Shell PLC (LSE:SHEL, NYSE:SHEL)’s plans to boost shareholder returns and cut capex were broadly welcomed by the City but is it doing enough to address climate change?
“Is it net zero or adding zeroes to earnings and cash flow for Shell?,” Russ Mould at AJ Bell asked, noting Shell will keep “pumping oil” at current levels out to 2030 which will underpin a higher dividend.
The oil major announced plans to return between 30-40% of cash flow from operations to shareholders through dividends and buybacks, up from 20-30% previously, a number which investment bank, UBS said was in line with forecasts.
The Swiss bank said the update is “overall positive” as the increase in shareholder returns is close to consensus expectations, capex guidance is lower for 2024-25, which they think was not expected and the company targets cost cutting of US$2-3bn by end 2025.
Berenberg thinks the positive surprise on the lower capex range and the additional cost-saving targets highlight the focus on efficiency and discipline under new CEO Wael Sawan.
"We believe this is a positive message to investors, which points to stronger FCF generation and the potential for higher returns over the coming years," analysts at Berenberg said.
But AJ Bell’s Mould feels the situation is a little “more nuanced.”
He thought the financial moves made by new Shell boss, Wael Sawan “will likely be welcomed by shareholders as it puts Shell more in line with its US peers.”
But he reckons “as the effects of climate change become more obvious, political and regulatory pressures will ramp up.”
“Already Shell is having to fight a Dutch court ruling ordering the company to cut its emissions,” he pointed out.
“In the short-term, maintaining oil production undoubtedly makes financial sense but doing so exposes the company to new risks too,” he cautioned.
Derren Nathan at Hargreaves Lansdown agreed. “The increasing focus on pay-outs to shareholders is going to restrict the amount of capital available for investing in new technologies and that could make the pivot away from oil and gas more challenging.”
“It has made some meaningful nearer term pledges including the elimination of gas flaring at its wells by 2025, but there will be some disappointment that oil production is set to remain at current levels out to at least 2030.”