Shell Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 2, 2025
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in Q1, we continued to make good progress. And as we look forward, we remain confident due to both our portfolio strength and an organization which continues to deliver, guided by our principles of performance, discipline and simplification. What we hope is now clear is that we do what we say. As we said at Capital Markets Day, we met our CMD 23 financial targets for 2025 almost a year early.

And as a result, we've set new financial targets whilst we are staying firm on our carbon targets and ambition. Repositioning the portfolio is a key step towards achieving our targets, and we have made meaningful progress in the first few months of 2025. We've completed our divestments of the Energy And Chemicals Park in Singapore and in onshore Nigeria. And as we said we would, we are growing but in a disciplined way. We completed the acquisition of Pavilion Energy, strengthening our integrated gas portfolio by further expanding our LNG trading and optimization capabilities.

In Upstream, we signed an agreement to increase our working interest in IRSA in the Gulf Of America. We already operate this asset and we're pleased to be able to further consolidate our leading deepwater position. On projects, we took two key final investment decisions. The first is Gato Do Mato in Brazil. This will be a shell operated asset in the Santos Basin, where we are the largest foreign producer.

The second is Phase two of the Northern Light's carbon capture and storage development in Norway. This will increase the project's capacity from 1,500,000 tonnes to more than 5,000,000 tonnes of CO2 a year by 2028. And on operations, in the first few months of 2025, we've achieved significant milestones. I want to highlight just two of them. First, our Penguins FPSO in The UK North Sea is now online and supplying much needed natural gas to the region.

This modern FPSO is expected to extend the life of the field by up to twenty years. And second, Dover in the Gulf Of America has started production. This is the second subsea tieback to our Appomattox hub, after Rydberg, which came online last year. Now let's move to the financial results for the quarter. We delivered solid results in a price environment that was relatively stable compared with last quarter.

Our adjusted earnings were $5,600,000,000 up 52% compared with Q4. And we generated $11,900,000,000 of cash flow from operations, excluding working capital. Consistent with outflows seen in the first quarter of recent years, working capital in Q1 was an outflow of $2,700,000,000 Now turning to our businesses. Integrated gas production was higher than in Q4 as the turnaround at Pearl GTL was completed. However, liquefaction volumes were lower because of unplanned outages in Australia.

Our LNG trading and optimization results were in line with Q4, and that's despite the higher noncash paper losses recorded, which we highlighted would be seen across the first three quarters of the year. Upstream had a strong Q1, with continued high controllable availability. Norway, Nigeria Offshore and Kazakhstan all delivered above 98%. In marketing, mobility and lubricants performed very well as both continued to further increase premium product margins. However, the low carbon option businesses continue to operate in a difficult macro environment, which we highlighted at CMD.

Chemicals also continued to see low margins this quarter, but with the divestment in Singapore, we expect that the Chemicals earnings contribution will improve. In Products, the contribution from Trading and Supply improved relative to the previous quarter and was at similar levels to Q2 and Q3 of last year. So overall, a solid set of results in the first quarter of twenty twenty five. We are now into the second quarter, and there are significant macro uncertainties, but our approach remains the same. We are following through on the long term direction we set at Capital Markets Day.

At times like this, the importance of a strong balance sheet and a robust financial framework are critical, And we have consciously positioned the company over the last few years, leaving us well placed. In Q1, our net debt position increased, reflecting lease additions from Pavilion and a drawdown from the loan facilities provided at the completion of the Nigeria onshore divestment. These are all known items, and our balance sheet continues to be one of the strongest in the industry. Moving on to shareholder distributions. Today, we have announced a $3,500,000,000 share buyback program, which we expect to complete by the time of our Q2 results announcement.

This makes it the fourteenth consecutive quarter in which we have announced $3,000,000,000 or more in buybacks. With this new $3,500,000,000 share buyback program, we are well within our enhanced shareholder distribution range of 40% to 50 of CFFO, a range that you can expect us to deliver on through the cycle given our low distribution breakevens: $40 Brent for dividends and buybacks continuing at $50 To summarize, in Q1, we delivered a solid set of results in a relatively stable price environment. Our portfolio transformation is progressing, with several major achievements during the first few months of 2025. Looking ahead, we are confident in the direction we have set and the strength of Shell to deliver for our shareholders through an uncertain macro. We will continue to focus on operational performance, be disciplined with cost and CapEx spend and drive competitive and resilient returns and, most importantly, deliver on what we say.

And finally, we hope that shareholders who are able to attend, either virtually or in person, will join us for our twenty twenty five Annual General Meeting, which will take place on May 20. Thank you.

Operator

We will now begin the question and answer session. People dialed in. If you have a question, please press star one. If you wish to be removed from the queue,

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you. Thank you very much for joining us today. We hope that after watching this presentation, you've seen how we delivered a solid set of results in the first quarter, how we made meaningful progress in repositioning our portfolio to deliver on our targets and the strength of the company to deliver through an uncertain macro. Today, Sinead and I will be answering your questions. And now please could we have just one or two questions each so that everyone gets the opportunity?

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

And with that, could we have the first one, please, Luke?

Operator

Our first caller is Josh Stone from UBS.

Joshua Stone
Joshua Stone
Head - European Energy & Equity Research at UBS Group

Hey, thanks. Good afternoon. Two questions, please. While you've talked in the past about being wanting to be more countercyclical in how you allocate capital and you clearly demonstrated that in the good times by being quite prudent with your capital spending. It just strikes in a downturn or potential downturn, it requires a lot more resolve to start spending more money or maybe sustaining the buyback.

Joshua Stone
Joshua Stone
Head - European Energy & Equity Research at UBS Group

So just talk about your latest views on that and commitments to being more countercyclical. And then second question on Integrated Gas. Trading looks to be a decent quarter this time around, particularly if I adjust for the hedging losses. So some of your peers have talked about it being more difficult to trade in gas because of the event risk and sort of more jitteriness in the markets. So what's been your experience there?

