Shell

Shell executives repeatedly bragged that the company funneled more profits to their investors than ever before 

Shell’s CEO said the company’s earnings were up 65% from the last time the average price of oil was $108 and “this quarter our cash distributions were the highest ever.” “Ben van Beurden — Chief Executive Officer: Now, the key similarity between today and how our operating environment looked in 2013 is the oil price. The average price of $108 a barrel for the first half of 2022 is almost what it was in the first half of 2013. But Shell has transformed since then, both financially and operationally. Over the first six months of this year, our adjusted earnings are up 65% compared for the first half of 2013. In the same period, comparatively, our organic free cash flow tripled and we have doubled our shareholder distributions. In fact, this quarter our cash distributions were the highest ever. And we have done all that safely and responsibly. Our teams achieved 83% fewer process safety incidents and 32% lower Scope 1 and 2 carbon emissions.” (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell announced a $6 billion share buyback just for the third quarter and predicted shareholder distributions would remain high.“Sinead Gorman — Chief Financial Officer: Our trading and optimization results across our businesses was strong overall, especially in gas and power in our RES business. That brings me to our financial framework. The $6 billion share buyback program we announced today is expected to be completed by the time of our Q3 results announcement, and we expect our shareholder distributions to remain in excess of 30% of CFFO with the current energy sector outlook. Our net debt further decreased to $46.4 billion this quarter, and we will continue to strengthen our balance sheet, given where we are in the cycle.” (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell’s CFO: “in Q2 we effectively distributed $7.4 billion between the buybacks that we did in the quarter in terms of cash and in terms of the dividends, and I believe that’s the highest we’ve actually ever done.” Sinead Gorman — Chief Financial Officer: Thanks very much and, Lydia, good to hear from you. So indeed, we’ve chosen to go with $6 billion of share buyback this quarter. And the debate, of course, that happened in turning the same as what is on your mind at the moment is whether it should be a dividend or should it be buyback. And the way we looked at it was from an excess cash point of view, we want to allocate it according to value, and that’s very important to us. And frankly speaking, where the share price is at the moment, it made sense to therefore go for the share buybacks. And that $6 billion, just because you added the question there, is specifically for Q3 and we expect that $6 billion of buyback to be executed by the Q3 results. So by the time we come out with it then. And I guess just one other point to remind you, of course, of is that in Q2 we effectively distributed $7.4 billion between the buybacks that we did in the quarter in terms of cash and in terms of the dividends, and I believe that’s the highest we’ve actually ever done. (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell’s CFO talked up how much the company was funneling to shareholders: “You saw it last quarter with $7.4 billion of distributions and you’re seeing it with what we’re suggesting now, which is, of course, $6 billion of share buybacks and of course, the usual dividend of $1.8 billion to $1.9 billion as well. So these are significant sums of money. All in all, a quarter to be proud of.” “Sinead Gorman — Chief Financial Officer: I think just a small add to that, Ben, which is Christyan, we’ve talked about 20% to 30% of distribution of CFFO through the cycle and that’s very much what this is about. But what is effectively happening here, what we’re saying is, in effect, we have a hard floor and we have a soft ceiling. And that’s what you’re seeing. When the appropriate moment is there, we distribute an awful lot more than that. You saw it last quarter with $7.4 billion of distributions and you’re seeing it with what we’re suggesting now, which is, of course, $6 billion of share buybacks and of course, the usual dividend of $1.8 billion to $1.9 billion as well. So these are significant sums of money. All in all, a quarter to be proud of. “(Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell executives proudly noted that they were making far more profits despite producing less oil than the last time prices were as high 

