Shell plc Capital Markets Day 2023

Title: Capital Markets Day 2023: Performance, Discipline, Simplification

Description:

Video footage of the presentation of the application of Integrated Gas and Upstream.

Capital Markets Day Presentation

[Background music begins]

Soothing instrumental music

[Video Footage]

Different red and yellow shapes appear on the screen with a white background. The shape of Shell’s logo ripples in the lower left-hand corner. The ripples continue as text appears on the screen.

[TEXT ONSCREEN]

Capital Markets Day 2023

Performance, Discipline, Simplification

Delivering more value, with less emissions

Shell plc

14th June 2023

#PoweringProgress

[TEXT ONSCREEN]

Operationalising

Powering

Progress

Wael Sawan, Chief Executive Officer

Sinead Gorman, Chief Financial Officer

Wael Sawan

Welcome, everyone, to our Capital Markets Day 2023. It’s great to see so many of you in person, and welcome to those of you joining online as well.

[TEXT ONSCREEN]

Wael Sawan CEO

Wael Sawan

Today, we announce how we will deliver more value with less emissions.

[TEXT ONSCREEN]

Operationalising

Powering

Progress

Wael Sawan, Chief Executive Officer

Sinead Gorman, Chief Financial Officer

Wael Sawan

We do that on the back of a differentiated strategy for a BALANCED energy transition. This is underpinned by a commitment to our world leading Integrated Gas and Upstream businesses and by leveraging adjacencies and strengths in our differentiated downstream businesses to develop profitable, low-carbon opportunities that enable the energy transition. We target a 10% per annum free cash flow per share growth through to 2025, with a ruthless focus on performance, discipline, and simplification, enabled by a structural cost reduction of $2-3 billion by end 2025 and a lowering of our capital spend to $22-25 billion per annum over 2024 and 2025. This allows us to enhance our shareholder distributions to the 30-40% of CFFO level. Our confidence in a sustainable increase to our free cash flow also leads us today to announce a dividend per share increase of 15% at Q2, subject to board approval, and a minimum buyback programme of $5 billion for the second half of the year, as we preferentially aim to allocate capital to share buybacks. In short, today, we will outline our plan to become THE investment case through the Energy Transition, but before we dive into all that, let me start off by introducing my management team. First, Sinead. Known, to many of you, Sinead has been with Shell for 24 years.

[GRAPHIC]

Today’s Speakers

Experienced leadership team

Wael Sawan

She has excelled in roles across the company from Upstream to Projects & Technology, and from Integrated Gas to Trading. Next is Zoë Yujnovich. Zoë had a very successful career outside of Shell, and since joining, she has continued her excellent track record of delivery across Upstream and Integrated Gas, while bringing an external perspective to our Executive Committee. Finally, we have Huibert Vigeveno, who has had a distinguished career at Shell in numerous roles across the world. Huibert is a specialist in Downstream, and I don’t know anyone with more knowledge of customers. Together, we have a lot of ground to cover, touching on what will stay the same and what will change, but let me start with what isn’t changing: our strategy.

[GRAPHIC]

Performing with purpose

Wael Sawan

Powering Progress sets out our strategy to create value, first and foremost for our shareholders, as well as for our customers, and wider society. We do this by focusing on generating sustained shareholder value, reducing carbon emissions, powering lives, and respecting nature. Our purpose remains the same and continues to be as relevant today as it was in 2021: to provide more and cleaner energy solutions. We will profitably transition Shell to become a net-zero emissions energy business by 2050. Powering Progress has withstood significant external volatility and discontinuities and shown it continues to be the right strategy. The last three years have not only been a huge challenge for the world, they have significantly challenged the energy system. As a consequence of the Russian invasion of Ukraine, governments grappled with the importance of energy security - a mere 1% reduction in global energy supply had significant consequences for trade flows and commodity price volatility. Despite these challenges, the company performed well, and its response only strengthened our convictions and our fundamental beliefs, and we have not been standing still, as you will have seen in our latest Energy Transition Progress Report. We will provide an update on our energy transition strategy in early 2024. Let’s now take a look at the energy system.

[GRAPHIC]

Evolving global demand requires a balanced multi-energy transition

Wael Sawan

How the energy system will look in 5, 10, or 20 years from now is impossible to say, but in the midst of this uncertainty, there will be developments we can be fairly sure of. The global energy mix is changing. However, demand for energy services will continue to grow and will have to be met by a combination of different types of energy. There is no one solution. It is critical that the world avoids dismantling the current energy system faster than we are able to build the clean energy system of the future. Oil and gas WILL continue to play a crucial role in the energy system for a long time to come, with demand reducing only gradually over time. Continued investment in oil and gas is critical to ensure a balanced energy transition, because of the growing energy demand I just mentioned, as well as natural decline rates and severe underinvestment in recent years. We also believe that liquefied natural gas, or LNG, will play an even bigger role in the energy system of the future than it plays today. The reasons are clear. LNG can be easily transported to places where it is needed most, and what’s more, on average, natural gas emits about 50% less carbon emissions than coal when used to produce electricity, making it the natural lower-carbon substitute in the near-term. The pace of the transition from fossil fuels to low-carbon energy depends on many things, including government policy and regulations, the affordability of energy, development of new technologies, and importantly, changing customer demand. Low-carbon energy is expected to represent a growing proportion of worldwide energy demand in the future in the form of both molecules and electrons. I believe Shell has the customer access and the relationships that will allow us to thrive in this context, which brings me to the next slide.