Joshua Stone
Joshua Stone
Head - European Energy & Equity Research at UBS Group

And what's your approach to putting on risk and putting risk on the books today? Thanks.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Josh, thank you for those two questions. Let me take the first one and ask Janae to answer the second one. On your question around sort of countercyclical capital allocation, I think let's start with what we're trying to do. We have said that we want to be able to unlock the full intrinsic value potential of this company. And we have said that free cash flow per share is going to be the key proxy, our North Star that we're going to drive towards.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

As you rightly say, what we have been doing over the past few years is in essence getting ourselves leaner and fitter for exactly the sort of uncertainty, for exactly the sort of cyclicality, which of course was inevitable. It just we didn't know when it was going to happen and what's going to trigger it. But I'm very glad that we are where we are today. Now the good news, of course, as we outlined in Capital Markets Day twenty twenty five, just month ago, is that for the next five years, we have given a very clear trajectory of 10% plus free cash flow per share growth between now and 02/1930 on the back of our organic opportunities. Everything else now has to compete with that when we talk about allocation of capital.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

And so indeed, in a counter cycle, we have a couple of options. Of course, we can look at distributions and what we do there and what we can do is also inorganic. I've said in the past, want to be value hunters. Today, value hunting, in my view, is buying back more Shell. Why?

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Today, our share price continues to be advantaged. We said in the past that the free cash flow yield meant it was advantaged, even more so today where things stand. And so you will see us continue with conviction to lead into the buybacks as we have been doing and within that 40% to 50% of CFFO range. We will be prudent. Of course, we will keep looking at inorganic opportunities.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

We have $1,000,000,000 to $2,000,000,000 in our cash CapEx guidance for that. But the bar is high and we need to be able to see a pathway towards free cash flow per share accretion in a relatively short period. Sinead?

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Thank you, Josh. So indeed, LNG had a very good quarter, as you say, very pleased with the outcome there. Let's take it into its component pieces. So in terms of the assets, the assets performed well. What we saw was some downtime, some unplanned downtime from Prelude, but very quickly bringing it back up.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

And we also had weather events. So we did see some of the cyclone and different issues there in Australia particularly hit both QGC and Gorgon. That despite that, we still actually had length. And what that meant was that with demand remaining reasonably strong, we actually had strong margins as well. We're able to optimize around that.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

So that's what you saw come through in terms of our results in Q1. Now if we take it to Q2, and what could happen there. What I'm expecting to see is some planned maintenance and you've seen us talk about that, you see in the liquefaction volumes in terms of the forecast that we give. And that's planned maintenance as you come into summer, it's what you see us typically do and it's across a range of assets, whether it's Gorgon, whether it's Oman LNG, etc, but it's across quite a range of them. So we do expect to see similar volumes to what we actually saw in Q1 as well.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

As of today, of course, prices are lower than they were in the last quarter. And we'll see how demand plays out accordingly. So for earnings, you could see if you take the fundamentals and of course the hedging, the legacy hedging losses that you mentioned before that we've discussed, you could see that play out in terms of a lower or more pressure in terms of the earnings. That's on earnings. So what I expect to see is strong and resilient cash.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Why do I see it? Well, because those hedges that we just discussed are non cash. And then secondly, I expect to see some working capital unwind as well, which relates to the first quarter. Because actually in the first quarter, you'll have seen in cash was that actually we had quite high volumes of sales in March, and we need to collect that accounts receivable this quarter. So therefore, really resilient cash in Q2.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you very much, Sinead. Josh, thank you for those two questions. Luke, let's have the next question, please.

Operator

Our next caller is Peter Low from Redburn Atlantic.

Peter Low
Partner, Co-head of Energy Research at Redburn Atlantic

Hi, thanks for taking my questions. Yes, the first was on the CapEx budget. You reiterated it this morning. But can you perhaps talk a bit about how much flexibility there could be that should the macro environment continue to deteriorate? And then the second one was just on the Singapore disposal.

Peter Low
Partner, Co-head of Energy Research at Redburn Atlantic

Can you help us at all in thinking about the potential quantum of the earnings improvement you will see now that that divestment has completed, particularly in chemicals? Thanks.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you. Do you want to take both of those, Jeanette?

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Sure. So on the first one in terms of the CapEx budget, Peter. So we have reiterated our 20,000,000,000 to $22,000,000,000 CapEx budget. And why have we done that? Well, we've done it because of the position that we're in.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

We've spent a significant amount of time positioning this company over the last few years to make sure that we are able to manage not just run the company on fundamentals, but to ensure that we position it be able to deliver through uncertainty. And that's what's happening now. And that's delivering through uncertainty for our shareholders. And therefore, the perspective of capital, we're not asking our businesses, we're not requesting them to stop on projects, to remove themselves from different commitments, etcetera. We are asking them to deliver on exactly what they said and to perform as we have promised.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

We're not asking them to step back from a range of different aspects. So we don't believe that at this moment in time, we need to step back within the capital range that we've got. However, if you were to look back what we've done in the past, if you go back to during the COVID times, we've demonstrated a strong ability to be able to pull many levers. And you saw of course our CapEx budget at that time being below 18,000,000,000. So the flex is there.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

But that's not the position we're in at the moment. We don't need to do that and we see great opportunities for value. And you've seen that in terms of some of the deals that we've done. You've just seen us take a further percentage in IRSA, which is of course something close to our heart. It's in deepwater.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

It's in the Gulf Of America where our team delivers incredibly well. And therefore, have asymmetry of data and have the ability to deliver on our own operated assets. Singapore. Singapore, almost forgot. Thank you.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

On the Singapore disposal, indeed, just finished this quarter. So what we've said around Singapore is that it was loss making. We do expect that to play out in terms of improvement in both the refinery margin and the chemicals margin as you take it out of the books. And it will of course contribute to our structural cost reductions. In terms of just giving you a bit of a feel for that, it's several hundred million is the impact if you were to take it across the full year.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

So I hope that's helpful.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you for that, Jeanne. Peter, thank you for those questions. Luke, the next caller, please.

Operator

Our next caller is Lydia Rainforth from Barclays.

Lydia Rainforth
MD & Energy and Energy Transition Equity Research at Barclays Corporate & Investment Bank

Thank you and good afternoon to you both. A couple of questions, if I could. The first one, just we talked about volatility and uncertainty, but given the size of Shell's own network, what are you seeing on real time data in terms of demand, whether it's oil, oil products, LNG? And just to kind of give us an indication of kind of some of the fundamentals. And then secondly, on OpEx, progress again very, very good.

Lydia Rainforth
MD & Energy and Energy Transition Equity Research at Barclays Corporate & Investment Bank

What are you finding when you're taking these costs out? Are you finding it becomes easier and easier simplify things as you're taking some of those layers out?