Shell’s CEO that the company had 21% less production than in 2013 but had almost doubled what it made per barrel. “Ben van Beurden — Chief Executive Officer: That’s emissions from our operations and the energy that we use to run them. So what changed? Well, we have high graded our portfolio, divested around $80 billion worth of assets, and doubled down on integrated value delivery. And as a result, in our integrated gas business, we now sell over two times more LNG, while our CFFO per barrel increased more than five-fold over the same period, and our upstream portfolio is much more concentrated, leading to 21% lower production while our upstream CFFO per barrel increased by 74%. So yes, energy prices are very high today, but they have been so before. And the real difference is that today we are performing much better in a similar price environment, and we are confident about the future because we have a strong capital framework and an energy transition plan that our shareholders firmly supported at our annual general meeting in May. So we are increasing our shareholder distributions at a $6 billion share buyback program for the next quarter. Now Sinead can tell you more about our results and these distributions.” (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell’s CEO: “we actually reduced production compared to 2013 by 21%” while increasing cash flow from barrels by 74%. “Ben van Beurden — Chief Executive Officer: So I would say, yes, there is more running room when it comes to the performance going forward. On the field decline, I’m not entirely sure, but I got your question to right spirit. So therefore, I would also add to ask you to add. If you if you look back on the upstream side, we actually reduced production compared to 2013 by 21%. That’s not field decline, of course. There’s also portfolio, but it’s also taking into account a very significant acquisition with BG. So in other words, again, you see that we have significantly upgraded the portfolio in terms of production because at 21%, we have — coincides with 74% CFFO per barrel increase. I think in general, field declines, I don’t have the number off the top of my head, but it — but I don’t think we see surprises there.” (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell’s CFO: “So what we are seeing is significantly lower production, but we’re really the value over volume coming through and it’s really working.” “Sinead Gorman — Chief Financial Officer: No, indeed. And post-Permian, what we expect to see between now and 2025 is run by 1% to 2% decline coming through. I mean, but what I would say is, I mean, you look at our upstream business at the moment and you look at 4.9 billion of adjusted earnings in this quarter, which just shows you that — and that, by the way, is significantly — actually, the last time I think we got near that was 2011. So it’s even beyond the dates that we’re looking at, and now it’s similar prices. So what we are seeing is significantly lower production, but we’re really the value over volume coming through and it’s really working. So quite relaxed from that perspective, all that as well. And you asked a little bit about the sort of the capex as well coming through. So we’re spending $7 billion to $9 billion.” (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell executives emphasized that they were benefiting from high prices causes by low supply and the war in Ukraine 