[GRAPHIC]

Prioritise hard-to-abate sectors to capitalise on growth opportunities

Wael Sawan

There are only a few energy companies that can successfully build new business models in more complex and hard-to-abate sectors, such as Transport and Industry. We are amongst the leading global players today in both sectors, satisfying more than 3% of energy demand. These sectors matter. They currently make up around 70% of total energy demand, representing more than 55% of emissions, and the combined addressable market is expected to conservatively double to around $10-12 trillion by 2050. They are both sectors where we have incumbency, system understanding, and control points, and will therefore be our focus areas. We will address our customers’ needs with a focus on molecules, given our natural strengths in that area. We will selectively invest in renewable generation and mostly supplement with electrons from others. We recognise our distinct advantages are less in generation and much more in Trading and Optimisation, in B2B customer intimacy, and eventually, in low-carbon molecules, which are enabled by green electrons. In short, we want to play to our strengths, where we can uniquely add value.

[GRAPHIC]

The investment case through the energy transition

Wael Sawan

While the destination of a net-zero emissions energy system remains clear, this will not be a linear journey, as different places transition at different paces. Let’s be honest, no one knows the exact pace at which this will evolve in every country, and therefore, we will be pragmatic in our approach. We will also be dynamic in our response. We are absolutely committed to our world-class Upstream and Integrated Gas businesses, which will increasingly have lower emissions, and through which, we will continue to provide secure energy. We will profitably enable the energy transition by leaning into low-carbon opportunities, not everywhere, but where we have adjacencies, a track record, and where we see the right environment to invest. We will focus, as the market evolves, on low-carbon molecules, serving the transport and industry sectors, and we will do this with a relentless focus on performance, discipline, and simplification across the organisation. This will allow us to reward our shareholders, today, and well into the future. With the portfolio we have and the direction we have set out, I firmly believe that Shell, in addition to being recognised as a great company, will be ‘THE investment case through the energy transition’. So, how do we accomplish that?

[GRAPHIC]

Our guiding principles

I’ve previously talked about operationalising Powering Progress. That means focusing on delivery during the here and now. Having the right strategy is critical but is not enough to ensure that we deliver to our full potential. We have to take our strategy and translate it into everyday actions, and those actions need to be guided by certain principles if we are to be successful. Those principles are Performance, Discipline, and Simplification. With these principles in mind, we embark on our first sprint. We use the concept of a sprint through to 2025 to establish a track record under this management team, with a focus on delivering the targets we have promised over this period, while investing to take advantage of opportunities for our future. Getting the most out of the great assets we have means delivering on a consistent basis, quarter after quarter, year after year. Take Deep Water. In the first quarter, we saw the highest controllable availability in a decade at our Gulf of Mexico assets, and the business has been performing close to its potential for a prolonged period. This is what performance looks like: delivering world-class results day in and day out, but results are not just absolute. It is our commitment to ensure that we make the most out of our portfolio on a relative basis versus our peers, and this is what I want to drive across the company. We are embedding accountability for delivery through the business lines and deeper into the organisation. To deliver excellent performance, you need a company that is focused on creating value, and that diligently delivers what it promises. That takes discipline, discipline in how we invest and allocate capital, discipline in how we spend, and discipline in how we execute. Every dollar of our shareholders’ money needs to be stewarded with care. You will hear more about that from Sinead shortly. We have not always been known for our speed and simplicity. That is changing. You will have seen that we began the year by streamlining our Executive Committee to enable faster & more nimble decision-making. Shortly after, we took the decision not to proceed with the biofuels unit and base oils plant investments at our Singapore Energy and Chemicals park. Last week, we announced the divestment of the European Shell Energy Retail business, and today, we are announcing not only the plan to market our interest in Shell Pakistan, but also, the strategic review of the Singapore Energy and Chemicals Park. This is more than just disciplined capital allocation - this is about decisively simplifying and high-grading our portfolio, and it’s not just the organisation and portfolio that we are simplifying. We are also moving from over 40 business and financial commitments to four very focused, group-level financial targets that you will see later in the slide pack. So, we are making choices, questioning projects and assets, with one goal in mind: every single part of our business needs to help us deliver more shareholder value while lowering emissions.