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thanks, Lydia. I'll cover both. I think on your first question around just where the macro is right now. I think it's fair to say that we are, of course, watching all the potential headwinds there, but we haven't yet been able to translate that from the data that we have. So the data is showing that by and large, oil products and LNG are holding up from a demand perspective for different reasons.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

LNG, for example, of course, the low storage levels in Europe have meant that there is quite a large draw into Europe for LNG volumes, and there isn't a huge amount of new supply coming on stream in 2025. And so that tightness continues in the market. In crude and in products, what we're finding We keep our eye on a few key signposts. So marine bunker fuel and diesel into trucking are usually the first indicators of broader economic slowdown. We're looking at those carefully.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

And then thereafter, you start to look at things like, for example, jet aviation, people traveling or gasoline into passenger vehicles. Again, we monitor those particularly carefully to be able to see what the trends are. And particularly, we're looking at U. S. And China trends where the ongoing tariff situation means that those will be likely amongst the first to be impacted.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

So that's what we are currently keeping an eye on. When it comes to OpEx, look, very proud of the organization's momentum on this. I mean, there's been so much hard work. I think I've mentioned in the past, when we put the $3,000,000,000 2 billion dollars to $3,000,000,000 ambition in Capital Markets Day twenty twenty three and we're able to deliver a year ahead of time at the top end of that range, this was very much a top down target. And now what we're seeing is actually the organization starting to bring forth the ideas that could potentially take out costs.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

That is starting to play through and you see it as rightly pointed out in the financials. We're trying to address that from multiple different points, whether it's supply chain and how we sharpen our focus on the supply chain, how we avoid incubating projects that are going to eventually die too long and killing them early, How do we continue to look at the way we are structured as a company, delayer, simplify? How do we simplify the corporate center so that we can become leaner and clearer? So all of those elements are starting to play up. But I would say there is a lot more to do.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

We are nowhere close to our potential, and that's what I'm keen to really drive over the coming years to unlock the full potential of this incredible company. Thank you for the questions, Lydia. Luke, next caller, please.

Operator

Our next caller is Paul Cheng from Scotiabank.

Paul Cheng
Analyst at Scotiabank

You. Good morning. Well, I just want to follow-up on the media question. In the sense that show you the big shift, and I think you guys have done a phenomenal job in turning it. But at this point, do you think you the organization capability or the culture have turned sufficiently that if you decide that the launch acquisition that is attractive for you that the organization could take on or that it's going to take maybe another one or two year to ensure that all the culture, all the changes is really fully singed in?

Paul Cheng
Analyst at Scotiabank

That's the first question. The second question is that in the event if oil price stay really low for an extended period of time, when I say really low, say, call it to the 40s, between the buyback and capital, the CapEx cut, which one will be the first to go? Thank you.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you, Paul. Two great questions. I'm going to give the tougher one to Sinead in a second. That's number two. I'll go for the culture question.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

I want to start by sort of saying, we start from a very, very good place in the culture of Shell. The ethical bar that we have held ourselves to, real sort of care for people, focus on safety, all of these are elements we have been holding on to. And what we have tried to supplement that with is what we call the winning performance culture. It's that next level, it's that hunger to win. It's our ability to be able to move from accepting mediocrity to really every time we do something, yes, we celebrate, but we very quickly look at what more we can and should be doing.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Is that fully rooted in where we are today? No. I'll be honest with you, we have more work to do. What we see is a lot of green shoots. We see multiple parts of Shell starting to really move from let me explain the story of how good we're doing to actually let's park that and look at what the gap is to our full potential as a company.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

That to me is the sign of an organization that is going to be the winning organization. And we have more work to do in that space despite the excellent progress that we have seen over the last couple of years. You're right to also point out that before we ever look at inorganic, sizable inorganic, we have to have our own house in order. And so what I would say is in the parts where we have really seen that, where we have seen our capability to be able to really create value through the culture, we are making moves. And I'll give you one simple example.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Pavilion. Pavilion is an LNG acquisition we did. We had a very clear view that this is a complex portfolio, multiple challenges would take us several months to be able to integrate into Shell. We closed on the deal March. Today, we stand in a position where that LNG team has already been able to integrate Pavilion into Shell within weeks.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

That to me is an example of where the culture is thriving. And that is where I'm willing to put up to bet on inorganic opportunities where we know we can unlock more value through bringing that asset into Shell because we have that comparative advantage and we have the culture and capability to do it. Sinead?

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Indeed. And then your second question was really around if oil prices are low at 40, what are we going to do? Well, on that one, Paul, we were very careful and we discussed it long and hard before Capital Markets Day to actually be able to frame it for you in Capital Markets Day, because we knew that there is always uncertainty. We wanted to be able to show you our frame, our thinking for after if prices were to move from 70 down to that sort of level. So let me take you through it in terms of $50 first.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

So at a 50 mark, what we've said is assuming we're at 50, our CFFO would be roughly speaking somewhere between 35,000,000,000 to $40,000,000,000 In that world, we have a number of levers. We can pull the lever of course of CapEx, which you've mentioned. We can also of course use OpEx. We can pull on divestments, although that could be difficult at that point in time. And of course, we can consider our distributions.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

For us at 50, what we've said is we will continue share buybacks at 50. So what we've given you the model of is to basically say, we'll pull a little bit on our CapEx, so we'll bring it down and we know we can. I just gave you that answer earlier in terms of Peter's question. We would also continue to maintain the buyback at that point. What we've modeled out is at 40%.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

So our distribution range is 40% to 50%. So assuming we have somewhere between 35,000,000,000 and 40,000,000,000 of CFFO, that comes out at 8,000,000,000 on our dividends and roughly some 6,000,000,000 to 7,000,000,000 of share buybacks. But we will continue doing buybacks at that level. And we would have the ability to lean on the balance sheet from a small amount given the strength of our balance sheet today. So that tells you how focused we are on that buyback.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

You then move to a $40 world. And what we showed you there was, we showed you the paradigm of $40 for a long period of time, assuming that our CFFO came down below the 35,000,000,000 or roughly around the 35,000,000,000 mark. Again, that we distribute towards the lower end of our range at that point and we do 40%, we will be easily able to cover our 8,000,000,000 of dividends just roughly using rough numbers. But of course, for us, important thing is to be able to try and maintain the buyback as long as we can. And hopefully, that's what you see our focus is.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Of course, in those sort of worlds, you would see our share price going down as Yael alluded to earlier. It's a great position for us to be in at the moment. With a GBP 3,500,000,000.0 buyback, we're buying back even more shares than we were before because the price has come down. It's a great allocation of capital. And that's what you'd expect us to see and continue to look to do as prices continue to come down.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you for that, Sinead. Paul, thank you for those questions. Luke, next caller, please.

Operator

Our next caller is Biraj Borkhataria from RBC.

