not been easy decision.

But these are necessary steps to further simplify and focus our portfolio and to move us closer to the targets, we set at capital markets day.

And we will give you an update on our progress against our financial targets and our Q4 results presentation.

Actually then Oswald Thanks again for the questions look can we go to the next questions. Please.

Moving now to our results.

Our next caller is Roger read from Wells Fargo.

In the third quarter, we delivered robust financial results.

Yes, thanks, good morning, or good afternoon to you.

Our adjusted earnings were $6 $2 billion and.

We delivered $12 $3 billion of cash flow from operation.

I guess I'm curious.

As we look out there's been a lot of M&A on our side of the pond. So just wondering as you're looking at it not necessarily saying you have to participate but what do you think some of the opportunities that it occurred out there soon so I'm a bit onshore some of that.

The improved results were driven by a better macro environment, including increased refining margins, coupled with higher production in the upstream.

This follows the successful completion of maintenance work in the Gulf of Mexico, where we produce higher value barrels.

A little more offshore and whether or not any of that does make sense for shell at this point.

At the same time, we saw continued low margins and chemicals, where we keep seeking opportunities for economic optimization.

Okay. Thanks for the question Roger and good morning to you.

Moving onto our financial framework.

I've already shared with you or lower cash capex outlook for this year.

Of course, we've been keenly observing the transactions that have taken place.

And in terms of our net debt it remains stable at around <unk> $40 billion.

While I don't think I'm, the best place to comment on those.

Now, let's take a look at shareholder distributions.

I can tell you indeed, how we think about them.

We continue to preferentially allocate capital to share buybacks as we believe that our shares are undervalued and that's why today, we are announcing a $3 $5 billion share buyback program to be completed over the next three months.

As I as I mentioned in the previous question to do that Oswald as we fundamentally believe that the strategy. We have is absolutely the right one for us and it's a balanced energy transition strategy. It's a strategy that continues to deeply believe in the role of gas in LNG. It's a strategy that continues to see an important tool for oil and it's a strategy that's looking at <unk>.

This brings our second half a ninth share buybacks to $6 $5 billion exceeding the targets at our capital markets day by $1.5 billion.

Bridging our marketing and our trading capabilities to be able to drive the decarbonization journey and so our value proposition that theme that we brought out the investment case through the energy transition I think plays out very nicely with the current portfolio that we have that we're very pleased with.

With the step up we did in Q2, our dividend per share in Q3 is 32% higher than in the same quarter last year.

In summary, this quarter, we have delivered robust results, whilst providing a secure energy our customers need.

And we continue our focus on performance discipline and simplification.

If we then look at how we want to be able to deploy capital. Our preference right. Now is to continue to buy that very attractive asset base that we have and the free cash flow yield that is also a very healthy free cash flow yield and continue therefore to preferentially allocate our capital towards share buybacks more so than going for big Big.

We have backed up our words with actions and we will continue to do so at capital markets day, we set out a path to increase shareholder value and that is exactly what we are doing.

Today's a non share buy back program elevates, our total our ninth shareholder distributions to around $23 billion for the full year 2023.

<unk>.

And from now to 2025, if we can unlock in when we will unlock the value of what we are what we have committed to you will see a significant amount of value being generated the tune of 10% free cash flow per share growth year. After year between now and 2025, and then absolute free cash flow growth between now and 2030, a six person.

These returns, meaning we are delivering towards the top end of our shareholder distribution range showcasing our strong commitment to be the investment case through the energy transition.

Thank you.

We will now begin the question and answer session.

People dialed in if you have a question please press star one.

<unk> per annum, so that strategy for us continues to be the right one and continues to be in our view. The one that is most accretive for our shareholders without going for a big inorganic that could be value to for them.

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 listen attentively to their telephone audience as we begin to progress through the tennis open questions.

I hope that addresses your question Roger Thank you for it and look can we go to the next question. Please our next caller is garage Lucas how are you from RBC capital markets Hi, Thanks for taking my questions. The first one is on the LNG business.

You cited that you would expect probably.

<unk> come on towards the back end of the fourth quarter, and then I guess, you've exercised some caution on Egypt.

Now please could we have the one or two questions per person. So that everyone gets the opportunity and with that could we have the first one please look.

I was wondering you know typically you walk into the winter with net lending Youll portfolio. So you are able to optimize and take advantage of volatility which is typically higher I was wondering how you think youll do you have the Netherlands Len in the portfolio for the next couple of quarters. Do you think you have the capacity to be able to optimize as you see it.

Oh, sorry cooler is also hold Clint from Bernstein.

Yeah.

Good afternoon to both of you. Thank you very much.

I like the slide today, showing some of the high grading moves and some of the longevity.

Yes.

And then the second question is on project specific on LNG, Canada. This is your largest capital project in.

<unk> been taking recently I'd, probably it is only a snapshot.

It seems to be a lot more high grading moves then longevity moves on and in terms of the map. So it it always begs the question of pipeline depths and pipeline length. So I know we discussed this a little bit back in June but just in the context of some of the recent let's say chunkier deals in the sector are you still feeling as confident in terms of the portfolio depth.

In the portfolio and if you look at some of the press reports it seems like everything is giving up as those start up and maybe late 2024. So can you confirm when you expect that project to start up.

Not willing to commit to a.

Our year over time, and I was wondering where you see the biggest areas of uncertainty. Thank you.

That's the first question.

Super Let me take the second question and then go to <unk> for the first one.

And then on the topic of high grading like my second question was on the underlying Opex trends I think year to date 28 billion.

LNG, Canada, we have indeed been pleased with the progress that has been made you would have seen.

Flat versus last year and I'm, just thinking ahead to the two to 3 billion structural cost elimination by the end of 2025.

Early October when T E.

The pipeline developer and coastal gas link the pipeline itself has a in essence completed the golden well the final weld on that pipeline and since then have.

If you could help us think about the big buckets or decisions that will help us get closer to seeing that number come out of the cost structure. Please. Thank you.

Also hydro tested the pipeline successfully.

Super Thanks for that Oswald I'll take the first question and I'll come to you. She made for the second one.

So very pleased with that because as you know that was very much on our on our watch.

First you always want to your point around the strategy and where we are.

The second bit then is more of the facilities at site the joint venture announced not too long ago that they had just passed the 85% completion threshold.

We have real conviction and the continued pathway that we have taken and that we announced just four and a half months ago on capital markets day and.

And so that all continues to go go according to plan and we're not announcing anything new we continue to say today that we expect to have a start up by the middle of the of this decade.

Nearly that has multiple threats to it one is the funnel, which I'll come back to in a moment to is making sure that we continue to drive our performance and the assets that we have and you have seen now quarter after quarter, a steady drumbeat of steady performance.

What could go wrong, I mean, typically teething issues and the startup of the plant, but that is what we are very focused on what we have said to the joint venture is our focus is not just on the first cargo and when it starts up it's on when can we get to the hundreds cargo because that will show us the stability of the overall plant and that's what the team is focused on.

And then thirdly, we continued to exercise the discipline and simplification that allows us to rightsize, our capex and reduce our opex. So that we can unlock the full potential of the company.

And so so far we've seen good quality or the joint venture has seen good quality overall in the materials that we have received the equipment was received.

From a portfolio perspective, we continue to be very confident with the run rate that we have and what you see for example in LNG.

And so far the progress has been as we would have hoped for.

Got it.

Yes. Thank you brush indeed in terms of our LNG portfolio of course this quarter, we saw some $6 nine and 10 liquefaction volumes and actually when you look at the range, you're right and you say, it's between $6 seven and 7.3. So it we're sitting very well across that range and that includes as you say by traders and also our anticipates an impact with respect.

On the upstream side, we've had some of course important milestones with Vito ramping up way and now having just moved to NGO side. So that's going to bring some new barrels you're going to have mero, two merrell Sperry and merrell for in Brazil, and so on and so forth.

To Egypt as well so according to that that's all baked into where we're going to you can see this quarter. We were able to access of course third party volumes as well and be able to take opportunities in the market and actually have very good results from our integrated gas business. We expect of course going into the northern hemisphere winter not only have those equity volumes, but also to have a third party volumes.

And that is going to be an important funnel that we're going to continue to liquidate over the coming months.

Well, that's what we can do with them, where they're locked up or not so you asked me do you expect to be able to use the quarter very well as well. Thank you sanction eight. Thanks again barrage look can we go to the next question. Please our next caller is Mckenzie Dunn anemia from Goldman Sachs. Thank you very much two.

Thanks, and thank you all towards indeed in terms of the Opex I, specifically, you're asking about is it seems flat at the moment do we have confidence what are the big buckets. So the way I would characterize it is of course it takes time with the loss in the funnel at the moment some of what Youre seeing very much talked about in terms of the structural ones in the news there's enough news articles it would appear so.