[GRAPHIC]

Well positioned through our world-leading portfolio

Having just covered the ‘how’, let’s now discuss the ‘what’. We are blessed with an incredibly well-positioned portfolio, which we must get the most out of and develop further. You will hear more about the specifics of each of the businesses from Zoë and Huibert shortly. However, let me give you a sense of what we will be focusing on. We have a leading integrated gas business, which we intend to grow while addressing the key challenges that we have experienced in our operations. We see considerable potential to create further value here, with new production coming onstream and having signed a number of attractive third-party contracts for LNG. Earlier, I outlined our conviction that oil and gas will be required for the foreseeable future, and it is our advantaged Upstream portfolio, along with Integrated Gas, that will contribute to enabling us to deliver the secure energy that the world needs today and for a long time to come. We will continue to do so, with a focus on value over volume and an expectation that liquids production will remain stable through to 2030, having met our high-grading target in 2022. On to our differentiated Downstream Renewables & Energy Solutions business, which is our primary customer-facing vehicle. First, we will focus on value over volume in our Marketing business by reducing our mobility footprint and getting the most out of the portfolio. We will also high-grade our Chemicals & Products business, improve delivery from our Energy and Chemicals parks, while repurposing them to provide the cleaner molecules that our customers demand. We will achieve all of this by leveraging our world-class trading and optimisation capabilities, which have served us well, and which we expect will deliver some 2-4% of ROACE uplift, depending on market conditions.

[Graphic]

Delivering more value, with less emissions

Simply put, all of this gives us the confidence to announce enhanced distributions of 30-40% of CFFO through the cycle, which will be underpinned by a greater than 10% per annum free cash flow per share growth through to 2025, and we will invest $10-15 billion between 2023 and 2025 in low-carbon energy solutions, positioning us to capture the significant value opportunities we expect will emerge through the energy transition in our focus markets. In short, we will deliver more value with less emissions. With that, it’s time for me to hand over to Sinead to talk us through how we are going to achieve this.

[VIDEO FOOTAGE]

Wael leaves stage, Sinead enters

Sinead Gorman

Thank you, Wael. We take our responsibility as custodians of our shareholders’ capital extremely seriously. At the heart of everything that we do will be a ruthless approach to capital allocation and a singular focus on creating long-term value. We will make every dollar count, be unemotional with our spend,

[TEXT ONSCREEN]

Sinead Gorman CFO

and deliver performance, not promises, and so, this is not just about distributions, but also, about how we

[GRAPHIC]

Enhancing distributions through disciplined delivery

drive discipline across the entire organisation, enabling us to reduce both opex and capex. Despite inflationary pressures and a volatile external context, today, we are lowering our cash capex range from $23-27 billion to $22-25 billion for both 2024 and 2025. I will say more on this shortly, but first, let me outline our plans for cost. We aim to achieve $2-3 billion of structural cost reductions by the end of 2025. This is about streamlining the way we work, simplifying our processes, and being laser focused. We will seek to achieve structural savings across all parts of Shell. This will require focusing the portfolio by exiting high-cost and lower-return businesses and simplifying the remaining core. To give you a sense of how focusing the company can contribute, the exit from Shell Energy Retail alone will remove some $300 million per annum of operating expenses, both directly and in terms of overheads and management’s time, and in terms of our approach to businesses that remain, during my time in Upstream, over a period of 3 years, we reduced cost by some 10% in our lean assets within our conventional oil and gas portfolio. We achieved this through simplifying the operating model - removing layers, increasing accountabilities and taking a risk-based approach to all activities. We intend to replicate this across the company and expect significant savings. Focusing the company isn’t just about the portfolio. It extends to the sectors we serve, as Wael said earlier. We will prioritise hard-to-abate sectors, namely transport and industry, to help grow and decarbonise our customer base. This will lead to opportunities to further simplify and take cost out. We will identify and go after opportunities quarter after quarter, year after year. All of this will enable us to enhance shareholder distributions. We remain confident in the performance of the business, which is why today we are announcing our plan to increase the dividend per share by an expected 15% at Q2, subject to board approval. We continue to believe that we are undervalued, and as a result, we will preferentially allocate capital to share buybacks. That is why we are announcing buybacks for the second half of this year of a minimum of $5 billion, to be completed by the Q4 results announcement, subject to Board approval. In short, being more disciplined in cost and capital generates more cash to support a growing dividend and continuing with buybacks. Now, let me cover capex.

[GRAPHIC]

Balanced, returns-focused investments driving cash flow growth

In the recent past, our spend has been at the higher end of our peer group, and we believe that constraining capital will force us to make tougher choices, ensuring that only the most attractive projects receive funding. This will reinforce focus on delivery across the company during the first sprint, through to end-2025. As stated earlier, we will be lowering our cash capex range to $22-25 billion for both 2024 and 2025. We expect to spend some $13 billion per annum in Integrated Gas and Upstream going forward, with both continuing to contribute significantly to cash flows for the foreseeable future, allowing us to sustain our liquids production and grow LNG sales. Having made a number of organic and inorganic investments in Marketing, such as Nature Energy in Denmark, and of course, Landmark in the U.S., we will now reduce capital expenditure in the short term and focus on getting the most out of the investments we have already made. In Chemicals & Products we will largely focus on spend that sustains our current business, with an expectation that capital employed will be flat in 2030 vs. today, and finally, in Renewables and Energy Solutions, we will take a measured approach. We will selectively take development risk in renewable generation projects, diluting as they mature, and retaining access to the green electrons. In hydrogen and CCS, we will invest to decarbonise our own assets first and help to decarbonise our customers over time. Our annual cash capex, after power dilutions, will be some $21-23 billion for both 2024 and 2025. Capital and carbon allocation will be managed centrally. We will allocate carbon in a similar way to how we allocate capital -pragmatic in our approach and dynamic in our response. We expect to grow free cash flow on an absolute basis by a rate of more than 6% through to 2030. This is compared to a normalised 2022, which was an exceptional year, and is based on a $65 per barrel real-term oil price. Now, let’s cover how we are going to allocate the cash that we deliver beyond capex.