Biraj Borkhataria
Biraj Borkhataria
Analyst at Royal Bank of Canada

Firstly, thanks for the comments around the financial frame in that $50 scenario. That's really helpful. I wanted to ask a question or two questions. The first one is just on your the various deals you've done. You've done a number of small deals where some are closed, some are to come and not all of the sort of financial magnitude is disclosed.

Biraj Borkhataria
Biraj Borkhataria
Analyst at Royal Bank of Canada

Could you just help us understand the sort of cash impacts of these? It's still not clear to me what you paid for Pavilion and then you've got the Singapore sale and a few others? And then the second question is just on in the upstream thinking about OpEx and DD and A that now that we deconsolidate Nigeria from the portfolio. Is the Q1 run rate sensible or how should we think about that going forward? Thank you.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you. Do you want to take the Sure.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Yes. So in terms of two parts, Biraj, on Pavilion and Singapore. So the way I would look at it in terms of the cash impact on Pavilion, you saw we haven't disclosed the price that we gave on it. But you can see in terms of how it plays out, it's largely a small amount of capital went out for it, but it's largely the leases that come through. So you saw that in our net debt, and you saw it was below €1,000,000,000 but you see it in that sort of range.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

So that will flow through. I wouldn't expect much impact in terms of really impacting the earnings from Pavilion this year, you'll start to see it in 2026. And that's just the way the contracts play out. Then on Singapore, the divestment, you saw it in our divestment proceeds. So you would have seen divestment proceeds of roughly speaking 600,000,000 for this quarter.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

That is largely Singapore and there's a little bit of small items like Iraq loans, repayments and things like that. But you see that coming through. What we've disclosed on that is that we have the Singapore was loss making. So you will see us have basically a price, it's irrelevant to price, you will just see free cash flow and intrinsic value improved as a result of that transaction. And then the other one that you didn't mention, but I suspect is also on your mind is SPDC, so the Nigerian divestment.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

If I were to take the Nigerian divestment and the Singapore divestment together, they're roughly speaking neutral in this current price environment. So my free cash flow will be roughly neutral. What I'm probably more interested in is the fact that I will obviously have and you were going there, the impact on OpEx. So you haven't seen my OpEx improvements yet in terms of either Singapore or SPDC, only small amount of that came through in the quarter. You'll start to see that come through throughout the year.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

And of course, will take us a while as people move out. That was on the first one and partially on the second. So in other words, yes, more to come on OpEx. And then in terms of DD and A, you did start to see that come through this quarter. Biraj, you'll have seen that one of the improvements that we saw on Upstream was, of course, lower well write offs versus Q4, but also lower depreciation.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

And that's also linked to the reserves. So just as you saw us come through in Q4, we updated our reserves numbers. So good catch on that.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you, Sinead. Thank you, Biraj for those questions. Luke, next caller, please.

Operator

Our next caller is Giacomo Romeo from Jefferies.

Giacomo Romeo
Energy Analyst at Jefferies & Company Inc

Yes. Thank you for taking the question. If I can go back to the Pavilion acquisition, I'm just trying to understand a bit better why you don't expect to see an impact on earnings this year. Was was just Pavilion not generating any profit? And and why what what changes next year

Giacomo Romeo
Energy Analyst at Jefferies & Company Inc

Just just trying to understand what are the moving parts there that actually drives your ability to extract profit out of what you're getting as part of the Pavilion deal. And on the $50 scenario you present you represent the better you had in the C and D slide as well. And you mentioned that you would see the potential for reducing CapEx a bit. You show that in the chart there. Which areas would you be seeing the reduction?

Giacomo Romeo
Energy Analyst at Jefferies & Company Inc

Is that can you provide more clarity there where you would prioritize CapEx? That would be helpful. Thank you.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you for that, Jacques. Well, let me take the second question first, and then if you want to come back to the pavilion What want to avoid doing, Giacomo, is almost locking myself down for one reason. I think the biggest thing we have tried to do is to become much more dynamic in our capital allocation, as shown, right? And what we used to do was sort of worry about does the capital dollar go into upstream or into downstream. What we're trying to do now is to say, does that capital dollar go into either of those or into inorganic or into more buybacks or into deleveraging?

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

We're trying to make sure that we are always dynamic and looking at where the market is and looking at where the best opportunities are. Now having said that, of course, there is, call it, a maintained level of capital. And the proxy that Sinead used earlier, the less than $18,000,000,000 which is where we were in the COVID times, gives you a sense of what is a healthy maintained level. Today, we're talking about a range of 20,000,000,000 to $22,000,000,000 which, of course, has growth embedded in it. Important to recognize there's 1,000,000,000 to 2,000,000,000 of inorganic capital that is available to us in that context.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Now in that environment, we can either choose to deploy that capital because we can create countercyclical value, life cycle value for our shareholders, or we can draw pull it back if we still don't see the opportunities. And so what I would say is trust us to continue to be prudent in making sure that every dollar of our shareholders' capital is looked at with the rigor that you would expect of us, making sure that we take advantage of the opportunities at the right points in the cycle and where we don't see those opportunities to make sure we hold on to that capital as you have seen us do at the right points in time over the last few years.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

And

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

in terms of Pavilion, Giacomo, really what I'm trying to say is what our traders do incredibly well is being able to have flexibility and access. So as Weil said, we've managed to integrate this into the company very rapidly. They've done a great job on it, but it's a series of contracts. So there's a mixture of contracts and assets that come with it. Those contracts include both derivatives and physical, and they have different timing impacts.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Therefore, you see that really play out whenever those all come in together, and that's really towards next year. So there's lots of puts and takes on it, which will determine value. We also, of course, have the physical side of it. We have five vessels. We have a number of re gas access to re gas terminals, etcetera.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

By being able to have that flexibility to be able to optimize, that's where they truly make money. And of course, it's just the timing of when they get access to those and how full they are, etcetera. So pleased with how it's been integrated so far and really looking forward to them deriving the value that they promised us, and that will really be into 2026.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Absolutely. Thank you for that, Jeanne. And Giacomo, thank you for your questions as well. Luke, next caller, please.

Operator

Our next caller is Henry Tarr from Berenberg.

Henry Tarr
Director - Co-Head of Energy & Environment Research at Barenberg

Hi there, and many thanks for taking my questions. I wanted to ask about marketing. Both mobility and lubricants had a very strong quarter, which certainly suggests underlying demand. You haven't seen a slowdown so far, as you mentioned earlier. I just wonder whether there's anything else going on there from a sort of self help perspective as we think about modeling out for the rest of the year.