Two questions. If I may the first one I wanted to ask is about working capital management.

If I regret.

The shale results over the past.

Few years with the 15.

$15 increase and of course between the quarter and the oil price. They would have had a working capital build between somewhere between four and $7 billion stayed this quarter you actually managed to release operating working capital I was wondering if something has actually changed in the way you manage it in order to preserve capital at times.

We're very much looking at taking costs out in terms of the way, we do business and then secondly of course, because the other bucket, which is around the divestments and you've already seen us announce Pakistan of course now you've seen several of them as many others as well coming through so I'm pretty confident in terms of are we going to be able to deliver it. Yes. It takes time you don't get it in a month or two Oswald it'll take the time to get those out and funnel.

<unk> prices has an extreme spike in the quarter and then secondly, I was just wondering if you could perhaps forgive us if we can run through for prelude in terms of what you've been able to fix in the shutdown would probably still remains to be fixed in the future and where you think the longer term uptime.

Through and of course, we'll update you in Q4. Thank you actually then Oswald. Thanks again for the questions look can we go to the next questions. Please.

Our next caller is Roger read from Wells Fargo.

Could be on the project after all of the work that you've done in the last few months. Thank you.

Yes, thanks, good morning, or good afternoon to you.

Jamie Thank you for those two questions, let me start with the prelude one.

I guess I'm curious.

As we look out there's been a lot of M&A on our side of the pond. So just wondering as you're looking at it not necessarily saying you have to participate but what you think some of the opportunities that have occurred out there soon so I'm a bit onshore.

And then I'll give should I had the opportunity to talk about some of the brilliant work that she and her team are doing on working capital management.

On prelude.

Just a sort of a reminder, so we went into this turnaround having had the best one on prelude over 100 days and steady production.

A little more offshore and whether or not any of that does makes sense for shell at this point.

We were running north of 95%. So very pleased with the fact that we are now being able to really understand the operating envelope within which that facility runs.

Okay. Thanks for the question Roger and good morning to you.

Of course, we've been keenly observing the transactions that have taken place.

While I don't think I'm, the best place to comment on those.

I can tell you indeed, how we think about them.

<unk> around safety and reliability, but also it gave us the opportunity to go into discovery scope, which allowed us to learn a bit more about how our how the equipment has responded very pleased with how the team has been responding of course, it's always tough to do the first of these major turnarounds, we learned that on other major assets, but the team has done well.

As I as I mentioned in the previous question to do that Oswald dust.

We fundamentally believe that the strategy. We have is absolutely the right one for us and it's a balanced energy transition strategy. It's a strategy that continues to deeply believe in the role of gas in LNG. It's a strategy that continues to see an important tool for oil and it's a strategy that's looking at leveraging our marketing and our trading capabilities to be able to drive the decarbonization journey.

Out of the plant work has been worked through and then there was some discovery scope in certain parts of the facility that they have now are that they are now focused on.

And so our value proposition that theme that we brought out the investment case through the energy transition I think plays out very nicely with the current portfolio that we have that we're very pleased with it.

In terms of how we expect to come out of this this turned around and look at the end of the day a lot of the improvements were meant to be able to establish more reliable and continued performance that we saw going into the turnaround and do with much more structurally so I have confidence that we will continue to improve but this won't be.

Journey of one single turnaround this is a journey of.

Multiple years to get the to get the asset to continue to do what we expected to do.

Though I have high confidence that on the back of what we have seen so far that we are going to get there soon.

<unk>.

Sure sure. Thanks, Okay. Great question and you May remember last year, we had certainly some large players from working capital.

And I spent a lot of time trying to explain what occurred or ideas.

Certainly a life effect if there are many things last year of course of the cards.

Would you mind to volatility that came into the market places of course, the war with respect to Ukraine, but it also allowed us to focus very carefully on what we were doing and there is a range of activities that took place from that nothing particularly difficult to just the usual things are making sure that you know.

I hope that addresses your question Roger Thank you for it and look can we go to the next question. Please.

We're taking the right trades on the same exchange rather than different exchanges to collateral et cetera can can.

It can be a bit more factors suggest the intelligent things that you should be doing around managing your working capital, but that's been very very much focused and I would say that everyone. In the organization looks to that of course, you have volatility beyond that this quarter because I see your point exactly on I think you said $47 billion of it builds over the period or over a couple of.

Our next caller is garage Lucas how are you from RBC capital markets.

Hi, Thanks for taking my questions.

One is on the LNG business.

You cited that you expect.

Come on towards the back end of the fourth quarter, and then I guess, you've exercised some caution on Egypt.

So what we saw of course of course with point 4 billion of inflow now some of that of course will go up again next quarter, but what really happened there what we saw and fundamentally on that was a slight Athens could want to have a look at by the way in the pack what it shows you the areas of course with prices going up you would have the outflow in terms of both price and volume in terms of inventory, but beyond that that was more.

I was wondering you know typically you walk into the winter with net lending youll portfolio, So you're able to optimize and take advantage of volatility which is typically higher.

Was wondering how you think youll do you have the Netherlands in the portfolio for the next couple of quarters. Do you think you have the capacity to be able to optimize as you see fit.

Then offset by both our HR and our a pea in the kidney if you haven't looked at what you see is in effect what occurred was that in terms of our AP. We started building in terms of middle distillate cut.

And then the second question is on project specific Bon LNG, Canada. This is your largest capital project.

Coming into what we think we need for next quarter and tenants have a are the two things that occurred there we had some pre pays coming in from some of our <unk> businesses and you'll remember that from last year as well and then secondly of course with the divestment of FL, which is reaching its conclusion of course, there's an awful lot of collections that come in alongside that the combined that meant we were in a position with a point for inflow, which is great to see.

In the portfolio and if you look at some of the press reports it seems like everything is giving up as those start up and maybe late 2024. So can you confirm when you expect that project to start up.

Not willing to commit to.

Year over time, and I was wondering where you see the biggest areas of uncertainty. Thank you.

Small amount that will go out again next quarter. Thank you.

Aid and thank you for the question as WOMAC Aly.

Super Let me take the second question and then go to <unk> for the first one.

Luke can we go to the next question. Please.

LNG, Canada, we have indeed been pleased with the progress that has been made you would have seen.

Next caller is Giacomo Romeo from Jefferies.

Yes. Good afternoon. Thank you you mentioned in your prepared remarks.

Early October when T E.

<unk> pipeline developer and coastal gas link the pipeline itself has a in essence completed the golden well the final wells on that pipeline and since then have a also hydro tested the pipeline successfully.

Measurement is a priority focus for Singapore just.

Thinking here in terms of where that where would that leave you in terms of your overall strategy for the downstream end.

What's your view.

So very pleased with that because as you know that was very much on our on our watch.

With regards to your European assets.

Second question on buyback.

The second bit then is more of the facilities at site the.

<unk> you gave us a helpful floor for buybacks in the second half of the year, just wondering if youre willing to provide a floor for as we move into <unk>.

The joint venture announced not too long ago that they had just passed the 85% completion threshold and so that all continues to go go according to plan.

You start to look looking to move into two divisions before so it's sort of a floor for 'twenty for a first officer.

We're not announcing anything new we continue to say today that we expect to have a startup by the middle of the of this decade.

Thank you.

Okay, let's start with the buyback question I'll I'll take the second one.

What could go wrong I mean typically.

Indeed, so jakafi, it's gonna be a short answer on that one and I think what you cannot predict is when you will do what we said which is very much around looking to a 30% 40% distribution airlines that have higher and of course that means you can be at different parts of the range, you'll see me and the team very much practice around value. So you'll see us preferentially allocating too.

The teething issues and the startup of the plant, but that is what we are very focused on what we have said to the joint venture is our focus is not just on the first cargo and when it starts up it's on when can we get to the hundreds cargo because that will show us the stability of the overall plan and that's what the team is focused on and so so far we've seen good.

Share buybacks, which is exactly what we did this quarter as well of course, but in terms of are we going to go further and to give some forward look so there's we're not we'll stick within the framework that we provided so far. Thank you actually then let me take the.

Quality of the joint venture has seen good quality overall in the materials that we have received the equipment was received.

And so far the progress has been as we would have hoped for.

Got it.

The first question Jack Mohr around.

Yes. Thank you barrage indeed in terms of our LNG portfolio of course this quarter, we saw some $6 nine and tens of liquefaction volumes and actually when you look at the range, you're right and you say, it's between $6 seven and 7.3. So it's we're sitting very well across that range and that includes as you say by traders and also our anticipates an impact with respect.

