Shell PLC (LSE:SHEL, NYSE:SHEL) shares traded on the front foot and market watchers espoused management’s ‘new’ strategic move which, somewhat simplistically, aims to prioritise shareholder returns.
More specifically, Shell this morning said shareholder distributions would rise to 40-50% of cash flow, from the previous target of 30-40%.
It will focus this outlay on share buybacks, as well as a 4% hike in the annual dividend.
Shell said capital spending would be between $20 billion and $22 billion per year from 2025 to 2028 – which is in line with the past three years – meanwhile, it is also targeting ‘structural’ cost-cutting of $5 billion to $7 billion over the next three years too.
Shell anticipates a 10% improvement in free cash flow per share, through to 2030.
Growth is targeted in Shell’s LNG unit, whilst it plans to maintain ‘liquids’ (i.e. oil and gas condensates) production at 1.4 million barrels per day until the end of the decade.
The group also said it is targeting growth in its ‘mobility, lubricants, and lower carbon’ businesses and exploring chemicals partnerships in the US and Europe.
In London, Shell shares climbed 74.5p or 2.7% to 2,798p.
“Investors are jumping for joy,” said Russ Mould, investment director at AJ Bell.
The market commentator added: “Shell is already streets ahead of BP in putting clean energy projects at the back of the queue and focusing on fossil fuels.
“For energy producers in today’s world, the name of the game is to have the money-making machine on full pelt.
“Shell has its toes dipped in the renewable energy pool but hasn’t jumped face first into all things green. It’s clear that oil and gas remain the primary profit engines.
“Shell’s shares have significantly outperformed BP over the past five years but both have lagged some of their big US peers including Chevron and Exxon Mobil.”
Mould reckons the promise of upsized shareholder returns can drive Shell to further widen the value gap from BP.
With a more measured response, Morningstar director of equity research Allen Good said the latest update marks a continuation of its positive strategy shift from two years ago.
“Lower spending combined with an expansion of distribution guidance to 40-50% of cash flow places Shell ahead of most competitors,” Good commented in a note.
Analysts at UBS, meanwhile, noted that Shell wants to become the 'world's leading integrated gas and LNG business and most customer-focused energy marketer and trader' – whilst adding that analyst consensus saw shareholder returns pitched at 45% and that it expected a “slight positive reaction” to Tuesday’s update.