You can be sure of Shell, as it was put in the old advertising slogan, the veracity of which was borne out today.
Ahead of its capital markets day, a long presentation to investors in New York during which it outlined its strategy for the next five years, the oil major unveiled new financial targets that had investors positively cooing.
Shell plans to raise distributions to shareholders from 30-40% of “cash flow from operations” to between 40-50%, and will continue to prioritise share buybacks, “while maintaining a 4% per annum progressive dividend policy”.
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These are huge commitments and are important not just for Shell but for just about everyone in the UK. The old rule of thumb used to be that Shell accounted for about £1 in every £6 received in dividends by UK pension funds.
While that may not necessarily be the case any more, given the disinvestment from the UK by such funds over the last decade, Shell remains a hugely important contributor to the retirement savings of Britons and, indeed, savers around the world.
As interesting is how Shell intends to fund all this largesse and, in a few words, this can be summed up as doing more with less.
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The company has jacked up its cost-saving target – it was previously looking to reduce costs by between $2-3bn by the end of this year, and this has now been raised to a cumulative $5-7bn by the end of 2028.
Shell is also trimming its capital expenditure (capex). The company, which last year invested $21bn and which at its last capital markets day in June 2023 set out an annual capex target of $22-25bn, said on Tuesday this would fall to $20bn-$22bn between this year and 2028.
All of this is big, dial-shifting stuff. Analysts had not expected Shell’s strategy to change significantly from its last capital markets day and this helps explain why the shares rose by almost 2% this morning to hit their highest level since August last year.
It also confirms Wael Sawan, Shell’s chief executive, to be even more hard-driving than many shareholders had been led to believe. Mr Sawan, who succeeded the long-serving Ben van Beurden at the beginning of 2023, had in his two years in charge already moved rapidly to simplify Shell’s organisation.
He has also moved to reshape Shell’s assets and, in the process, pivot back towards hydrocarbons.
Shell, like its UK-listed rival BP and in contrast to US competitors like Exxon and Chevron, had at the beginning of this decade placed a greater emphasis on investing in clean energy sources.
Those strategies, however, have been punished by investors. Shell, which reported adjusted earnings of $23.72bn for 2024, has a stock market valuation of $216bn.
Chevron, which reported adjusted earnings of $18.26bn for 2024, is valued at $297bn. That is a shocking gap in valuations and one that Mr Sawan is determined to narrow.
It is why there has been constant speculation that Shell may follow the likes of CRH, Flutter Entertainment and Ferguson in deserting the London stock market and relocating to New York.
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Mr Sawan – whose pay was revealed in today’s annual report to have risen by 9% to £8.6m last year – has previously said that, if the valuation gap to Shell’s US rivals had not closed by the end of this year, he will “look at all options” which could include such a relocation.
Those concerns also help explain why Shell is de-emphasising clean energy.
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That does not, though, mean the company is not still mindful of such considerations. The headline on today’s press release, unveiling the new targets, was “Shell accelerates strategy to deliver more value with less emissions”.
The company said today it intends to grow hydrocarbon production by 1% a year by 2030 but pledged it would do so “with increasingly lower carbon intensity”.
With oil production being maintained at 1.4 million barrels per day, that means increased production of liquified natural gas (LNG), which burns more cleanly than crude oil.
That will not be enough to satisfy the company’s critics. But Shell is still committed to having up to 10% of its capital employed in low carbon platforms by 2030.
In the meantime, BP, which is also trying to reduce the valuation gap to its US rivals by re-emphasising hydrocarbon production, will be looking on enviously at today’s response from the markets to Shell’s announcement today.