Where does that leave us.

Maybe to focus specifically on chemicals and products rather than more broadly across our downstream businesses.

On chemicals and products, what we said at capital markets day.

Is that if you look across our asset base, we have $28 billion of capital employed there are number one priority is getting shell polymers monarch up and running that's around half of the capital employed and we're very much focused on doing that and we hope to see the the steady ramp up through our through the beginning of next year of that.

That facility.

Then we talked about some real strength in our business for example, the north Americas assets, the Chinese assets and that we continue to drive and drive operational performance and continuous improvement.

Well, that's what we can do with them, where they're locked up or not so yes, we do expect to be able to use the quarter very well as well. Thank you. Thanks, Nate. Thanks again barrage look can we go to the next question. Please.

We then have highlighted both the Singapore energy and chemical park as well as our European energy and chemical parks for review.

Our next caller is Mckenzie Dunn anemia from Goldman Sachs.

And as said both individual and just now we have taken a decision to preferentially to look at the divestment route and we are going through that process.

Yeah.

Thank you very much.

Two questions. If I may the first one I wanted to ask you is about working capital management.

For the European ones, we continue to review it we still believe that our energy and chemical parks give us a real opportunity to be able to use that infrastructure the terminals the pipelines.

If I you regress the shale results over the past.

A few years with a $15 increase end of quarter two in the quarter and the oil price. They would have had a working capital build between somewhere between four and $7 billion stayed.

And the the equipment itself as an opportunity to be able to establish some of our low carbon solutions options to give you. An example in the Netherlands. We are building facilities. There like Holland hydrogen won a green hydrogen facility that will be linked into our energy and chemical park in the Netherlands and we're also.

What are you actually manage to release operating working capital I was wondering if something has actually changed in the way you manage it in order to preserve capital at times when prices has an extreme spike in the quarter and then secondly, I was just wondering if you could perhaps forgive us if we can run through for prelude.

Being a heifer plant or bio plant, there as well so leveraging that that real estate.

In terms of what you've been able to fix in the shutdown would probably still remains to be fixed in the future and where you think the longer term uptime could be on the project. After all of the work that you've done in the last few months. Thank you.

To be able to create value as we look to help our customers decarbonize as a key part of that strategy.

Long story short we continue to do what we believe is going to allow us to improve the returns of that business and to create.

The sustainable delivery of a of the earnings and the cash that we expect of it in and we've guided as you'll have seen in capital markets day to roughly a flat capital employed from now at the end of the year roughly $3 billion per annum invested in these energy and chemical parks.

Jamie Thank you for those two questions, let me start with the prelude one.

And then I'll give should I had the opportunity to talk about some of the brilliant work that she and her team are doing on working capital management.

On prelude, just a sort of a reminder, so we went into this turnaround having had the best one on prelude over 100 days and steady production.

And looking to create a $3 billion to $4 billion of a value out of them. So that continues to be very much our plan.

We were running north of 95%. So very pleased with the fact that we are now being able to really understand the operating envelope within which that systemic neurons.

Thanks for the question Giacomo.

Luke can we go to the next question. Please.

Cooler is Peter low from Redburn Atlantic.

This is the first major turnaround that we have undertaken of course, partly delayed because of the COVID-19 event. So this really gave us the opportunity to be able to liquidate a number of issues and in particular around safety and reliability, but also it gave us the opportunity to go into discovery scope, which allowed us to learn a bit more about how.

Thanks.

On the lower Capex rate.

You suggested at the prepared remarks that that was because some investments perhaps adult that youll return criteria could you give any examples or perhaps some color as to what areas of the business that reduction has come in.

The second was actually just a follow up on Sao Paulo. This Baltic you've talked in the past about it contributed 121 $5 billion of EBITDA. Once it is fully ramped up.

How the equipment has responded very pleased with how the team has been responding of course, it's always tough to do the first of these major turnarounds, we learned that on other major assets.

Could you deliver that in the colored garage and a lot of it.

But the team has done well a lot of the planned work has been worked through and then there was some discovery scope in certain parts of the facility that they have now that they are now focused on.

Once you're on top of course.

Would it require a recovery in industry margins as well thanks.

Let me take the second one first and then hand over to Shane.

In terms of how we expect to come out of this this turned around.

Onshore polymers monaca the want to wanted to have billions dollars of EBITDA continues to be what we guide for with regard for it on the basis of reference prices, which we have indicated and we provided those in capital markets day clearly the market that you see at the moment is being punished the chemicals markets. We have an unprecedented wave of new supply that came over the past three years at mean.

At the end of the day a lot of the improvements were meant to be able to establish more reliable and continued performance that we saw going into the turnaround and do with much more structurally so.

I have confidence that we will continue to improve but this won't be a journey of one single turnaround. This is a journey of a of multiple years to get the to get the asset to continue to do what we expected to do.

Being that the the indicative chemical margins are are beaten up the way to think about the one to one at the half is think about it around the reference price that we indicated in the capital markets day back Tonight.

Though I have high confidence that on the back of what we have seen so far that we are going to get there soon.

And thank you Peter and team, we brought on and our Capex range. As you know we started with 23 to 27 prototypes.

Alright. Thanks.

Okay. Great question and you May remember last year, we had certainly some large players for working capital and I spent a lot of time trying to explain what occurred or ideas that certainty of life effect. As there are many things last year of course that occurred and some huge amount of volatility that came into the market places of course, the war with respect to Ukraine, but it also allowed us.

96, the last one is the upper limit and twenty-five now what you're effectively saying is just really great discipline and scrutiny across the portfolio. We're basically ensuring that we're set up well for what we have promised for 'twenty four and 'twenty five.

So this is just putting our words into action and bringing this forward as rapidly as possible across the whole organization. So what are we really doing it's really about scrutiny as you say very much focused on where the numbers make sense for us and why we can truly differentiate from what is that why has that played out instead.

The focus very carefully on what we were doing and there is a range of activities that took place in that.

Nothing, particularly difficult to just the usual things are making sure that you know.

Getting the right trades on the same exchange rather than different exchanges that collateral et cetera can can.

Integrated gas and upstream of course, we're still continuing to spend as you would expect we're seeing is taking smaller mine site.

It can be a bit more factors suggest the intelligent things that you shouldn't be doing around managing your working capital, but that's been very very much focused and I would say that everyone. In the organization looks to that of course, you have volatility beyond that this quarter because I see your point exactly on that I think you said $47 billion of bills over the period or over a couple of.

Chemical products.

While difficult industry at the moment, that's logical given the market conditions. We're also taking some light in terms of marketing because we've invested so much so far but they don't actually beginning to recoup the benefits and that's what we want to focus on and finally of course, we're taking a little bit high on the renewable side. That's simply just market conditions as you can imagine there's been plenty of stuff in the press recently so thank you for your question.

Quarters, what we saw of course of course with point 4 billion. That's an inflow now some of that of course will go up again next quarter, but what really happened there what we saw and fundamentally on that was a slight ace is a good one to have a look at by the way in the pack. What it shows you. There is of course with prices going up you would have the outflow in terms of both price and volume in terms of inventory, but beyond that that was more.

Actionaid and Peter Thank you for the question look can we go to the next one please our next caller is lithia rainfall from Barclays. Thanks, and good afternoon, Dave and team.

Two questions if I could just following up on the Capex I should note that $2 billion range that you still have only eight.

More than offset by both our HR and our AP and the kidney if you have a look at it what you see is in effect what occurred was that in terms of our M. E. T. We started building in terms of middle distillate.

Lastly, can you just what would you what the variable or not.

<unk> finished the buyback, but it may be you could have done more to something like Capex and.

Coming into what we think we need for next quarter and tenants have a R is two things that occurred there we had some prepays coming in from some of our <unk> businesses and you'll remember that from last year as well and then secondly of course with the divestment of Ferro, which is reaching its conclusion of course, there's an awful lot of collections that come in alongside that the combined that meant we were in the position with a point for inflow, which is great to see.

Hi, a buyback even though you have them just how you think about that and then secondly, and relative to the C and D N G.

Oh things going exactly as planned or as normally happens when things are slower than you'd hype and some things that quake out I'm. Just wondering if you can give us a sense that you've talked about that a lot costs that just April how do you think that there's not been right.

Small amount that will go up again next quarter. Thank you.

Thanks, Roger you want to take the first one I can assure you in terms of the Capex. Thank you Lydia I know it feels weird to think that there's only eight weeks left at the end of the day, where that came from in terms of the range. It's just.

Aid and thank you for the question as WOMAC Aly.

Luke can we go to the next question. Please.

Our next caller is Giacomo Romeo from Jefferies.