Henry Tarr
Director - Co-Head of Energy & Environment Research at Barenberg

And then maybe sectors and decarbonization to sort of round it out. The environment remains pretty weak, and we're seeing a decline. Are there any signs of life at the end of the tunnel for this business? Reg?

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you. That's, think, one sort of broad question. Did you want to address that?

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Yes, certainly. So in terms of indeed strong quarter for our marketing business, very pleased to see that it was higher than Q4 as you say. Let me break it into those three parts that you alluded to. So first of all, on mobility, it was actually quite similar to Q4, but actually good for Q1 because we haven't come into driving season yet. They're doing a great job in terms of making sure exactly that self help points.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

So driving cost down, focusing in on advertising, focusing in just on every dollar that they spend, but also on the premium products. And that's where you start to see the margin coming through. So significant progress there and I look forward to seeing further throughout the year. On the lubricant side of things, it was indeed, it was a good quarter for lubricants. And we saw strong margins really driven by that premium fuel or the premium lubricants that they've been selling.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

They're doing a great job on that. And frankly, last year was sort of their best year ever and we continue to see them hit new records. So looking forward to seeing exactly what they can do next. Sectors in decarbon, There's obviously component pieces to that, but it was more challenged as you say, particularly this quarter.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

It's difficult across the whole environment. There's a couple of things in there. So we see pockets of strength, of course, in terms of trading. So we did see some of the uncertainty and and some good pockets of making money through our trading organization, particularly in The US in advance of the tariffs coming through. But of course, also see challenges in places like, you know, rise in which in Brazil, it's a difficult environment, difficult crops at the moment, and of course, high interest rates.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

So mixed space there and we look forward to watching the space very closely to see how that continues to develop. For us, biofuels is something that we can optimize around our traders, but also of course the short that we have within our own mobility as well. But we watch the space closely given how tough it is.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you, Sinead. And I have to say very proud of how our marketing organization is showing up with all the focus on the transformation that they have been through. So and I expect a lot more to come. Thank you for those questions, Henri. Can we go to the next caller please, Luke?

Operator

The next caller is Matt Lofting from JPMorgan.

Matt Lofting
Matt Lofting
Energy Equity Research Analyst & Executive Director at JP Morgan

Thanks for taking the questions. Two quick ones, please. Shell has a substantial business in The U. S. Across the value chain.

Matt Lofting
Matt Lofting
Energy Equity Research Analyst & Executive Director at JP Morgan

I wonder if you could share any perspectives you currently have on the direct impact of the tariff framework, at least it stands at the moment, and whether there's any specific assets where you see potential effects? And then secondly, if we combine the upstream and integrated gas business, there's a track record over the last four to six quarters of beating consensus expectations. To what extent do you see that as fruition of the performance improvement agenda over the last couple of years? And how sustainable do you see that performance going forward? Thank you.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Matt, thank you for that. Let me take the first one and then ask Sinead to address the second one. Yes, we have a very material position in The U. S. We're the largest player in The Gulf Of America.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

And I think really pleased with the positions we have there, some of the best ZIP codes in The Gulf. We are, of course, also the largest off taker of U. S. LNG. And of course, a significant presence in Shell, Pennsylvania and Shell Polymers Monaca, which is our petrochemical facility.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

So indeed, we have good line of sight to things there. What I would say, starting with the global picture around tariffs is we, at the moment, see relatively limited impact to us and what we see is manageable. Of course, the, call it, first order impacts are more related to the supply chain than they are related to energy product sales. And so what we're doing is we're looking for mitigations around that. As an example, in The U.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

S, Sparta, One of the major facilities we are developing, already had a significant portion of their steel purchased well before the tariffs hit. So there was a lot of work that was ongoing in anticipation and therefore to mitigate and derisk some of these issues. The bigger question we are looking at when it comes to the tariff impact is of course the second order impact. What that means to the real economy, what it means to supply demand. That of course has a lagging impact.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

It's unlikely to be within a quarter or two. But as we look into 2026, that's what we keep our eye on in terms of how it plays out. But so far, knock on wood, it has been very manageable and the teams are doing well to be able to make sure there is very limited pain to the organization.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Yes. And in terms of Integrated Gas and Upstream, I think just I think thank you for recognizing what the teams have done that. Because if you take it back to Capital Markets Day twenty twenty three, what we said to you then was that if we own these assets, we're going to run them well. We're going to be the rightful owners of these or we shouldn't be in them. And what you've seen are both our integrated gas teams and the upstream teams do is take that on board.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

They are running very, very hard and they're not just running hard to drive down costs, they're running hard to maximize performance. And they do it with the lens that they know what the competitive benchmark is. They're very much focused around performance discipline and simplification that allows them to free up the thinking as to where they should spend their time. And one example of that is, we know there's gonna be uncertainty. We know that issues can occur.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

But when something goes down, it's how quickly can they get it back up and running. And and Prade is a wonderful case and point which we've seen since the turnaround that it will go down. If it goes down, quickly can we get it back? And it's 60% less time to get it back up again. So that focus means that we're driving for cash.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

We're driving for every single dollar, and that's what this team is doing. So they're managing through the uncertainty. They continue to have that drive, that wish to perform. And it doesn't matter which part of the world you're talking about, that competitive spirit is there, and I think it's going to continue.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

All right. Very much so. Thank you for those questions. Matt, now let's go to Luke for the next caller, please.

Operator

Our next caller is Martijn Rats from Morgan Stanley.

Martijn Rats
Martijn Rats
Analyst at Morgan Stanley

Hi, hello. And also I had two questions, if I may. I wanted to ask you about the market conditions that you see for disposals. I can imagine that with all the uncertainty that exists, it may have become more difficult to execute some of the disposals that you're still working on, but hard to know. I was wondering if how you see that how you see the basically, the disposal market?

Martijn Rats
Martijn Rats
Analyst at Morgan Stanley

And then secondly, slightly more practical perhaps, but I was wondering where we are now with LNG Canada. Because it looks like we're sort of relatively close to the start up and how we can expect the quarterly earnings stream to be impacted by that project?

