Release Date: January 30, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Shell PLC (SHEL, Financial) delivered the second highest cash flow from operations in its history in 2024.
- The company achieved a structural cost reduction of $3.1 billion by the end of 2024, ahead of its 2025 target.
- Shell PLC (SHEL) returned more than $22.5 billion to shareholders in 2024, primarily through buybacks.
- The company abated over 1 million tonnes of CO2 from its operations in 2024, keeping Scope 1 and 2 emissions flat.
- Shell PLC (SHEL) achieved significant progress in its Deepwater business, with new projects adding substantial production volumes.
Negative Points
- Q4 earnings were impacted by non-cash items, including well write-offs and lower trading and optimization.
- The Renewable and Energy Solutions business remained loss-making for most of 2024.
- Shell PLC (SHEL) faced challenges in commercializing its exploration in Namibia, leading to write-offs.
- The chemicals segment experienced a deeper loss in Q4, despite operational improvements.
- The company continues to face a low valuation in the market, with shares trading at a low multiple despite strong performance.
Q & A Highlights
Q: Can you discuss your philosophy on realizing value in shares and your approach to accessing reserves in Canada?
A: Wael Sawan, CEO: Our philosophy focuses on consistent delivery and resilience through the cycle, emphasizing performance, discipline, and simplification. Regarding Canada, we have flexibility in sourcing gas for LNG Canada, either from the market or our own production, depending on price dynamics. (Answered by Wael Sawan, CEO, and Sinead Gorman, CFO)
Q: With recent announcements in Nigeria and Singapore, what is the outlook for disposals in 2025? Also, when might dividend growth receive more attention?
A: Wael Sawan, CEO: We are focused on maximizing value from divestments and strategically reallocating capital. Sinead Gorman, CFO: We maintain consistent distributions, with a preference for buybacks, as they are a great investment in our undervalued assets. (Answered by Wael Sawan, CEO, and Sinead Gorman, CFO)
Q: How do you view the opportunity to enhance value and margins within Shell's existing asset base? Also, can you clarify the impact of hedging on Integrated Gas earnings?
A: Wael Sawan, CEO: We see significant potential in challenging existing paradigms and improving performance. Sinead Gorman, CFO: Noncash impacts from expiring legacy contracts will affect earnings in the coming quarters, but these are noncash items. (Answered by Wael Sawan, CEO, and Sinead Gorman, CFO)
Q: Can you elaborate on your approach to sanctioning major projects, particularly in chemicals, and your exploration plans in Namibia?
A: Wael Sawan, CEO: We focus on free cash flow per share accretion and risk-return balance. In Namibia, we don't see a commercial pathway currently, but we continue to analyze data for future opportunities. (Answered by Wael Sawan, CEO)
Q: What are your thoughts on the refining portfolio's critical mass within Shell, and what should we expect regarding lease obligations from the Pavilion deal?
A: Wael Sawan, CEO: We aim to maintain a refining footprint that supports our trading capabilities. Sinead Gorman, CFO: Lease obligations from Pavilion are expected to be in the $1 billion to $2 billion range. (Answered by Wael Sawan, CEO, and Sinead Gorman, CFO)
Q: How do you approach inorganic spend and CapEx trends, and what drives potential downward pressure on CapEx?
A: Sinead Gorman, CFO: We focus on efficiency and value, with a high bar for acquisitions. CapEx trends are driven by both capital avoidance and efficiency improvements. (Answered by Sinead Gorman, CFO)
Q: What are the most tempting options for deploying more capital, and how do you address concerns about your payout policy?
A: Wael Sawan, CEO: We evaluate opportunities across our portfolio, focusing on returns and risk. Sinead Gorman, CFO: Our payout policy is consistent, with a focus on predictability and resilience. (Answered by Wael Sawan, CEO, and Sinead Gorman, CFO)
Q: Why do you think Shell's shares continue to trade at a low multiple despite strong performance?
A: Wael Sawan, CEO: We focus on delivering consistent results and building investor confidence. The market will eventually recognize our value as we continue to perform. (Answered by Wael Sawan, CEO)
Q: What are the key hurdles for taking a final investment decision on LNG Canada Phase 2?
A: Wael Sawan, CEO: We need to ensure the project is commercially viable, considering capital requirements and strategic advantages like AECO pricing and emissions intensity. (Answered by Wael Sawan, CEO)
Q: What is needed for the Renewable and Energy Solutions business to return to profitability?
A: Sinead Gorman, CFO: We are focusing on a trading-led strategy and high-grading our portfolio, with an emphasis on flexible assets like batteries and combined cycle gas plants. (Answered by Sinead Gorman, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