Shell’s CEO said the company was “quite bullish…the market is very tight and there’s not a lot of spare capacity around.”“Ben van Beurden — Chief Executive Officer: Thanks, Christyan. Let me have a stab at both and then I’m sure that you may want to add a little bit on the first one. What I will cover on the first one, Christyan, is the sort of link between the macro that you referenced. So we — particularly if you look at the energy outlook, we’re actually quite bullish. If you look at where we are today with supply demand balances, the market is very tight and there’s not a lot of spare capacity around. OPEC hardly has any spare capacity. You could think of a little bit more coming out of shales. Strangely enough, the SBR release has actually helped, but that’s hardly a price management tool, of course. So we are running out of steam a little bit in coming with supply side solutions. And on the demand side, we haven’t even seen a full recovery to 2019 type of demand. So my concern is that we will have a very tight situation and a lot of volatility now. Sometimes we can benefit a lot from volatility, but I think that will continue to persist. And the other thing to bear in mind, which may not be a very popular thing to say, but it is a fact is that the impact on Russia in terms of self sanctioning and all sorts of other actions that have been taken has actually been quite minimal. The volume of crude coming out of Russia has been diminished, but only with a few hundreds of thousands of barrels a day, not a sort of 2 million or 3 million that was originally foreseen. That might actually change in the new year when the real sanctions are starting to bite. So I think we’re going to see a tight situation for some time to come.” (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell’s CEO: “We do have a bullish outlook on oil and gas prices generally and then, of course, particularly, of course, in areas of greater stress like like in Europe. And that is why we are also quite confident to say that, hey, if the conditions that we are witnessing today are persisting, then we — yeah, we expect to be paying out more than 30% of our cash flow.” “Ben van Beurden — Chief Executive Officer: OK. Very good. Thank you, Giacomo. And let me take the first question and Sinead will talk about LNG utilization and the normalization of the outages that you were referring to. And I think I already partly answered it in response to the previous question. So yes, indeed, we do have a bullish outlook on oil and gas prices generally and then, of course, particularly, of course, in areas of greater stress like like in Europe. And that is why we are also quite confident to say that, hey, if the conditions that we are witnessing today are persisting, then we — yeah, we expect to be paying out more than 30% of our cash flow. And of course, this is the cash flow that is also already significantly higher. So it is a higher percentage of a higher cash flow. And you will see indeed the effect that it has on numbers like the $7.4 billion record payout in Q2, which we’re going to beat in this quarter. So indeed confidence in the macro should translate for you in confidence in payouts that we are going to be able to pay. And therefore, I do think that if you want to sort of come back to the dividend, the dividend is very sustainable. At a level, where it is, it’s $7.5 billion a year roughly and a 4% growth. With the buybacks that we’re doing, the absolute dividend content is actually declining.And therefore, I would like to add to the point that Sinead made just now. So we are building — every time we do a significant buyback, we are building a significant capacity for a dividend per share increase. So the buybacks eventually will crystallize in terms of value in a DPS increase.” (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell’s CEO: “we are very short refining and we are short products and that is largely because of Russia, of course, because a lot of Russian refining capacity is basically locked out.” “Ben van Beurden — Chief Executive Officer: If you are referring to, well, but I can’t work out and how much a rule of thumb you have come to the results that you booked, it is basically because extrapolations with the rule of thumb in a single quarter of a such a wide range simply don’t work anymore. There is just too many variables in there for that to mathematically work out. It works a small range, but not in a large range. But what is really working or what is really happening in the refining business, Lucas, is of course that we are very short refining and we are short products and that is largely because of Russia, of course, because a lot of Russian refining capacity is basically locked out. It’s constipated because they cannot get every stream of the refining system out of the country. That’s part of the sanctioning — self-sanctioning is working very well. But it’s also because the products like diesel, for instance, are difficult to place, particularly because they tended to go to Europe. The same with chemical feedstocks and therefore everything in that field is going to be very tight.” (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell’s CEO: “I think this tightness is going to persist for some time, not forever…at this point in time, yes, we are seeing a dislocation that we are indeed benefiting from.”“It is going to be very tight for a while to come. I think the refining segment is going to be driven for a long time by the availability of middle distance, so diesel, jet fuel, for which there is actually very limited price elasticity. But on top of it, we also see China not exporting for all sorts of reasons. So I think this tightness is going to persist for some time, not forever. So we’re not in the golden age of refining. Or if it is a golden age, it will be a relatively short lived one. So ultimately everything will revert back to the mean again. But at this point in time, yes, we are seeing a dislocation that we are indeed benefiting from, not only in our refining system, but also because we have the most capable trading team to really take advantage of the opportunities that it brings.” (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell’s CEO stressed “while indeed the war is a driver of a lot of the pricing that we are seeing,” their profits were not merely a “windfall because there happens to be a war on the continent here. “ “Ben van Beurden — Chief Executive Officer: So there’s a lot of questions in there, Elaine, and it’s — let me have a go at some of them. I take your first question was really about comparing 2022 with 2013. Interesting, but what really can you do going forward from 2022? And I would say, well, first of all, it is very important to look back on how much we have strengthened this company. And the reason for doing it really is because there’s also a narrative out there that the results we are seeing today are accidental or actually just a windfall because there happens to be a war on the continent here. And while indeed the war is a driver of a lot of the pricing that we are seeing, if you reference it back to the last time we saw this prize, of course, you cannot just explain it away by just a price effect. And indeed, we have significantly improved the portfolio. We have significantly improved the strength of the organization. We just picked out a number of indicators.” (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell’s CEO played down an IEA report predicting an eventual decline in LNG as unrealistic: “Maybe this has to do something with demand not being decarbonized rather than supply not disappearing fast enough. “ “Ben van Beurden — Chief Executive Officer: Thanks, Martijn. I think you did a dividend question one more time, but this particular version of it. But let me first of all, talk a little bit about the IEA and the role of LNG in it. Yes, you’re right. Of course, we have to bear in mind that the IEA is a normative scenario, Martijn. So it’s, in other words, working back from a pre-ordained outcome. And I’m basically drawing a sort of linear line to how would you get to. So if you now look at that scenario, which is a bit over a year old and you sort of track the progress against how we are doing in that — with that but at one year into it, then we are more than two and a half years behind already. So in other words, we are traveling in the opposite direction. So that shows a little bit how challenging it is to sort of turn the big ship around. And we may, of course, have wishes and hopes and expectations that it will get better, but for now it’s not. So therefore, I don’t want to put too much cold water on the IEA report, but I think it is important to have a reality check and just say, well, is this really happening? And if it’s not happening, why would that be? Maybe this has to do something with demand not being decarbonized rather than supply not disappearing fast enough. (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell played down the impact on their costs from inflation