Really nothing too exciting about it is it's just simply put there are a number of payments that will come out between now and year end, depending on milestones for things related to LNG, Canada things related to Qatar etcetera, and those can fall, one week, plus or minus into this quarter or into next quarter and that's what really thrives, that's a little bit hence we kept the range as it is but I assure you. There's a lot of discipline to make sure we're only spending that.

Yes, good afternoon, and thank you you mentioned in your prepared remarks that the divestment is a priority focus for Singapore just <unk>.

Thinking here in terms of where that where would that leave you in terms of your overall strategy, Florida downstream men.

That gives us the returns we need.

What's your view.

And on the on the progress we're seeing Lydia I mean firstly.

With regards to your European assets.

Second question on buyback.

At a high level, maybe to say I'm very pleased with the progress that we are making.

<unk> you gave us a helpful floor for buybacks in the second half of the year, just wondering if youre willing to provide a floor for as we move into <unk>.

Just since capital markets day, but it's been a it's been a strong steady drumbeat of performance for a while now so.

The organization is responding and they're responding well.

Dr. Luke looking to move into before so it's sort of a flow of liquidity for a first half basis.

And I think we've been able to hopefully you will see that to do what we said we were going to do but let's break it down into the three elements that we have underpinned our first sprint by performance discipline and simplification.

Thank you.

Let's start with the buyback question I'll I'll take the second one indeed, so Jack I mean, it's gonna be a short answer on that one I think what you can predict is when you will do what we said which is very much around looking to a 30% to 40% distribution of Orion's CFO and of course that means you can be at different parts of the ranch, you'll hear and see me.

On the performance side, whether it's operational performance or financial performance Youre seeing us hopefully become more predictable and a bit more consistent than the way we are delivering and we are very consciously going after that.

And the team very much triglyceride value, so you'll see us preferentially allocating to share buybacks, which is exactly what we did this quarter as well of course, but in terms of are we going to go further and to give some forward look so there's we're not we'll stick within the framework that we provided so far. Thank you actually then let me take the the.

And the businesses are really focusing on just getting on top of.

The day to day, just getting the basics right every single day.

On the project side, we had some big wins with projects like to me, it's only coming on board the veto being ramped up at the pace that we would have hoped for it's not a bit faster and other projects in the funnel moving so that muscle performance I'll never tell you I'm fully satisfied because it take a long long time to be able to.

The first question, Jack Mohr around where does that leave us.

Maybe to focus specifically on chemicals and products rather than more broadly across our downstream businesses.

On chemicals and products, what we said at capital markets day.

Get into.

Into the space, we want to get too, but ultimately we need to keep improving and that's what we see right now so I still see more running room, there, but very proud of how far we've gotten.

On discipline.

Then she made will have told the story now a couple of times, we started with a belief that we can move into the range of 22 to 25 in 2020 'twenty four and 2025. The fact, we have now fast track that by by a year I think speaks to how quickly. The organization has responded to that real discipline.

Of that facility.

And focus that we wanted to impose.

We then have highlighted both the Singapore energy and chemical park as well as our European Energy and chemical Parks for review as Chine said, both individually and just now we have taken a decision to preferentially to look at the divestment route and we are going through that process.

And at the same time.

The word should aid us as the right one much deeper scrutiny of many of these opportunities coming our way.

That also by the way applies to Opex and again I won't repeat your nate's point, but this is going to be a staggered process with divestments likely to be the more material contributing a contributor in the short term and then over time some of the organizational choices. Some of the more focused choices around port four years, we'll all add up to the supporting us in that space.

For the European ones, we continue to review it we still believe that our energy and chemical parks gives us a real opportunity to be able to use that infrastructure the terminals the pipelines.

And that's finally plays into simplification and we're trying to do a lot on that front, we've talked in the past about organizational simplification at the Executive Committee. We've now simplified the level at the next level under that those leaders are looking at how they can simplify how we continue to drive singular business outcomes.

And the the equipment itself as an opportunity to be able to establish some of our low carbon solutions options to give you. An example in the Netherlands.

We are building facilities, there like Holland hydrogen won a green hydrogen facility that will be linked into our energy and chemical park in the Netherlands, and we're also building a have a plant or a bio plant there as well so leveraging that that.

And align the organization around those.

Now we can just take away a huge amount of churn that's come into the system. So that we can become faster and more agile in the way, we make decisions and how we execute.

Real estate to be able to create value as we look to help our customers decarbonize as a key part of that strategy.

And multiple small examples that I have seen in the organization around that the time, it's taking us to turn around certain material. Our business plan that we are in the process of reviewing used to take us a lot longer we're much clearer much sharper on what we need to do and there are many stories like that that are being now that theyre coming up in the organization, which gives.

Long story short we continue to do what we believe is going to allow us to improve the returns of that business and to create.

The sustainable delivery of a of the earnings and the cash that we expect of it then and we've guided as you'll have seen in capital markets day to roughly a flat capital employed from now at the end of the year roughly $3 billion per annum invested in these energy and chemical parks.

Me, a huge amount of confidence that we're on the right track.

Thanks for the question.

Luke can we go to the next question. Please our next cooler is Irene homeowner from Societe Generale and good afternoon.

And looking to create a $3 billion to $4 billion of a value out of them. So that continues to be very much our plan.

My first question is.

Thanks for the question Giacomo.

Going back to the experience with more Nat cat and indeed with prelude.

Luke can we go to the next question. Please.

It seems that large project development remains somewhat challenging and we've seen that elsewhere in the industry what lessons do you drill.

Our next caller is Peter low from Redburn Atlantic.

Hi, Thanks.

These as you look to complete other large projects like LNG, Canada, which you said two to.

The lower Capex rate.

You suggested at the tagged with box, but that was because some investments perhaps had known that youll return criteria could you give any examples or perhaps some color as to what areas of the business that reduction has come in.

To improve the delivery and reliability.

A large scale project.

My second question in light of what is unraveling in the offshore wind industry I Wonder if you can remind us of how you use.

And the second was actually just a follow up on Sao Paulo. This bottleneck you've talked in the past about it contribution go up to one $5 billion of EBITDAR. Once it is fully ramped up.

Do you view the returns and indeed, the attractiveness of that fitness.

Could you deliver that as a color guard to Nevada.

Once you're on top of course.

Europe versus the U S. Perhaps I recall, you, saying in the past at least in Europe, Germany, perhaps.

Would it require a recovery in industry margins as well thanks.

Okay. Let me take the second one first and then hand over to Christian aid.

That industry was looking quite attractive thank you.

On shell polymers Monaco the want to wanted to have billions of dollars of EBITDA continues to be what we guide for with regard for it on the basis of reference prices, which we have indicated and we provided those in capital markets day clearly the market that you see at the moment is being punished to chemicals markets. We have an unprecedented wave of new supply that came over the past three years at meaning.

Thank you very much I'll take the first one is do you want to answer the second machine.

You mentioned, there large projects and the complexity.

I think I think it's a fair challenge are there at the moment Irena I think and if you look back.

Say 20 years.

What we have progressively learned is while many of these projects.

That the the indicative chemical margins are are beaten up the way to think about the one to one on behalf is think about it around the reference price that we indicated in the capital markets day back Shannon and.

Ultimately do work the challenge is the accumulative risk that you take on when you when you build these mega projects and these challenges come.

Thank you Peter and team, we brought on and our Capex range. As you know we started with 23 to 27, a prototype to 26. The last one is they are preliminary and twenty-five now what's you're effectively saying is just really great discipline and scrutiny across the portfolio. We're basically ensuring that we're set up well for what we have promised for 'twenty four and 'twenty five.

Whether it's from technical issues supply chain challenges execution capabilities, and so on and so forth.

And you are putting significant amounts of capital usually concentrated in one location and that has its own impact on the inflationary environment that creates the delays bottlenecks within the country and the broader system.

This is just putting our whites into action and bringing for this forward as rapidly as possible across the whole organization. So what do we read anything it's really about scrutiny as you say very much focused on where the numbers makes sense for us and where we can truly differentiate from what is that whereas that played I've.

And so so we've learned those lessons.

And what you see is our port for you going forward.

Continues of course to have large project, but we are trying as much as possible to go back to basics around where can we design one and then build a few where it can be modularized. So instead of building a significantly large facility can we build two or three smaller facilities that allow us to be able to generate cash faster.

Integrated gas and upstream of course, we're still continuing to spend as you would expect we're seeing is taking smaller mine site.

Chemical products.

Point, while difficult industry at the moment, that's logical given the market conditions. We're also taking some light in terms of marketing because we've invested so much so far that they don't actually beginning to recoup the benefits and that's what we want to focus on and finally of course, we are taking a little bit on the renewable side. That's simply just market conditions. As you can imagine there's been plenty of stuff in the press recently so thank you for your question.