[GRAPHIC]

Resilient distributions, underpinned by attractive growth

The cash-generating ability of the business and the actions we are taking allows us to both continue to pay our dividend and allocate capital to buybacks in line with our new 30-40% of CFFO guidance in both a $50 and a $65 per barrel world. The additional cash flows in a $65 world would go to a mix of both buybacks and deleveraging. We continue to believe share repurchases are a good use of our cash, and hence, you will see us allocate capital towards buybacks, even at $50 per barrel. Continued share count reduction and growing free cash flow means that we expect an annual free cash flow per share growth rate of greater than 10% through 2025. The dividend remains our number one financial priority, and our confidence in our ability to sustain the increase that we have announced today, together with a progressive approach, is well supported, given that our dividend break-even stands at some $40 per barrel.

[GRAPHIC]

A pragmatic approach to capital allocation

Everything that I have covered so far feeds into our financial framework. It is clear that we believe in pragmatism and balance - this means allocating capital based on value. We place importance on the strength of our balance sheet, and our ambition to have AA credit metrics through the cycle remains. We will continue to look for opportunities to reduce net debt while staying true to our preference for share buybacks. The improvements that we are making will continue to be allocated to shareholders. We will reduce opex, reduce capex, instil more discipline, and increase our distributions. Simply put: more for our money, meaning more for our shareholders. Thank you, now, back to Wael.

[GRAPHIC]

On track with planned operational emissions reductions

[VIDEO FOOTAGE]

Sinead leaves the stage, Wael enters

Wael Sawan

Thank you, Sinead. As we delivered the oil and gas the world needs today, we reduced carbon emissions from our operations by 30% by the end of 2022 as compared with 2016 on a net basis.

[TEXT ONSCREEN]

Wael Sawan, CEO

This is more than halfway towards our target of a 50% reduction by 2030. We achieved this, while globally, energy-related emissions increased by around 4% over the same period.

[GRAPHIC]

On track with planned operational emissions reductions

We continue to bring down emissions at pace and have made excellent progress, and we are going further. As an industry, it is imperative that we do our utmost to reduce, and ultimately, eliminate methane emissions. At Shell, we will aim to achieve near-zero methane emissions by 2030. In the shorter term, we aim to eliminate routine flaring from our Upstream operations by 2025, challenging ourselves to move faster than the World Bank’s Zero Routine Flaring 2030 initiative. As we transition this company, we will approach both capital and carbon allocation with the same discipline and value focus. What this means in terms of carbon is that we will preferentially allocate our budget to businesses such as Integrated Gas, in which we have a strategic advantage, and that lower the overall carbon footprint of the energy system. Furthermore, we will invest in carbon abatement projects in these businesses to minimise their impact. As a consequence, this will require us to achieve reductions disproportionately from parts of the company that we are less advantaged in, such as Chemicals & Products. The world needs companies like Shell to reduce carbon in the energy system, while exercising pragmatism. For example, we will work together with our customers to displace high-carbon energy sources, such as coal, with cleaner alternatives, such as gas.

[GRAPHIC]

Supporting customer decarbonisation to achieve net-zero

Beyond working to cut carbon emissions from our own operations, we are committed to supporting our customers in their decarbonisation journey. For this to happen, we need a fundamental change in demand, along with supply, from fossil fuels to low-carbon energy solutions. This will need to be supported by regulation, as well as the development of new technologies. We, at Shell, will play our part. We plan to invest some $10 to 15 billion across 2023 to 2025, to support the development of low-carbon energy solutions, including biofuels, hydrogen, electric vehicle charging, and carbon capture and storage. Take Holland Hydrogen 1 - we will produce hydrogen from renewable power to cut emissions from our own operations and help decarbonise our customers. In short, we will develop enabling infrastructure in areas where we see adjacencies with our integrated businesses and pathways to attractive returns in the medium term, while we also seed longer-term opportunities. We are leveraging our strengths in hard-to-abate sectors such as transport and industry, supplying products and services that we believe will be commercially viable and truly move the needle. These sectors and others will need bold government policies and regulations that stimulate the demand for low-carbon energy, which in turn allow businesses like ours to continue to invest. We will continue to transparently advocate in favour of these enabling policies. We will also embrace innovation in support of the transition. At our technology hubs, we take ideas from concept to customer, enabling them to transition faster. In 2022, 40% of our total R&D spend went to proving and scaling low-carbon products and services. That nicely leads me to two critical enablers I believe we have to deliver more value with less emissions.