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you. I always take the LNG Canada question, but I'm going to hand it over to you this time, Sinead. And I'll quickly touch on the disposals. The biggest thing I'd say, Martijn, is thankfully, we have been working for the past two years to get well ahead of this, right? I mean if there's one thing that I'm most proud of in Q1, yes, the results were great to see, but I'm very proud of the culmination of significant effort for a number of years to be able to, in essence, move beyond Nigeria onshore, a huge, huge undertaking, and congratulations to the team for completing that.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Singapore Energy and Chemical Park, another major achievement. And of course, Pakistan. Those were the biggest elements of our disposal program. While others today are looking to dispose to be able to make their financial framework work. Our focus now can be very much on actually delivering what we have promised, delivering the 10% plus of free cash flow per share growth.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

By the way, the majority of which is not correlated to oil price. And that is the position that I think is particularly nuanced for us. The majority of that 10% is coming from 5% to 7% comes from buybacks and the rest is absolute free cash flow growth, which is not needing to be correlated to oil price because it is self help from OpEx, flexing on CapEx as and when we need to. And a lot of it is the transformation of Downstream and Renewables. It's the improvements we mentioned in Capital Markets Day twenty twenty five and marketing.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

It's the uptick that we expect for chemicals. It's our ability to turn around the res business. And that doesn't even include the upside that we see for trading in a volatile environment. And so that is very much where we are today. And that's why as we, of course, look at continuing to churn through the portfolio, the big ones are behind us.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Yes. And on LNG Canada, indeed, we're really pleased with the progress so far. And of course, you saw the commissioning cargo come in to be able to test all of the different aspects of the facility. And we're still on track, of course, for the first cargo intended the middle of this year. I won't comment on earnings because, of course, from our perspective, what we're really interested in is not the first cargo.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

We're interested in when it ramps up because more time, that's when it really starts to have a sizable impact into our numbers, both in terms of liquefaction volumes, but actually both earnings and cash. So I'm much more interested in where we get to towards the end of the year.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

And a reminder, of course, it's two trains. So you're going to have the first train starting up, and then there's a lag until you get to the second train. So I think we will you will see more of that flow, of course, coming through and the earnings impact in due course. Thank you very much, Martijn. Can we go to the next question, please, Luke?

Operator

Our next caller is Roger Read from Wells Fargo.

Roger Read
Roger Read
Senior Energy Analyst at Wells Fargo Securities

Yeah. Thanks. Good morning or good afternoon as the case may be. Maybe come back to the sort of resiliency question or a slightly different, tact. So at the Capital Markets Day, you laid out, you know, the the cost savings goals.

Roger Read
Roger Read
Senior Energy Analyst at Wells Fargo Securities

Presumably in a lower oil price environment, you would have a little more urgency to get that done. So I'm just sort of curious how you're thinking about it that way. And then the second question or follow on with that is, would a environment you're describing, obviously, the cash flows and and buying back shares is important, but how would you think about allocating on acquisitions in addition to thinking about the overall resiliency and the dividend and so forth?

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Let me take the first one and then ask Janae to address the second one.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

I

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

think let's go back to what we've been saying, Roger, for the last couple of years. I think hopefully what you've heard me say is we know this is a cyclical industry. We know there is going to be uncertainty. And therefore, we believe there's three key characteristics of a winning company. It's making sure that we are consistent, it's making sure we're resilient and it's making sure that we are disciplined in our capital allocation.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

All of that is underpinned by just being lean and fit, right? And that's where the cost agenda plays in. I can tell you there is absolutely not any more urgency on the cost agenda than there was a few months ago. Because the cost agenda is a critical agenda not just to be able to weather whatever choppy waters we're going into, but actually the cost agenda in my mind is an example of whether Shell deserves the alpha when it comes to operations. We need to be able to demonstrate that this is a company that has that operational alpha on a consistent basis.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

And the cost is an important metric in that. And this is not cost cutting for cost cutting sake. We are willing to put more costs in the areas where we can unlock more value. But really being very focused on where there is waste in the organization, where can we enhance productivity. And that's playing in through AI, through what we're doing in that space.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Supply chain, we still think there is a lot more to go in the supply chain space. And I can tell you there is a massive amount of urgency in the organization. And that will continue, not just for the 5,000,000,000 to $7,000,000,000 but as we continue to really build that muscle of being the best we can be at Shell. Jeanette?

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Indeed. So thank you, Roger. And yes, your question around buybacks versus acquisitions. I think we've been very clear that value creation is the key, it's north star of what we're going after. And of course, that's why we say free cash flow per share is the measure that we do.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

So everything we do has to rank against basically the shares and the buying back of the shares. And we've just talked about the fact that, you know, as oil prices gone down, they've actually got cheaper. So it's an even better capital allocation for us. But there's no reluctance from our side in terms of it going after value elsewhere. Not afraid to go after it, but the bar is incredibly high.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

And of course, you see that. We have the option, of course, within our own organic portfolio as well. And just to remind you, even when we looked at the Upstream portfolio that we drew out in terms of what sort of projects we'll start delivering before 02/1930, we give you examples of projects which on average had breakevens of $35 So you can see how attractive even our own portfolio is. We then, of course, have those buybacks that we just discussed, which are incredibly cheap and therefore it's a good allocation of capital. And then finally, we have of course M and A.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

So we have that option to be able to go there. We're incredibly well positioned for that. So if you remember where our balance sheet is, we've positioned the balance sheet such that we have more than €35,000,000,000 of cash. We have lines of credit that we could utilize if we need to, but it's just not something that's on our mind because we have all of the options available to us. So yes, well positioned to be able to go after wherever we see value, whether that happens to be the buybacks even further or whether that happens to be in terms of acquisitions.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Nice position to be in.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you, Sinead. Roger, thank you for those questions. Luke, next caller, please.

Operator

Our next caller is Christopher Kuplent from Bank of America.

Christopher Kuplent
Christopher Kuplent
Analyst at Bank of America Merrill Lynch

Thank you. Two questions from me as well, if I may. And while this is coming from not a cynical place, but you mentioned earlier that perhaps the problem in the past was Shell's culture happy to accept mediocrity. Maybe I would put it differently and ask you, isn't some of the biggest weaknesses or has been in the past, I was always I'm always going to call it hubris, I. E, we can do this.

Christopher Kuplent
Christopher Kuplent
Analyst at Bank of America Merrill Lynch

No one else can. And I want to ask you about the Rotterdam decision that you've taken. Can you give us an update on that? Where you're stepping back from things that perhaps five years ago had been part of the overall Shell ambition. So open question.

Christopher Kuplent
Christopher Kuplent
Analyst at Bank of America Merrill Lynch

And as I said, it's not coming from a cynical place. And second question perhaps to you, Sinead. You presented just a few weeks ago a marketing capital budget of up to €3,000,000,000 And in the first quarter, I see marketing spent €250,000,000 What did you do to these people? How much lower can it go in terms of explaining that very light capital allocation in just Q1? Are there any funnies in there?

