Shell PLC (LSE:SHEL, NYSE:SHEL)’s new chief financial officer Sinead Gorman has said she expects the oil group to pay incremental taxes “in the near term” in connection with the new UK windfall tax.
In a meeting with banking group RBC, Gorman charges under the scheme, which the UK Chancellor announced will introduce a new levy on oil and gas profits, are likely to hinder forthcoming hydrocarbon projects in the North Sea.
Gorman said the windfall tax makes it less likely that Shell will move forward with the North Sea gas development project ‘Jackdaw’ or reinstate the ‘Cambo’ oil field project it withdrew near the Shetland Islands.
Shell’s CFO had previously earmarked investments of up to £25bn in the UK energy system over the next decade, 75% of which would be spent on low carbon products and services, but that is predicated on a stable fiscal framework.
RBC said Shell’s current share price “poorly reflects” its underlying value and expects the oil company to outperform the market, anticipating buyers will want to pay a higher multiple for gas over oil.
“On our bullish commodity forecast, Shell generates significant amounts of cash, supported by its oil leverage and #1 presence in an extremely strong LNG market,” said RBC.
“We value SHEL based on a 2023E EV/DACF multiple of 6.5x for its core business along with a build-up of its low carbon portfolio, adjusted for debt.
"This leads to a price target of 3,000p, which supports our Outperform rating.”
Growing stakeholder pressure at Shell to move faster on ESG objectives still presents a “significant challenge”, RBC said, warning that most of its free cash flow is driven by hydrocarbons.
Activist investor Third Point recently put forward a case for Shell to be split after building a stake in the company, while shareholders remain divided over whether the oil company should increase its dividend.
RBC was not convinced, predicting Shell can pay its $7.5bn dividend and repurchase $16bn in shares, leaving a further $10bn for de-leveraging if needed, and estimating a 19% dividend as a percentage of normalised free cash flows for 2023.