Shell’s CFO claimed that although materials like steel were facing 18% inflation, they had locked in prices and “ we don’t see that full amount coming through.”“Sinead Gorman — Chief Financial Officer: Thanks, Biraj. And particularly sort of two parts in a way to that first question. So first of all, as we go into 2023, we are looking to, of course, start going through our planning cycle. We will start setting our capex for next year. As we’ve said, for 2022, very much within the $23 billion to $27 billion range. We are, of course, seeing inflationary pressures coming through. That is happening already. But of course, a company of our size has the benefits of being able to have the size and the volume that comes through. We’re seeing things like steel being very much pressurized at the moment in terms of sort of 18% or so of inflation. But we run on framework agreements, which allow us to be able to lock in prices over a period of time and with certain volumes. So we don’t see that full amount coming through as well. It means we have a very resilient supply chain, which allows us to mitigate some of those inflationary pressures.” (Shell plc Q2 2022 Earnings Call, 7/28/2022)

Shell spent more on buybacks and dividends than capital investments in 2022 

Shell reported spending $26 billion on stock buybacks and dividends in 2022, more than they spent on capital expenditures. “Sinead Gorman – CFO & Director: And now on to our financial framework. Our strong performance over the year has allowed us to enhance our distributions to shareholders. Our total shareholder distributions for the year were around $26 billion, in excess of 35% of our 2022 cash flow from operations. And today, we have announced a new $4 billion share buyback program, which we expect to complete on time of our Q1 results announcement. As planned, we have also increased our dividend per share by 15% in the fourth quarter. Demonstrating discipline, our total cash capital expenditure for 2022 was $25 billion. And our outlook for 2023 is to maintain the $23 billion to $27 billion range, absorbing inflation.” (Shell PC Q4 2022 Earnings Call, 2/2/2023) 

Shell executives bragged they were actually making more money while producing less than the last time oil prices were at current levels 

Shell reported earnings of $40 billion for 2022, $17 billion more than when oil prices were at a similar level in 2014. “Sinead Gorman – CFO & Director: These strong quarterly results helped us to achieve our highest ever full-year results, with adjusted earnings of some $40 billion, more than double those of last year and around $17 billion higher than in 2014 when Brent prices were similar. We delivered a full-year cash flow from operations of over $68 billion. And our organic free cash flow was around $48 billion.” (Shell PC Q4 2022 Earnings Call, 2/2/2023) 

Shell’s CEO: “ we had in 2022, 7% less production than we had in 2014, yet we’re able to deliver some 80-plus percent free cash flow and 70-plus percent earnings.” “Wael Sawan – CEO and Director: On the — on where we are with Upstream. Having had the privilege of being with Sinead in the Upstream business at the time when we set these targets, we have indeed moved very fast on being able to monetize the parts of the portfolio that we felt did not fit into the broader core of what we wanted in the Upstream. And just as a reminder, we’ve done a lot of work in the Upstream over the past several years to fundamentally high-grade the quality of that asset base. I referenced earlier in the morning, the fact that in 2014, at the similar Brent price, we were delivering — we had in 2022, 7% less production than we had in 2014, yet we’re able to deliver some 80-plus percent free cash flow and 70-plus percent earnings. And therefore, the quality of the Upstream has significantly improved as a result of this focus on value over volume.” (Shell PC Q4 2022 Earnings Call, 2/2/2023) 

Shell executives stressed they would only invest in green energy if it was “profitable” with “double-digit returns”

Shell’s CFO said further investment in green energy “will depend, of course, on the returns that we see as those come through, and that will continue to be the case.” “Sinead Gorman – CFO & Director: But in terms of the — are we dialing back or any of that side of things, you can see from our capital investment, we have a very healthy budget within the side of things with respect to renewables, in respect to green. But it will depend, of course, on the returns that we see as those come through, and that will continue to be the case. At the moment, we’re seeing good opportunities, Nature Energy being a great one where, of course, it’s just a logic where it fits through. We’re good at molecules. We’re able to move those to different locations. And of course, having the sort of business that we have with a number of customers to be able to decarbonize them, it’s a very clear logic as well.” (Shell PC Q4 2022 Earnings Call, 2/2/2023) 

Shell’s CEO: “If we cannot achieve double-digit returns in a business, we need to question very hard whether we should continue in that business. Absolutely, we want to continue to go for lower and lower and lower carbon, but it has to be profitable.” “Wael Sawan – CEO and Director: I think on low carbon, let me be, I think, categorical in this. We will drive for strong returns in any business we go into. We cannot justify going for a low return. Our shareholders deserve to see us going after strong returns. If we cannot achieve double-digit returns in a business, we need to question very hard whether we should continue in that business. Absolutely, we want to continue to go for lower and lower and lower carbon, but it has to be profitable.” (Shell PC Q4 2022 Earnings Call, 2/2/2023)