Christopher Kuplent
Christopher Kuplent
Analyst at Bank of America Merrill Lynch

Just a quick follow-up, please. Thank you.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you for that, Christopher. You never come from a cynical place. I absolutely don't have to sort of proceed that. Look, from a cultural perspective, you can it hubris or whatever. I think at the end of the day, what happened was we took quite some risk in particular with our capital allocation that in retrospect, as we've done a lot of the reviews to learn, to learn because there's a lot we've learned over the last twenty years.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

And a lot of that has actually helped shape the way we're thinking about the organization right now. The fact that we have such an incredible technical capability almost meant that we can drive more and more complex projects with an assumption that the risk was going to be linear. And of course, it wasn't. It becomes logarithmic. And what typically catches us out is not the theoretical perfection of building a project, it's all the realities around it.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

It's the supply chain disruptions, it's permitting delays, it's the market changes while we're building this facility. It's the cumulative risk of putting multiple units together and then figuring out that it is more challenged. That is the issue. So what we have tried to do is to go for much more digestible opportunities and really look at the appropriate risk adjusted returns for our investments, really become much more forensic. Today, when I get a business proposal, there's a few things that are different than what it was in the past.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

One is we have a full time red team that is looking at the counter view of why we might be wrong with this to really challenge our basic assumptions. That was something we learned from BG and instituted in Shell, right? The second thing we do is we look at track record. What is our track record in that space? And the third thing we do is what is the alternative use of that capital?

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

In the context of the Rotterdam project, to be specific on what you described, yes, we looked at the market around us. We saw length in biofuels, in particular, coming from The U. S. We saw backtracking on mandates in Europe, and we saw a volatile environment. And to simply just plough on and put more capital is not wise capital allocation.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

We have a responsibility. Sinead and I have a duty of care to our shareholders in the way we discharge their capital. And that's why we felt at the time we pause it, and it's still under pause as we look at the broader environment around us and what we can do with the project to see whether we are able to justify investing more in it. Jeanette?

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Thank you. And I think actually a lot of what you said is particularly relevant here in terms of marketing. So Chris, if you were to look back at, of course, Q1 last year as well, what we have seen, of course, then was that it was lowest CapEx spend for the year as well. So Q1 tends to be for marketing, much lower than elsewhere. So I wouldn't say we've done anything per your use of phrasing to the team.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

It's more actually they're really stepping up. And exactly where Weil went to, they're very much focused on just what are the alternative uses and they've raised the bar themselves. So part of it is phasing, part of it is raising the bar, and the other part is the dynamic capital allocation. You mentioned actually in one of the earlier ones, they're very clear that it's not their CapEx. So that's a bit of a change from in the past as well.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

It's much more it's about the group and what can we do with that. So we're not being dogmatic about where we put the CapEx. We're looking at what are the comparatives, exactly what you said, should we be doing buybacks, should we be holding it, are there more opportunities in upstream as an example as well.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you, Shanid. Chris, thank you for those questions. Luke, next caller, please.

Operator

Our next caller is Lucas Herman from BNP Paribas.

Lucas Herrmann
Analyst at BNP Paribas

Yes. Thanks very much, and afternoon to you both. Thank you very much for the call. Couple if I might. Just wanted to touch on chemicals.

Lucas Herrmann
Analyst at BNP Paribas

And you've mentioned certain assets are up the strategic review. I just wondered whether how the market or the broader chemical market responded to those comments and where you were left. Line with that, your guidance on utilization for this quarter of 74% to 82%, especially should I think about as being unusually low? I it's not dissimilar to the last quarter, but I guess I'm slightly surprised that perhaps the levels aren't aren't increasing. And beyond that, a really simple one for you, Shanae, just on disclosure.

Lucas Herrmann
Analyst at BNP Paribas

I suspect you're trying to simplify things, but a lot of the marketing sheets have disappeared, which I presume is intentional. But one of the numbers or some of the numbers that have disappeared as well are the breakdown of net income by mobility, loops, sectors and decarb, which makes life monitoring return on capital, etcetera, exceptionally challenging. Intentional or just a mission?

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Nothing that does is a mission there, Lucas. But I'll leave her to respond to that. Chemicals, I think just to sort of reground us all, macro conditions continue to be very challenged and likely will be challenged for the coming months and years, in particular as we see the buildup in China. And so what we get to is a strategic decision to be able to move forward in that regional approach that we outlined in Capital Markets Day twenty twenty five and looking at how we can do that. We didn't you didn't hear us talking about an outright divestment because of those difficult conditions.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

And we talked about strategic and partnership opportunities to be able to do that. Now since, of course, we went public with Capital Markets Day twenty twenty five, I'm pleased to report that there are we have had a lot of inbounds of interest, and we're in the midst of a process right now to be able to have those discussions because this is not a simple who is bidding highest for this. This is much more of a discussion around what is the structure that is going to make sense for us, what are the exposures we want to see, and we will take our time. We have said we want to take through the coming years to be able to make sure we get the best deal for our shareholders and that is something we will honor because this is not by any stretch of the imagination do we want it to be a fire sale. This has to be value creating for us to the best of our abilities.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

On your point around the 74% to 82%, what of course is always challenging when we give these numbers is we're basing it on our assumption around where do we actually want to have the facilities running and where are we switching it off because right now the margins mean that we are cash negative. And so that's why you continue to see us in the way we report it. This is choice points where we actually switch off certain units to be able to make sure that we're not bleeding cash when we can avoid it. And the biggest, of course, indicator of all is what's happening in Shell Polymers Monaca. I can say that in Shell Polymers Monaca, the performance continues to be strong in the way they are producing.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

And there, it's a question of continuing to premiumize the sales of our products.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Jeanette?

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Indeed. And Lucas, indeed, it was intentional. It wasn't by our mission. Yes, and you're spot on.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

It was very much about focusing in on just simplifying our reporting. So it's both an acknowledgment of how much we give in terms of disclosures of just an awful lot of data that many people don't use and relative to our peers. But probably more importantly, it was about actually just the work that goes into producing it. So for us, what we've done is we've given you the sub segment for marketing at the adjusted EBITDA level. So you get that quarterly and of course, we give you the capital employed also at that sub segment level annually, which is when it really matters given the level of CapEx that we've got coming through.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

That's important, of course, so that you can see exactly per your point back to that ROACE disclosures or the targets or the views, ambitions of where we wanted to go to later on. So you can see that coming through and you can measure us against it. But one of the just without boring you on the detail, Lucas, we were really struggling with being able to give some sensible allocations of things like tax between mobility versus lubricants versus biofuels, for instance, in a specific country. It just didn't make sense. We were spending so much time and effort and cost on doing it versus the value that you get out of it.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

So nothing more than that than a simplification effort.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thanks, Sinead. Lucas, thank you for those questions. And Luke, can we go to the next question, please?