It means that the execution risk is lower compared to the larger infrastructure and that allow us for example in the case of upstream to Derisk. The subsurface before we invest in the next tranche of of growth.

Those are some of the things we've done.

Thanks, Nate and Peter Thank you for the question look can we go to the next one please.

How do those learnings and then apply take a project like Vito.

Vito came off the back of some of the learnings specifically Appomattox in the like Big project, which we're very pleased to have in the portfolio, but we said what can we do differently than a veto and what we did was we took a much simpler hull.

Our next caller is lithia rainfall from Barclays.

Thanks, and good afternoon guys.

Two questions if I could the nasty just wondering just on the Capex side Shneur.

<unk> billion dollar range that you still have only eight weeks left.

We're very selective around what we put on the facilities side and then we are seeing today the fruits of that labor on the back of Vito. We have now developed well, which is a 99% replica of the hull and some 80 plus percent replica of the top sides and something which has moved.

What the variable or not and I know, you've obviously listen to buyback debt.

If he could have done more to something like Capex and Hyatt.

Hi, a buyback even though you have them just how you think about that and then secondly, and relative to the C and D N G.

Smoothly, it's already now in Ingleside, Texas ready to be floated out to the location and we will continue to look at that replication strategy more modular more digestible things, which allow us to hopefully achieve lower capital intensity and be able to move at a faster pace than maybe tradition.

Thanks, Lydia you want to take the first one I can assure you in terms of the Capex. Thank you Lydia I know it feels weird to think that there's only eight weeks left at the end of the day, where that came from in terms of the range. It's just.

We could have with the much larger projects.

But we live and learn and we will continue to develop those and it will continue to develop and deepen those learnings of course in the coming years.

Really nothing too exciting about it is it's just simply put there are a number of payments that will come out between now and year end, depending on milestones for things related to LNG, Canada things related to Qatar etcetera, and those can fall, one week, plus or minus into this quarter or into next quarter and thats, what really thrives, that's a little bit hence we kept the range as it is but I assure you. There's a lot of discipline to make sure we're only spending that.

Yeah. Thank you and thank you indeed.

Indeed, when we if you can find our renewables portfolio of course, we're very much looking for integration that's really been the focus I hope that's come through for US, it's about making sure that we actually had the opposite optionality to be able to market the electrons.

And support of our own portfolio.

It gives us the returns we need.

Our lives trading to be the Spider and the web and in fact to be able to go in either direction to the market or to our own assets in the same way. We look at offshore winds recently, we've had many opportunities thrice intensive integration if I take a step back for a moment and think about things like Australia and projects, which is no offshore wind, but as more renewable assets E. R. M. This was a business that we actually bought.

And on the on the progress we're seeing midyear I mean firstly.

At a high level, maybe to say I'm very pleased with the progress that we are making not just since capital markets day, but it's been a it's been a strong steady drumbeat of performance for a while now so.

In Australia, but four years ago, I believe and what we saw there was the ability to have both renewables assets trading business and customers and allowed us to be able to flow through those molecules are electrons and be able to decide where we put them. That's been incredibly profitable for us actually very cash positive at the moment and actually the payback as much acceleration from where we thought we've taken that Sam.

Concept into when we look at offshore wind. So when we look at offshore wind our thought process is very much aligned where can we see the integration. We don't look at it specifically around geography, it's more about what is the actual space from existing our team has been quite measured in quite paced around us and of course. It is a challenged area as we all know we've seen plenty of press reports on that recently.

So we've been very careful to try and look at where can we ensure that we don't lock in the revenue is before we've actually locked in the cost that's difficult to do of course as you progress the project, but that's been very much a focus you alluded to specifically, Germany I would say that we did not win the German and the as the auction at that point and quite please.

Not to have done that they sort of ramp, but what we did talk about it before and I think that's what you're alluding to is actually the Netherlands, where I talked before about the fact that across the Netherlands, It depends which project you're in but we do have optionality. So you see some of our offshore wind there having the ability to either use that screen electrons to move them into either hydrogen or half or wherever it may be or to sell into the market.

And what we see of course is typically when we have merchant exposure, we have more flexibility, yes, its more risk, but we get to see those higher returns as well. Thank you for the question.

Thanks for that and they ran and thank you for the question is what can we go to the next question. Please.

Our next caller is my time jobs from Morgan Stanley Hi, Hello. Thanks for taking my question I've got two if I may.

I wanted to ask you about the rash segment.

The biggest part of the company, but nevertheless, about sort of 5% or so of forward consensus earnings estimates sort of sits in that segment. The earnings were sort of close to zero on this quarter.

Which looks like compared to the last couple of quarters, but of course, the last couple of quarters and extraordinary <unk>.

<unk>.

Particularly in European energy markets, which I would imagine we'll have benefited.

The segments given that its consolidates some of some of the trading activities. I was wondering if you could give some forward guidance on where we should expect rest earnings sort of in quarters now that some of the some of that sort of crazy volatility.

That was one and just the second I wanted to ask relates to the marketing segment.

Sort of earnings were a little sort of on the life side, they are compared to expectations.

Well actually if sort of.

Industry retail fuel margins were quite healthy we can also see doesn't sort of independent data from from from from others.

But but the statement mentioned.

Quite a significant increase in cost of about $630 million as being.

The fact that that sort of wait wait.

Weighed on results and I was wondering if you could say something about the $613 million of extra operational cost and in marketing where it comes from Mr. Reversible.

If you could say something about that that'd be that'd be most helpful.

Super Martin. Thank you very much do you want to take both sure I'm on the first one with respect to am Rev. You're referring to the fact that this is the first quarter, we've actually got negative I believe so in terms of that one and what we're saying now you're you're absolutely spot on you actually need to probably my time take a step back and look at back to the star chef and 2022 so of course with them.

War et cetera, you saw that volatility coming through when it came through in the gas market, but also of course in the power markets as well and actually what you saw was a big cash outflow for us in terms of Q1 to Q3 in 'twenty, two which is really about the volatility came through and building inventory and then from Q4 to Q2 of this year you actually saw that cash come back in and that's what you're saying now that the.

<unk> of course definitely that crashed into the earnings at the moment. So it is much more and stable in terms of the volatility as well in terms of forward look I'm not going to do a forward look as you can imagine there and that it is a considerable piece of it is around trading of course, and as we begin to weight more towards power or gas, you'll see that volatility coming through and you'll see that flow and of course as some of the opera.

<unk> assets continues to develop its also on the res side and then the second one you had which was around marketing specifically some marketing.

From our perspective, we actually did see a squeeze on in terms of the yen. The margins. So I had a slightly different view on that in terms of just margins being and compressed and of course, that's just logical when we saw the rising and commodity prices coming through just an increase in feedstocks at the end of the day Secondly, what we saw of course was with respect to lubricants, which obviously comes in there as well.

It's not just our mobility business, but we actually saw softness there and that's of course tied to the fact that you're seeing inflation hit some of the industrial side of things. So the demand is really just falling.

That's on the lubricant side combined with increased cost in terms of the yen.

The mobility side and also just slightly less demand we didn't see the driving season kickoff quite as much as being one that's what you really saw flowing through but fundamentally when I take that step back and look at it. It's an integrated portfolio in my time as you know so I would expect our marketing business to the little bit laughed, when you're saying our upstream business doing so well at the same time am I confident which I suspect is.

You are going to in terms of am I confident that we're going to hit the sort of numbers that we're talking about from a capital markets day I am I take a step back and look at it from the point of view of previous years. If you look at it from the perspective of 2019, where we had 65 dollar brands and where we're heading up by $3 9 billion in terms of earnings can then compares of course to where we were in 2010.

To where we were actually sitting at $100 and either by $2 8 billion for full year. So far we're already hitting that level. So we haven't even hit sorry, the full year. So that gives us the time in terms of the comparison between 2019 and 2022 that comparison of it and if you read into that you can see your confidence in terms of being able to deliver with the option of course.

Opex, which we're going after very heavily which links to your cost question and of course, the focus which is going to be key hence, Pakistan and you'll see more of that flowing through in the next couple of quarters as well. Thank you for the question functioning more time. Thank you for the two questions look can we go to the next question. Please.

The next caller is Christopher Copeland from Bank of America. Thank you Hello, everyone.

The following two questions. The first one probably for you should aid.

<unk>.

Now, obviously told us it's going to be 23 billion or thereabouts of cash returns.

Just wanted to understand a little bit what you are trying to tell us with your 30% to 40% payout ratio.

You're guiding us towards a CFO in the fourth quarter that I on my on my Bad Math, then needs to be 60 million or so.

