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Shell to grow gas and LNG business, ramp up dividend and share buybacks

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Shell said it will ramp up its dividend and share buybacks while keeping oil output steady into 2030, as CEO Wael Sawan moved to regain investor confidence that wavered over its energy transition plan.

In a new financial framework announced on Wednesday as part of an investor conference in New York, Shell said it will increase its overall shareholder distribution to 30 percent to 40 percent of cash flow from operations, from 20 percent to 30 percent previously.

That includes a 15 percent dividend boost and an increase in the rate of its share buyback program from the second quarter to $5 billion, from $4 billion in recent quarters.

The financial framework is the linchpin of Sawan’s effort to boost Shell’s share performance relative to its U.S. peers after many investors shunned the British company even after it posted a record $40 billion profit last year.

Shell has faced concerns that it is shifting away from oil and gas at a time of booming energy prices while returns from its growing renewables and low-carbon businesses remain poor.

Shell shares were up 1.4 percent at 1348 GMT, against a 0.8 percent rise for an index of European oil and gas companies.

“Performance, discipline, and simplification will be our guiding principles,” said Sawan, who took office in January.

“We will invest in the models that work—those with the highest returns that play to our strengths,” he added in a statement.

The dividend increase, to around 33 cents per share, is the sixth since Shell slashed its then-47 cent dividend by nearly two-thirds in April 2020, the first cut since the Second World War, in the wake of the COVID-19 pandemic.

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The higher payout ratio will keep Shell “competitive with peers”, RBC analyst Biraj Borkhataria said in a note.

OIL STEADY

Shell scrapped its previous target to cut oil output by 20 percent by 2030 after largely reaching the goal. It produced around 1.5 million barrels per day of oil in the first quarter of 2023.

It said it will now keep its oil production steady until 2030 and will grow its natural gas business to defend its position as the world’s biggest liquefied natural gas (LNG) player.

Capital spending will be reduced to a $22 billion to $25 billion per year range for 2024 and 2025, from a planned $23 billion to $27 billion in 2023.

Shell plans to spend around $40 billion on oil and gas production and trading between 2023 and 2025, compared with $35 billion on its downstream, renewables, and low-energy solutions businesses.

Shell’s shift follows a similar move by rival BP earlier this year when CEO Bernard Looney rowed back from plans to cut its oil and gas output by 40 percent by 2030.

Sawan, a 48-year-old Canadian-Lebanese national who previously headed Shell’s oil, gas, and renewables divisions, has in recent months scrapped several projects, including offshore wind, hydrogen, and biofuels, due to weak return forecasts.

On Wednesday, it said it was also conducting a strategic review of energy and chemical assets on Bukom and Jurong Island in Singapore.

NET ZERO

Speculation that Sawan was set to slow Shell’s plans to reduce greenhouse gas emissions and shift to renewables has angered climate-focused investors.

Ramping up fossil fuel production would likely lead to a rise in Shell’s absolute greenhouse gas emissions, even though it said it remains committed to slashing emissions to net zero by 2050.

Shell’s climate pledges are based on emissions intensity reductions per unit of energy produced, which means absolute emissions can rise even if the headline intensity metric falls.

It currently has a target to cut its 2030 emissions intensity, including from the combustion of the fuels it sells, by 20 percent.

Scientists say the world needs to cut greenhouse gas emissions by around 43 percent by 2030 from 2019 levels to stand any chance of realizing the 2015 Paris Agreement.

Shell also faces a Dutch court ruling ordering the company to drastically cut emissions. It has appealed against the decision.

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