Operator

Our final caller today is Doug Leggate from Wolfe Research.

Doug Leggate
Managing Director - Senior Research Analyst at Wolfe Research

Thank you. Good morning from New York and good afternoon over there. Wael and Sinead, I know you talked earlier about the importance of per share growth targets, the 10% you talked about earlier. But there is an underlying assumption in there, which is a flat real oil price at 70 and a buyback pace. So my my question is, to to what extent would you be prepared to lean on the balance sheet to maintain the current buyback pace?

Doug Leggate
Managing Director - Senior Research Analyst at Wolfe Research

And if not, what would that mean then to your per share targets if the flat real oil price scenario did not play out? I've got a quick follow-up, please.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Good. Well, I'll say a few words and then Sinead, if you want to pitch into this last question as well. Look, I think there's a few things there, Doug, that you touch on. Firstly, the 5% to 7% that we're assuming is going to be the buybacks that are underpinning the per share growth. If anything at the moment, of course, we're on the upside to that because what's happening is as we see that our shares are even more advantaged in today's environment, we continue to be able to buy back at healthy levels.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

And therefore, I would like us I'd like to see us achieving comfortably that 5% to 7% going forward. To the fundamental of your question to the fundament of your question around are we comfortable leading on the balance sheet? Yes. Sinead said it, I've said it. I mean we have built the balance sheet for the purpose of being able to transact on a daily basis with our big trading outfit, but also to be able to do exactly this at exactly this point in time, which is create shareholder value.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Whether that shareholder value is best created through more buybacks or whether that shareholder value is created through an inorganic or the like, that's what we talk about dynamic capital allocation. Important not to forget the other part, the top line of the free cash flow per share growth, right? That top line still has a lot of running room, as I mentioned earlier, that is not correlated to oil price, right? And that's not even including elements like our integrated gas portfolio and what growth it's going to give us and and and. Just the downstream renewables upside that we have and the self help on both OpEx and CapEx is what will underpin that 10% plus that we continue to see resilient through much lower oil prices as well.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Did you want to add to that before?

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

I think the only thing I would say is just to reinforce, the balance sheet has been positioned. The portfolio has been positioned. That's exactly what we've been doing over the last couple of years. So in terms of the portfolio, even just Singapore divestment that we alluded to or discussed earlier, Doug, that is not about flat price. By taking that out, we've talked about the fact it was loss making.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

That is actually loss making asset that comes out and therefore increases the free cash flow as it comes out. That's totally irrelevant to or totally disregarding price. That will happen anyway. OpEx, CapEx, which while you mentioned. And then in terms of the balance sheet, just to remind you, we're sitting at 7% gearing if I exclude leases.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

So we are very well positioned to be able to lean on that balance sheet. And you've seen us do it before in the quarters where we've needed to, and we will continue to do so.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you, Shneur. Doug, did I hear you saying you had something else?

Doug Leggate
Managing Director - Senior Research Analyst at Wolfe Research

Yes. A very quick follow-up is my hopefully my second question. And it's it's on the 5,000,000,000 to 7,000,000,000 cost savings. I just wondered very quickly, Wael, if you could tell us where you are on that range now that you've had the portfolio changes in Nigeria and Singapore as as Shanae just mentioned. I'm just trying to figure out how much of the 5 to $7,000,000,000 is portfolio related and where you would consider to be on the run rate of that today.

Doug Leggate
Managing Director - Senior Research Analyst at Wolfe Research

I'll leave it there. Thank you so much.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you very much, Doug. Did you want to take that last one, Sinead?

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

Yes, I think I'll keep it simple, Doug, on it. The $3,000,000,000 already delivered by the end of twenty twenty four was in effect, as you know, the first year was much more on the portfolio side. The second year was much more moving towards actually just structural changes. We'll give you a formal update at the end of Q2. But what we see primarily into the second part, which goes towards delivering the five to seven it's much more about the way and the changes through the company.

Sinead Gorman
Sinead Gorman
CFO & Director at Shell

So the way we run the company. But taking out both of those assets has removed several hundreds of millions from OpEx. That will only happen of course as you run through the year. It's not as though it happens immediately because of course, there are both internal changes and people need to move over as do the assets. So good progress and yes, convinced that we will deliver our target.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Thank you very much, Sinead. Thank you for that, Doug. I think that brings us to the end. Thank you all for your questions and for joining this call. In conclusion, we delivered a solid set of results in this first quarter and announced another $3,500,000,000 of share buybacks, which makes this the 14 quarters in a row with announced buybacks of at least $3,000,000,000 Looking ahead, given our track record of delivery and our strong balance sheet, we head into the rest of the year with confidence as we continue to deliver more value with less emissions.

Wael Sawan
Wael Sawan
Chief Executive Office at Shell

Wishing you all a very pleasant weekend. Thank you for joining us and look forward to catching up again soon. Thank you.

Executives
    • Wael Sawan
      Wael Sawan
      Chief Executive Office
    • Sinead Gorman
      Sinead Gorman
      CFO & Director
Analysts
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Key Takeaways

  • In Q1 Shell met its CMD23 financial targets for 2025 almost a year early and has set new financial targets while maintaining its carbon ambitions.
  • Shell has repositioned its portfolio by divesting its Singapore Energy & Chemicals Park and onshore Nigeria assets, acquiring Pavilion Energy and a larger IRSA stake, taking FIDs on Gato Do Mato and Northern Lights CCS Phase 2, and bringing Penguins FPSO and Dover production online.
  • Adjusted earnings of $5.6 billion in Q1 were up 52% on Q4, with $11.9 billion of operating cash flow and a typical $2.7 billion working capital outflow.
  • Segment results were robust in integrated gas and upstream (over 98% availability), strong premium margins in marketing and lubricants, while chemicals and low-carbon options faced tougher conditions ahead of expected improvements post-divestment.
  • Shell announced a $3.5 billion share buyback (14th consecutive quarter ≥$3 billion), remains within its 40–50% of CFFO distribution framework, and retains one of the industry’s strongest balance sheets despite Q1 debt additions.
AI Generated. May Contain Errors.
Earnings Conference Call
Shell Q1 2025
00:00 / 00:00

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