And are you telling us something here on perhaps a reversal of part reversal of some of these derivative cash outflows that you've seen not just in the third quarter, but really all year. So.

Broad question make of it what you what you like and then secondly, you just mentioned Pakistan I wonder whether that process has gone as you would have expected in terms of interest from the trade and how you feel about that indication you gave us in June Wow.

Coupling that marketing tail a little further thank you.

Great. Let me start with the second one and then go to Shane AIDS rightly as you as you advice, Chris on on Pakistan, What I would say is it's moved faster than I would have expected.

Because these are not typically liquid markets for some of these transactions.

We did have a good interest and we're very pleased to have signed with with why fee. The the company that's going to be acquiring it if I broaden the question. Indeed more holistically, we are already making a number of moves to be able to continue to high grade the portfolio as we pursue our value over volume in March.

Kitting.

This is one of more examples SG&A has already indicated that you will see in the coming quarters.

I'll just reiterate the points you made made there the few things we're trying to do in the mobility and marketing space in general are number one continue to manage our costs.

Where can we ensure that we don't lock in the revenues before we've actually locked in the cost that's difficult to do of course as you progress the project, but that's been very much a focus you alluded to specifically, Germany I would say that we did not win the German and the the auction at that point and quite pleased not to have done that they sort of rents but.

Number two high grade that portfolio number three looked a premium is more and more so push for differentiated products in both our mobility and in our lubricants business and then number four selectively invest capital we still invested around 3 billion in marketing invest that capital in the areas, where we see that we can deliver the sort.

We did talk about it before and I think is what you're alluding to is actually the Netherlands, where I talked before about the fact that across the Netherlands, It depends which projects are in but we do have optionality. So you see some of the offshore wind there having the abilities to either use that screen electrons to move them into either hydrogen or half or wherever it may be or to sell into the market. What we see of course is typically when we have merchants.

A returns to 15 plus percent IRR that we have seen in these typically can it can be a relatively short cycle investments.

And so we are in essence executing that strategy and you will see more proof points of that over the coming quarters as we bring it to life.

And Keith and thanks, Chris Am I always find myself dancing around not doing our forward guidance with you in terms of the questions now, let's be really clear we're not guiding any sense. This is just a mixture of the announced buybacks and delivered buybacks and dividends so far.

Measure, we have more flexibility, yes, its more risk, but we get to see those higher returns as well. Thank you for the question.

Thanks for that and in their own and thank you for the question as well Luke can we go to the next question. Please.

Prepared Q1 with $4 billion TCE was $4 billion 3 billion in Q3, and $3 5 billion of course, the ninth now as well. So that's a 14 and a half coming across I went to dividends roughly speaking in terms of what the ninth of $8 4 billion of course for us so far in terms of taking the costs out four quarters, hence the twenty-three nothing more than that but yes, very much committed to my peers.

Yeah.

Our next caller is Martin rats from Morgan Stanley.

On me.

Hi, Hello, Thanks for taking my question I've got two if I may.

I wanted to ask you about the rash segment.

Not the biggest part of the company, but nevertheless, about sort of 5% or so of forward consensus earnings estimates sort of sits in that segment.

240%.

Across the cycle. So that's why we are thank you sanction a then thanks for the questions. Chris look can we go to the next question. Please.

So we're sort of close to zero one this quarter.

Which looks like compared to the last couple of quarters, but of course, the last couple of quarters and extraordinary.

It's cooler is Alastair syme from Citi. Thanks, So just.

Conditions.

Just ask on the album Jesus is Panama Canal is currently constrained and it looks to be affecting flows of LNG cargoes from the U S. Gulf.

And European energy markets, which I would imagine we'll have benefited.

That segment given that its consolidates some of some of the trading activities. I was wondering if you could give some forward guidance on where we should expect Russ earnings sort of in quarters now that some of the some of that sort of crazy volatility.

From your perspective is this a cost opportunity.

Do you think about the fourth quarter and any sort of magnitude. Please.

And then secondly, perhaps if you could give us some perspective.

That was one and just the second I wanted to ask relates to the marketing segment.

Where do you think youre asking there maybe there is a lot out there in the industry press and I'm not really sure what to believe so maybe some sort of a holistic overview from you about what do you think you are asking do you understand.

Sort of earnings were a little sort of on the life side, they are compared to expectations.

Well actually if sort of.

Industry retail fuel margins were quite healthy we can also see that didn't sort of independent data from from from from others.

Geological system that you have thank you.

Thanks, Alison let me take the second one and go two ish and it's your first one.

But but the statement mentioned.

The midyear.

We continue to like what we see so we are in the process, where we have now appointed a full time leader to be based in Namibia to oversee the overall play and he will be moving out there early next year.

Quite a significant increase in cost of about $630 million as being.

The fact that that sort of weighed on.

Weighed on results and I was wondering if you could say something about the $630 million of extra operational cost and in marketing where it comes from is that reversible.

To date, we have drilled five exploration wells, we've drilled one appraisal well and we've had one successful flow test.

If you could say something about that that'd be that'd be most helpful.

Super Martin. Thank you very much do you want to take both sure I'm on the first one with respect to am whereas you're referring to the fact that this is the first quarter, we've actually gone negative I believe so and tenths of that one what we're saying now you're you're absolutely spot on you actually need to probably my time take a step back and look at back to the Star Chef and 2022 of course of the war.

What's particularly pleasing is that all of those wells drilled.

Have been top quartile across every benchmark that we find in the wells space and so.

As important as discovery and making sure that we can actually out compete when we when we drilled those wells is a key area that we're focused on and of course were leveraging significant learnings that we have across our global deepwater portfolio.

Sure et cetera, you saw that volatility coming through and it came through in the gas market, but also of course in the power markets as well and actually what you saw was a big cash outflow for us in terms of Q1 to Q3 in 'twenty, two which is really about the volatility came through and building inventory and then from Q4 to Q2 of this year you actually saw that cash come back in and that's what you're saying now that vol.

As we look into the coming months. So do we fully understand the geology subsurface I would say no. This is an evolving picture as you would as you would expect there's a lot of encouraging.

Utility of course definitely that kras it into the earnings at the moment. So it is much more and stable in terms of the volatility as well in terms of forward look I'm not going to do a forward look as you can imagine the ride that it is a considerable piece of it is around trading of course, and as we begin to weight more towards power or gas, you'll see that volatility coming through and you'll see that flow and of course as some of the operator.

<unk> that we have identified then you'll have picked some of it around volumes in place and the like and critically an hour, it's about making sure that we understand the produce ability of a lot of the various horizons that are there in that in that play.

In the next.

Six to nine months, we expect to drill another exploration well, another appraisal well as well and at least one more flow test, which starts to converge on understanding the overall development pathway, we take for it to give you a sense of our belief in Namibia roughly.

Assets continues to develop so that's on the res side and then the second one you had which was around marketing specifically some marketing.

From our perspective, we actually did see a squeeze on in terms of the the margins. So I have a slightly different view on that in terms of just margins being and compressed and of course, that's just logical when we saw the rising and commodity prices coming through just you know an increase in the feedstocks at the end of the day Secondly, what we saw of course was with respect to lubricants, which obviously comes in there as well.

Quarter of our deepwater exploration spend in 2023, and 2024 will be directed to Namibia. So it is a theater that we fundamentally believe.

And we are looking to understand what is the optimal pathway for us to be able to to go forward.

Janet.

Thank you Alastair it's an interesting time isn't it in the gas markets at the moment because once we sell of course in this quarter in Q3 with fundamentally that you didn't have any changes to fundamentals, but you had changes to events and that was what really drove some of the volatility coming across of course the market is incredibly fragile at the moment. So you've seen big swings for instance, all the speculation of life's history.

That's on the lubricant side combined with increased costs in terms of the.

The mobility side I'd also just slightly less demand, we didn't see the driving season kick off quite as much as being the plant. That's what you really saw flowing through but fundamentally when I take that step back and look at it. It's an integrated portfolio in my time as you know so I would expect our marketing business to the little bit last when you're saying our upstream business doing so well at the same time on my conference, which I suspect is.

William strikes, we saw of course, the European market nearby and many tellers and of course Freeport in the past the Sam that's very much event, driven and of course that leads into how we could say well in terms of Q3 very much from our integrated gas business, because they weren't able to take advantage of those opportunities. So there's opportunities of what we typically seek and enjoy so when you.

Are you going to in terms of my confidence that we're going to hit the sort of numbers that we're talking about from a capital markets day I am I take a step back and look at it from the point of view of previous years. If you look at it from the perspective of 2019, where we had 65 dollar brands and we were hitting about $3 9 billion in terms of earnings can then compares of course to where we were in 2000.

