Shell’s capital markets day on Wednesday will spotlight how the group intends to balance its green aims against the huge profits currently being generated by its oil and gas businesses.
Accusations of foot-dragging have grown louder among environmental activists, with more resolutions (defeated) at the recent AGM calling for it to bring its ‘greening’ more visibly in line with the 2015 Paris Accord on climate change.
Now with Wael Sawan, an upstream (oil and gas production) specialist, in charge brokers say the CMD offers an opportunity to address this, if he chooses, or alternatively retreat even further back towards its traditional fossil fuel model
Deutsche Bank says "the different approaches to decarbonisation between the European and US integrated oil sectors, what should oil companies be doing, the very significant valuation disconnect between the two sub-sectors and whether Sawan will take a different path in respect of these matters versus his predecessor" are key things to note.
US bank Jefferies believes Sawan might indeed retrench and confirm a shift to “traditional business areas as it re-evaluates the focus on certain low-carbon areas,” given investor concern over increased operating costs since 2020.
A change in Shell’s shareholder distribution policy is also “widely expected,” Jefferies said, with a current policy of returning 20% to 30% of cash flow likely to be raised.
Barclays also expects an announcement that more cash will be handed back to investors over the long term
“With capex at that oil price set at around US$25bn, this implies US$20bn of free cash flow (FCF) per year.
“As such, we see an annual US$8bn dividend payment in absolute terms as very conservative.
“Instead, we would see a US$10bn dividend (25% higher than today) and a US$5bn per year buyback at US$60 as a more appropriate framework.”
How that would sit with some of its more active climate-focused shareholders remains to be seen, especially those already accusing the firm of moving too slowly.
Nest, the UK-government-backed pensions scheme, supported the external Paris 2015 motions at the last AGM.
Katharine Lindmeier, senior responsible investment manager at Nest, said: "Following its record profits, we had hoped Shell would step up its activities towards meeting its net-zero ambitions.
“Instead, they're kicking the can down the road and increasing the risks on long-term shareholders," she said.
Deutsche Bank has a share price target of 2,907p, against a price today of 2,206p, and a 'buy' rating.