[GRAPHIC]

Leveraging technical capabilities and an empowered workforce

Technology and people are the backbone of our success today and will be critical for our success in the future. Our technology hubs are providing innovations, leveraging capabilities such as high-performance cloud computing and digital solutions in our oil and gas business, doubling the speed of seismic data processing, and artificial intelligence has allowed us to increase LNG production by 1-2% with no extra capital spend. In other words, adding significant and tangible value today, and we are also developing the technologies for our lower-carbon future, such as our Can-Solve technology to capture CO2, which won 8 consecutive bids we competed for in 2022, but the heart of Shell is in our 93,000-strong people. Our employee survey results last year reflected some of the highest scores we have seen in a decade, confirming our people are as engaged as ever, and that we have a great workplace culture, and we work hard on improving this further. For example, through our drive to become one of the most diverse and inclusive companies in the world, today, 30% of our senior leaders are women. This management team’s opportunity is to fully mobilise the tremendous energy amongst our people to deliver the targets and ambitions that we have set for ourselves.

[GRAPHIC]

The investment case through the energy transition

So, let me summarise what I hope you will take away today. We will provide the secure energy that the world needs by investing around $40 billion in our Integrated Gas and Upstream businesses, while investing $10-15 billion in low-carbon energy solutions between 2023 and 2025, positioning us for the transition. Performance, Discipline, and Simplification will be our guiding principles. The additional free cash flow that we will deliver will accrue to our shareholders, resulting in distributions of 30-40% of CFFO. We continue to believe our shares represent significant value, and so, we will preferentially allocate capital to buybacks. For this reason, in addition to increasing the dividend per share by 15%, we are also announcing buybacks for the second half of the year of a minimum of $5 billion. All of this means we will deliver a free cash flow per share growth of greater than 10% through to 2025. In short, we aim to be THE investment case through the transition. With that, I thank you for your attendance both, in person and online, and now, Sinead and I will take your questions. Sinead?

[VIDEO FOOTAGE]

Wael leaves the stage, Sinead, Tjerk, and Wael enter

Tjerk Huysinga

Sure!

Sinead Gorman

This one?

Tjerk Huysinga

All right, we're going to go via tables, and remember, we will later have a session with Zoe and with Huibert. So, I think focus with your questions on what you've heard so far. It’s is always nice to try with you guys, but I'm still trying. So, let's see where we go. Go here first with Oswald. Then go around, get the mic.

Oswald

Sorry, one question or two?

Tjerk Huysinga

Two. You're allowed two. Everyone is allowed to, but short ones.

Oswald

Short ones. Thank you very much, Oswald Clint at Bernstein. The first question, really on the first sprint and trying to get, you know, all of this performance discipline simplified through the 93,000 people. I mean, you know, BP, for example, just to name your peer, has given everyone equity in BP for the first time to have skin in the game and actually deliver the numbers. So, I'd love to get a bit of sense of the methods to distil this philosophy well down through the organisation, just to make sure all of these numbers to 2025 are actually delivered, and then the second question, it's great to see the CapEx coming down as, Sinead, you mentioned, despite inflation, you can be able to do that. So, you know, rig rates, you're talking about upstream longevity, cash flow longevity, rig rates are getting back up to $500,000 a day. So, how is this going to be possible through this period? Thank you.

Wael Sawan

All right, great. Thanks, Oswald. I'll take the first one, and then, Sinead, if you want to take the second one as well.

[VIDEO FOOTAGE]

Wael walks to the mic

Wael Sawan

Oswald, indeed, that concept of the first sprint is all about a cultural sprint, right? It's what we're trying to do is to be able to embed a culture through the organisation that is going to be able to withstand the test of time. We have a great set of values as a company, but what we haven't done consistently is deliver our promises, and so, how do we do that day in and day out? Firstly, I touched on how we're going to drive accountability through the business lines deeper into the organisation. That's everything from how we work manuals of authority to expectations at various leadership levels, how we're going to be very clear on the outcomes that we are seeking from the businesses, and how the functions will support those business outcomes day in and day out. It's going to be a step up in the performance cadences that we have. For example, Sinead and I will meet with our business directors on a very regular basis now, once every couple of weeks, where we can get into the detail and expedite the decision making and really get the interventions that are needed earlier, and we will look to cascade down that entire sort of philosophy deeper into the organisation. So, a lot more of that, how we set up that ecosystem will play through over the coming months. Sinead?