About the Panama Canal in particular, indeed, it's interesting to see of course with the dry it's very limited getting through at the moment and we're watching that closely.

92, where we were actually sitting at $100 and either by $2 8 billion for full year. So far you know we're already hitting that level. So we haven't even hit sorry, the full year. So that gives us the time in terms of the comparison between 2019 and 2022 that comparison of it and if you read into that you can see your confidence in terms of being able to deliver with the option of course of.

In trust Northern Hemisphere Winter, we have length, we have those opportunities and we will look forward to to take those events and be able to position ourselves very well to be able to ensure it is reasonable cautious. So thank you very much.

Thanks, G&A then Alastair thanks again for the questions look could we go to the next question. Please our next caller is Kim <unk> from HSBC.

Opex, which we're going after very heavily which links to your cost question and of course, the focus which is going to be key hence, Pakistan and youll see more of that flowing through in the next couple of quarters as well. Thank you for the question functioning more time. Thank you for the two questions look can we go to the next question. Please.

Hi, good afternoon, and thank you for taking my questions. Firstly, just a quick follow up on offshore wind and cancel the south coast offshore project.

Once again the U S can you confirm whether you've taken impairment against that asset and are you looking to read that the project at a later stage or has this been permanently shelved if you can't really see the integration benefits.

The next caller is Christopher Copeland from Bank of America.

Thank you Hello, everyone.

Secondly, I wanted to ask about the venture global LNG Arbitration case, I think one of your senior executives has been quite vocal about the whole situation.

Following.

Pulling two questions. The first one probably for you should aid.

You've now obviously told us it's going to be 23 billion or thereabouts of cash returns.

To what extent is this situation changed your view if any on growing LNG volumes through equity positions versus third party I'll take or do you think this is a problem that's very specific to venture global in it and you still remain comfortable with growing through third party optic.

And just wanted to understand a little bit what you're trying to tell us with your 30% to 40% payout ratio.

Are you guiding us towards a CFO in the fourth quarter that I on my on my Bad Math, then needs to be and also and are you telling us something here, perhaps a reversal part reversal of some of these derivative cash outflows that you've seen not just in the third quarter, but really all year. So.

Thank you for that question, Jim do you want to start off with the first one I'm, so happy to and thanks, Kim Indeed on offshore wind, you're referring to sort of one of the two J P. As we have in the U S. I referred to earlier to the fact that we've been quite measured in terms of how we've taken those for it but the one in particular that you referred to I think you're referring to the the news article that hits that we had pulled out of and.

Broad question make of it what you what you like and then secondly, you just mentioned Pakistan I wonder whether that process has gone as you would have expected in terms of interest from the trade.

Effectively a PPA there.

Thanks to the comment I made earlier today, which is really about.

How you feel about that indication you gave us in June while of cutting that marketing tail a little further thank you.

Not liking to be locking in revenues when you havent locked in coffee in a hyperinflationary sort of environment. So what you saw us do that with to agree with our partner and we both agreed that we would exit the PPA not the project, but the PPA specifically at this point in time, and we would pay the penalty in terms of shell share of the penalty.

Great. Let me start with the second one and then go to Shanaze, writing as you as you advice Chris.

On on Pakistan, What I would say is it's moved faster than I would have expected.

See it's considerably less than 100 million, but that gives you a bit of a feel for what it is at the end of the taken.

Because these are not typically liquid markets for some of these transactions.

Sure Nate and come to your second question on venture Global.

Look, we're where things stand at the moment is that we.

We did have a good interest and we're very pleased to have signed with the with what I see the the company that's going to be acquiring it if I broaden the question. Indeed more holistically, we are already making a number of moves to be able to continue to high grade the portfolio as we pursue our value over volume and <unk>.

We continue to be very disappointed by the fact that.

Acidity that was or that is continuing to run at capacity or just around that and has now shipped over 200 cargoes continues to claim that they are in commissioning phase.

Marketing.

This is one of more examples as she needs already indicated that you will see in the coming quarters.

Is not in the spirit of what we have typically seen nor is the norm in the energy are in the LNG business. The LNG business has been built.

I'll just reiterate the points you made made there the few things we're trying to do in the mobility of marketing space in general are number one continued to manage our costs.

Built over the past 60 70 years on the back of sanctity of contracts on the back of a really.

Really ensuring that suppliers and buyers live up to their AR to their part of the bargain.

Number two high grade that portfolio number three look the premium is more and more so push for differentiated products in both our mobility and in our lubricants business and then number four selectively invest capital we still invested around 3 billion in marketing invest that capital in the areas, where we see that we can deliver this.

In particular in times like these where.

Europe as a specific example, but more generally when energy security is so top of mind and the important role that the U S has to play in an LNG supply in the future. It is very worrying that the actions of one player could potentially start to undermine confidence in LNG coming out of the U S.

Sorts of returns to 15 plus percent IRR that we have seen in these typically can it can be a relatively short cycle investments and so we are in essence executing that strategy and you will see more proof points of that over the coming quarters as we bring it to life.

And so we we as shell is one of the players that in essence.

Provided the bank ability for that project through our offtake, we'll use all everything within our means to be able to ensure that the we enforce the sanctity of the contract that we have there.

Janet and teeth and thanks, Chris.

I always find myself dancing around not doing our forward guidance with you in terms of the questions now it should be really clear we're not guiding any census is just a mixture of the announced buybacks and delivered buybacks and dividends so far.

What does it mean for us going forward. This is very much an isolated case, we haven't seen this with other players.

Simply put Q1 with $4 billion TCE was $4 billion 3 billion in Q3, and three and a half billion of course, the ninth now as well. So that's a 14 and a half coming across I went to dividends roughly speaking in terms of what the ninth of $8 4 billion of course for us so far in terms of taking the costs out four quarters, hence the twenty-three nothing more than that but yes very much committed to my.

We have a.

Good.

Experience is with a number of third party suppliers in the U S and well beyond the U S. This is not not unique to the U S and that is what this industry has been built on a combination of equity and third party and that is a space. We will continue to occupy we will focus our capital on the areas, where we think we can uniquely bring value.

30% to 40% over across the cycle. So that's why we are vaccinated.

Sanction a then thanks for the questions. Chris look can we go to the next question. Please.

By building by building a facility like for example in LNG, Canada as part of our partnership there, whereas other areas where for example, there is available capital to underwrite. It we will leverage the fact that we are the biggest LNG trader in the world's biggest LNG optimizer in the world to be able to underwrite those projects with our offtake agreements.

Oh, no. It's cooler is alastair syme from Citi.

Thanks, So I'll just ask it would all be alum Gpus as Panama Canal is currently constrained and it looks to be affecting flows of LNG cargoes from the U S. Gulf.

From your perspective is this a cost opportunity.

That strategy is unchanged.

As you think about the fourth quarter and any sort of magnitude. Please.

But that specific situation with venture global is a is a unique one that we are looking to work on over the coming days and weeks.

And then secondly, perhaps if you could give us some perspective.

<unk>.

Where do you think youre asking there maybe there is a lot out there in the industry press and I'm not really sure what to believe so maybe some sort of a holistic overview from you about what.

Look can we go to the next question. Please our next caller is Henry Tarr from bearing Doug.

Hi, and thanks for taking my questions I have.

Do you think you are asking do you understand.

I have two.

One on exploration.

The geological system that you have thank you.

I think you said around a quarter if the deepwater exploration spend is going into maybe this year and next year.

Thanks, Alastair let me take the second one and go two ish and it's your first one.

On the Libya.

How is exploration spend overall moved.

We continue to like what we see so we are in the process, where we have now appointed a full time leader to be based in Namibia to oversee the overall play and he will be moving out there.

Hi.

This year.

Next we see a pickup in exploration spend relative to the last few years I guess, that's the first question and then the second just to come back on the on the derivative moves in the cash flow.

Early next year.

To date, we have drilled five exploration wells, we've drilled one appraisal well and we've had one successful flow test.

Fairly opaque from the outside but I think it was $13 5 billion over the last four quarters.

What's particularly pleasing is that all of those wells drilled.

How how should we think about that kind of looking looking forward.

Have been top quartile across every benchmark that we find in the wells our space and so.

I presume it will wash out.

Or is otherwise.

Trading off that we'll begin to get a sense. Thank you. Thanks, Henry Schein I do want to take the second one first an attorney.

So in terms of derivatives I'll just address this quarter, specifically because it gives you a bit more of a effect that you see in one of the slides and of course, Henry that you see two and a half days in terms of derivatives. What she tendency of course is that this is the roll off of some of our paper positions that occurs in this quarter, where we've had some of the cash before so you can see the linkage of course, the timing effect that comes straight that's just.