Sinead Gorman

Thanks, Oswald, and indeed, as you say, we're moving from a $23-27 billion range to a $22-25 billion. So, there's a couple of things in there. Look at where are we taking it from as well. So, what you see us doing is, in effect, moving in two ways, slightly or partly from our chemicals and products business, which is much more capital intensive. So, we're taking some away from there, where we would have been looking to sustain that business, as we talked about earlier, and also, some from our marketing business as well. We still have a lot of growth in our marketing business, but why we're taking a couple of billion away from there is, simply put, because this year in, 2023, it is a huge year for, actually, investment externally. So, we talked about nature and energy earlier, which is some $2 billion, and of course, Volta as well. So, we've already done a lot of the investments, actually, green investments this year around it. Where the money is going to is actually a little bit of an uplift in terms of our upstream and integrated gas business. Now, you rightly say, well, rigs are going up. What's happening there? This is a part of the business where actually we've contracted longer term. We've already got advantaged positions in our rigs, positioning like, and you'll hear Zoe talk about that later as well, including Orion Namibia. So, we're very confident and have great conviction that we can deliver within this, despite the inflation, so very comfortable.

Wael Sawan

Thanks, Sinead.

Tjerk Huysinga

Okay, we’ll go for the next question. Reminder to introduce yourself and then 1 or 2 questions. Lucas? We got the phone, the microphone, yeah? Okay, and Lucas is here.

Lucas

Thanks. Thanks very much, Tjerk, and in line with your request, Lucas Herrmann at BNP Paribas X, I think too, directed at you, probably, Sinead, I mean, the first is trying to understand balance sheet debt, what AA actually means. I'm not a credit analyst, but if you could give me some indication of what level of debt do you feel that means you'd be happy living with or where you can go down to, that would be helpful. You tend to disadvantage yourself, I think, when you present debt, because you include operating leases, which the majority, well, all of your peers don't, and the second question was just to better understand the CapEx numbers that you put forward and the net-off from divestment, well, from selling down part of the power business. So, when I think about… how do I think about CapEx in terms of inclusion of organic/inorganic divestment, and you've made no comment on proceeds from divestment, outside power, if you could expand on that. Sorry, it's a bit long winded.

Sinead Gorman

No, no, not at all. Good questions, thanks, Lucas. So, in terms of the AA, so, we haven't really talked about debt, as you say, particularly here, and that's largely because of, you know, we've taken tens of billions down on our debt profile in terms of the last couple of years. So, if you remember, we're sitting at some $44 billion, you know, GRN, in terms of debt. What I've said before, and I stand behind now as well, is that I'm quite comfortable with the level of debt we're at, at the moment. We will continue to bring it down from time to time, but I will preferentially allocate capital in terms of value, which is why you see the preferential allocation to the buyback, specifically. So, you'll see the debt move. You may see it go up as well. If there's volatility, and I have room to make more money, you'll see it come back up as well. The AA is really a… it gives you the concept of I'm comfortable in terms of holding my debt around this level to be able to sustain the company in all scenarios, and that's really what it's about more than anything else. I hear your comment in terms of operating leases, etcetera. We do. We present it very clean. I won't comment on our peers there, don't have any hybrids, etcetera, in there as well, but it is our way of presenting it. In terms of CapEx, you draw out the fact that, particularly on power, that it's net of dilutions,

[TEXT ONSCREEN]

SINEAD Gorman CFO

but just really simply put, we've talked before about the fact that, and Wael’s mentioned it, that we want to use electrons to enable our business going forward, but what we also know is that we want to be able to make sure that that is within certain boundaries. So, what we are doing here is simply saying is that we will spend money, but it will be dependent on our ability to also dilute. So, what you see is the dilution is coming down of $2 billion in there, $1-2. We'll see how that plays out. We don't talk about other divestments, because we will divest our business as we move forward. This is specifically around about the discipline that we will have around power in particular, and that's why we signal it, or bring it out as well. In terms of your final point with the third bit of your question, which was organic versus inorganic, very shortly includes inorganic in there as well. You see us do the bolt-ons that we've done. So, you see us over the sprint period do nature, energy, Volta, etcetera. That is absorbed within our numbers.

Wael Sawan

With no large inorganics planned for the first sprint.

Sinead Gorman

Exactly.

Tjerk Huysinga

Thank you. Carry on. Danielle?

Sam

Hi, Sam Margolin from Wolfe Research. Two questions on low carbon. First one is sort of a follow-up on organic versus inorganic. You have a pipeline of projects that you could do for low carbon molecules, but margins are very high in that category today, and there's some uncertainty about where they'll be in the future. So, there's sort of an impulse to acquire operating assets. So, the question would just be how do you square sort of the outlook for low carbon molecule saturation and supply and demand versus a near-term impulse to maybe beef up your asset base today, and then secondly, you had… a peer of yours did an event here last year and actually increased their CapEx in power, and the reason was that they just asserted that power prices would be structurally higher forever, and so, I'm wondering where you stand on that topic and whether that informs any of your capital allocation. Thank you.

Wael Sawan

Yeah. Let me take the first one, if you want to take the second one there, Sinead. I think on the low carbon molecular base, I mean, our view is that low carbon fuels, in particular biofuels and bio gas, will indeed continue to have a prominent role over the coming years, enabled particularly by regulatory support. Without that, it becomes more tenuous. We are already one of the largest players in that space. Last year, for example, we sold 14 times what we actually produced. We have a very strong trading network, and later, what you'll hear is some of the numbers, where it's a business that is already value accretive. We generated $300 million just last year from that business, or over the last couple of years, and so, what you will see is this is a business we will want to continue to grow, and I'm going to leave Huibert to talk a bit more to the business, but the critical thing I would leave you with is we already have many of the assets that we want organically. So, having [INDISCERNIBLE], which is really going after first and second generation and more and more second-generation biofuels, of course, we've just completed nature energy. That gives us a world-class platform, the leading platform in Europe for biogas, and we're investing in a large facility in Rotterdam there as well. So, we have the big hubs that we need, and now, it's about leveraging those hubs to unlock value from our customer base and our trading organisation.

Sinead Gorman

Yeah, and thanks, Sam. On the second one, so, rather than commenting on what our peers have done, what I would say is the underlying thinking is always around value over volume. So, we allocate our capital with discipline, but it'll be under the lens of value. So, if you were to see low carbon fuels ramp up in an amazing way, you would see us change our allocation according to that. So, we are quite pragmatic in our approach, dynamic in our response, and you'll see that play out throughout. So, in terms of our power side of things, I think it's very dangerous for anyone to comment on power prices across the globe. As we all know, it's very, very regional, and you'll hear hybrid talk later on, actually, very much around where we will play in power. So, rather than taking an approach across the globe, you'll see us focus into certain areas, whether that's the U.S., Australia and I'll leave it to him to talk that through a bit more, but that's really where the thinking is. If things change, could we ramp up? Absolutely, we could, but it will depend on the return and the value we can generate from that.

Tjerk Huysinga

Good. Let's keep going. Yeah. You're there.

Paul Cheng

Thank you. Paul Cheng, Scotiabank. Two questions, please. First one, I think is going back into your course, restructuring, $2-3 billion, wondering if you can elaborate a bit more in terms of whether any divestment of business is included in that number, and if you can put it maybe in different categories, what percentage will be coming from personnel related and what percentage from other structural benefit, and the second one I think is for Wael. You're talking about faster decision and capital discipline. So, how did your FID projects, criteria and process have changed subsequently? I mean, is there any major change, or you're just saying, putting, asking people that to, hey, taking more conservative assumption? I mean, how exactly that we should feel confident that, yes, indeed, it's going to lead to a better and faster result. Thank you.

Wael Sawan

Thanks, Paul. Do you want to take the first question?

Sinead Gorman

Sure. I would start. So, we gave $2-3 billion, Paul, as well, just in terms of trying to give a view for what you would expect to see happen, and that's structural, you're correct. I give the example in the speech, actually, about the fact that that will include some divestments in there. So, we talked about Searle or Shell Energy Retail in Europe as well. So, that will include those as well. The reason I'm not more specific on the splits between them is because, really, simply put, whether it's capital or whether it's OpEx, we'll allocate it according to what makes sense at the time. So, actually, a lot of the businesses that hybrid runs, actually in terms of OpEx, we can get, you know, a good use of that OpEx as well. So, you'll see that play out. So, over the next three years, we will take out $2-3 billion. Some of it will be through divestments, some of it will be through actually just changing the way we operate and where we put that OpEx at the same time, but I don't have a good split for you in the sense, because actually, I don't want to have a good split for it. I want to be able to move the money to where I see the value at that point in time.

Wael Sawan

Thanks, Sinead, and Paul, the question around decision making, look, this is not just about FIDs. This is much more holistic. So, when we talk about performance discipline, simplification, there's decision making across it all. In performance, I mentioned earlier, to the question that Oswald asked, the focus on getting to a much faster cadence and really being clear on what are all the levers to be able to achieve outcomes and how we think about downside mitigation and really being clear, how do we make sure we deliver what we promise. When it comes to discipline, just choosing, because if you leave 20 different projects open, you're paying a lot of money to keep all those options open. We're just going to be more disciplined in what are the highest likelihood projects that are going to move forward, and those are decisions that will need to be made by the business directors as they manage the pool of OpEx and capital that they have, and then there's simplification. We have multiple sectors that we are serving today. That's why we talk about focusing on transport and industry, so that we can be very decisive around where are we going to actually lean forward, rather than try to dilute our efforts. Similarly, when we talk about low carbon molecular focus, we know that's where our strength is. There is no company in the world, in our view, that can win in the molecular space going forward. We're winning in that space in today's conventional energy, and in future, we have the opportunities to do the same with green molecules, and so, we want to focus on the areas where we know we can differentiate ourselves, and we know we can win.

Tjerk Huysinga

Okay, here we go there. Christian.