As we look into the coming months. So do we fully understand the geology subsurface I would say no. This is an evolving picture as you would as you would expect there's a lot of encouraging.

Natural in the way these roll them.

Data that we have identified then you'll have picked some of it around volumes in place and the like and critically an hour, it's about making sure that we understand the produce ability of a lot of the various horizons that are there in that in that play.

We do hedge absolutely we find that very helpful to our business and you see that flow through in terms of the profitability that we have so it's not unusual for us I don't really expect to see anything unusual in terms of releases or anything that's just the way we run our business. So you see the two and a half now and you would've seen cash in previous quarter.

In the next six to nine months, we expect to drill another exploration well another appraisal well as well and at least one more flow test, which starts to converge on understanding the overall.

And on your first question Henri on exploration.

Over the last two three years, we've been sort of running at just north of $1 billion for per annum on exploration.

It has continued to happen as we have looked to focus that exploration more and more on what we call our heartlands our core countries.

<unk> pathway, we take for it to give you a sense of our belief in Namibia, roughly a quarter of our deepwater exploration spend in 2023, and 2024 will be directed to Namibia. So it is a theater that we fundamentally believe in and we are looking to understand what is the optimal path.

Gulf of Mexico attract quite a bit of that.

Brazil will attract the some of that and of course countries a country like Namibia, we'll get a we'll get a significant portion as I identified earlier.

That's important because we look at the balance of what we would call Greenfield exploration versus what our backfill opportunities near field exploration, you'll have CNS. For example, recently pick up some licenses in the U K next to existing facilities.

Way for us to be able to to go forward.

Janet.

Thank you Alastair it's an interesting time isn't it in the gas markets at the moment because it must be so of course in this quarter in Q3 with fundamentally that you didn't have any changes to fundamentals, but you had changes to events and that was what really drove some of the volatility coming across of course the market is incredibly fragile at the moment. So you've seen big swings for instance, all the speculation of license.

We continue to aim to do the same in places like the Gulf of Mexico. Unfortunately at the moment, there's a unprecedented uncertainty with those leases, which we are which we hope will be resolved by the federal government because the stability I think is critical to be able to make those long term investments, but by and large what you see us do is continue.

William strikes, we saw of course, the European market mirrored by and many tellers and of course Freeport in the past the Sam very much event, driven and of course that leads into how we could say well in terms of Q3 very much from our integrated gas business because they were able to take advantage of those opportunities. So there's opportunities of what we typically seek and enjoy so when you.

You need to leverage existing infrastructure to be able to explore and bring short cycle opportunities into production and for cash generation as quickly as possible and that is consistently what we have been doing over the last couple of years and what we will consistently continues to do in the coming years.

About the Panama Canal in particular, indeed, it's interesting to see of course with the dry it's very limited getting through at the moment and we're watching that closely.

Thank you for that question Henry Thank you all for your questions and for spending some time with US. This afternoon here in London, We wish all of you a pleasant end of the week. Thank you very much and stay safe.

Thanks, G&A then Alastair thanks again for the questions look could we go to the next question. Please.

Our next caller is Matt Lofting from J P. Morgan.

Yeah.

Look I can't hear matches he is speaking.

Well geez matches dropped off the line okay.

Our next caller is Kim <unk> from HSBC.

Hi, good afternoon, and thank you for taking my questions. Firstly, just a quick follow up on offshore wind and canceled the south coast offshore project.

A few months and months ago in the U S. Can you confirm whether you've taken impairment against that asset and are you looking to read that the project at a later stage or has this been permanently shelved if you can't really see the integration benefits.

Secondly, I wanted to ask about the venture global LNG Arbitration case, I think one of your senior executives has been quite vocal about the whole situation. So.

To what extent is this situation changed your view if any on growing LNG volumes through equity positions versus third party off take or do you think this is a problem that's very specific to venture global in it and you still remain comfortable with growing through third party off take.

Thank you for that question, Jim do you want to start off with the first one obviously happy to and thanks, Kim Indeed offshore wind, you're referring to sort of one of the two J P. As we have in the U S. I referred to earlier to the fact that we've been quite measured in terms of how we've taken those for it but the one in particular that you referred to I think you're referring to the the news article that hits that we had pulled out of and.

Effectively a PPA theyre not links to the comment I made earlier today, which is really about.

Not liking to be locking in revenues when you havent locked in coffee in a hyperinflationary sort of environment. So what you saw US do there was to agree with our partner and we both agreed that we would exit the PPA not the project, but the PPA specifically at this point in time, and we would pay the penalty in terms of shell share of the penalty you'll see it's considerably less than 100 million, but that gives you a <unk>.

Bit of a feel for what it is at the end of the Bacon.

Tonight and come to your second question on venture Global.

Look where things stand at the moment is that.

We continue to be very disappointed by the fact that.

A facility that was.

Or that is continuing to run at capacity or just around that and has now shipped over 200 cargoes continues to claim that they are in commissioning phase.

Is not in the spirit of what we have typically seen nor is the norm in the energy and the LNG business. The LNG business has been.

<unk> built over the past 60 70 years on the back of sanctity of contracts on the back of.

Really ensuring that suppliers and buyers live up to their to their part of the bargain.

In particular in times like these where.

And so we we as shell is one of the players that in essence.

Provided the bank ability for that project through our offtake, we'll use all everything within our means to be able to ensure that the we enforce the sanctity of the contract that we have there.

What does it mean for us going forward. This is very much an isolated case, we haven't seen this with other players.

We have.

Good.

Experiences with a number of third party suppliers in the U S and well beyond the U S. This is not not unique to the U S and that is what this industry has been built on a combination of equity and third party and that is a space. We will continue to occupy we will focus our capital on the areas, where we think we can uniquely bring value.

You buy building by building a facility like for example in LNG, Canada as part of our partnership there, whereas other areas where for example, there is available capital to underwrite. It we will leverage the fact that we are the biggest LNG trader in the world's biggest LNG optimizer in the world to be able to underwrite those projects with our offtake agreements.

That strategy is unchanged.

But that specific situation with venture global is a is a unique one that we are looking to work on over the coming days and weeks.

Yeah.

Look can we go to the next question. Please.

Yeah.

Our next caller is Henry Tarr from bearing Doug.

Hi, and thanks for taking my my questions I have.

I have two.

One on exploration.

Thank you said around a quarter of the deepwater exploration spend is going into Namibia This year and next year.

How is the exploration spend overall moved three.

This year.

Next we see a pickup in exploration spend relative to the last few years I guess, that's the first question and then the second just to come back on the on the derivative moves in the cash flow.

They're fairly opaque from the outside but I think it was $13 5 billion over the last four quarters.

How should we think about that kind of looking looking forward.

It will wash out.

Otherwise.

Trading off that will be good to get a sense. Thank you. Thanks, Henry Jeanette you want to take the second one first Sony.

So in terms of derivatives I'll just address this quarter, specifically because it gives you a bit more of a effect that you see in one of the slides and of course, Henry that you see two and a half day in terms of derivatives. What you don't see of course is that this is the roll off of some of our paper positions that occurs in this quarter, where we've had some of the cash before so you can see the linkage of course, the timing effect that comes through that's just.

Natural in the way these roll off.

We do hedge absolutely we find that very helpful to our business and you see that play through in terms of the profitability that we have so it's not unusual for us I don't really expect to see anything unusual in terms of releases or anything that's just the way we run our business. So you see the two and a half now and you would've seen cash in previous quarter.

And on your first question Henri on exploration.

Over the last two three years, we've been sort of running at just north of $1 billion for per annum on exploration that what has continued to happen as we have looked to focus that exploration more and more on what we call our heartlands our core countries.

Gulf of Mexico attracts quite a bit of that.

Brazil will attract the some of that and of course countries a country like Namibia, we'll get we'll get a significant portion as I identified earlier.

We continue to aim to do the same in places like the Gulf of Mexico. Unfortunately at the moment there's an.

Unprecedented uncertainty with those leases, which we are which we hope will be resolved by the federal government because the stability I think is critical to be able to make those long term investments, but by and large what you see us do is continue to leverage existing infrastructure to be able to explore and bring short cycle op.

<unk>.

The production and for cash generation as quickly as possible and that is consistently what we have been doing over the last couple of years and what we will consistently continued to do in the coming years.

Thank you for that question Henry.

Okay. I think we're at the end of the session Shanaze I think time to close it down. Thank you all for your questions and for spending some time with US. This afternoon here in London, We wish all of you a pleasant end of the week. Thank you very much and stay safe.

No.

[noise].

Yes.

Q3 2023 Shell PLC Earnings Call

Request a DemoDemo

SHEL

Shell

Earnings