Christian

Hi, good morning and congratulations on this presentation. Two questions, please. Christian Malley from JP Morgan. First of all, what happens after 2025? You talk about a timeframe around CapEx and savings, which is admirable, given you have a line of sight to 2025, but the reason I ask that question is it's clearly there's a huge range of outcomes beyond that. You know, the IA today talking about demand peaking this decade, etcetera, etcetera. So, how do you think about your CapEx and your investments beyond 2025? Should we expect an increase, and within that, and this is still the first question, your oil price outlook? I mean, 65 is a safe place to be. At some point, you have to make a decision, arguably, whether you think it's going to be higher or lower in the context of those investments. So, I just want to understand the relationship between oil price CapEx beyond 2025, and why haven't you provided that outlook in this CMD, and then the second question pertains to your cash return outlook and your dividend. We're here in New York. You're presenting, and when I think about where you sit versus your peer group on cash and cash return, how do you justify the 15% increase in dividend in the context of your absolute cash return to shareholders relative to the U.S. peers? If you're trying to generate a higher value on the stock, surely, the first thing to do is be comparable in absolute cash return. So, where is that quantum, and how do you think about raising it in the future? Thank you.

Wael Sawan

Super. Thanks, Christian. I'll take the first one, and I'll ask Sinead if you’ll take the second one. What happens after 2025? What I want to emphasise is we have provided guidance of 6% per annum free cash flow growth all the way to 2030. So, we see a very robust pathway to be able to achieve that, and that's greater than 6%. At the same time, the whole concept of the sprint is multifold. One I talked about earlier, which is to be able to demonstrate the credentials and the delivery of this management team, but as importantly, I would be lying to you if I pretended to know where various markets that we're looking at are going to go in the 2026 2027, 2028 period. We're seeing right now, for example, in something like power, take power as an example. Offshore wind has been significantly beaten up over the last few months, and solar is doing a bit better. We're seeing green shoots in biofuels. We're getting excited about EV charging. I want to be able to make sure we have the flexibility to allocate shareholder capital in a responsible way. So, what happens after 2025? We're not at the point in time right now where we want to provide capital guidance. What we want to give you a sense of is the growth trajectory of our free cash flow, that 6%, and hopefully, once we've earned that right to be able to continue to steward your capital in the most effective way as shareholders, we will be able to then, in 2024-2025, give you the next phase of the sprint as we look at where we want to go through to 2030. So, I think most important right now is the performance discipline, simplification, embed that culture, and then we look forward. Sinead?

Sinead Gorman

Yeah, indeed, and thanks, Wael. Actually, it's a great base to build on for the response. I mean, Christian, what we are looking at, of course, is about the sprint. It's about providing the information for now. So, what are we looking at, 30 to 40%? We've increased it from 20 to 30 to 30 to 40. What you know and see from our actions is that we've always been very pragmatic about it. We look, where are we in the quarter at the time. We look at what is the environment we're in. So, in the past, you've seen us move up and down on that, and you will see exactly the same in this case. So, it's 30-40% through the cycle. That's what we're giving you. In terms of that, in terms of the 15% of dividend, you know where I'm going to respond on this probably, you know, in the sense of my view is, and I think as a management team, our view is that our stock is undervalued. Therefore, we're going very clearly towards allocating capital to where we can create value for shareholders very, very clearly, which is around the buybacks. So, that's how it plays out in its entirety on this. Thank you.

Tjerk Huysinga

Okay. We go to Michaela here, and we'll go back there.

Michaela

Michaela Della Vigna from Goldman Sachs. Thank you very much for the presentation and congratulations on resisting the industry trend towards higher CapEx. I wanted to ask two questions. The first one on the cost cutting of $2-3 billion per annum by 2025. For us to track it, will it be as simple as simply looking at the OpEx in 2025, there will be $2-3 billion lower, or does it get a bit more complex, because the cost cutting is before inflation and other changes in the portfolio? And then my second question is for the long-term DPS increase outlook. Should we just think it in a simple way as saying the free cash flow per share will grow over 10%? So, that could be a good indication of where we could see DPS growing in the coming years through underlying growth in the business and retirement of share accounts.

Wael Sawan

Thanks, Michaela. You want to take those two?

Sinead Gorman

Yes, certainly, indeed, Michaela. Indeed, good spot. You see, we talk about very much the $2-3 billion on structural. So, what we want to do is make sure that we improve the underlying health of the business. So, hence the structural coming out. Yes, inflation will hit us. Yes, there will be different things off that. So, we will have to come back to you to show how we map that out, but we will take $2-3 billion out from the underlying business that's there and continue to focus on that. Your second point was around in terms of the free cash flow per share. Indeed, we're looking at that as the right metric, because, as you say, underlying business improving. Therefore, the free cash flow there, and you can back into us indeed as to where we see. So, you will see us continue to allocate preferentially towards buybacks, which is why we think that is the right metric that we had through that. We'll continue to do that. We've only given guidance, as you've seen, in terms of the buybacks, for the next two quarters, and that's, in effect, because we're very, very conscious that a lot of what we're talking about will be delivered in ‘24 and ‘25, and we want to give you some certainty now on what you can see. So, you get that in the shorter term.

Wael Sawan

And just I think part of the question was also the DPS, is it going to sort of trend towards the 10%? I don't want Michaela to walk away with a 10% growth in DPS going forward. Do you want to touch on that?

Sinead Gorman

No, indeed. So, you see our dividend per share? Apologies, no, I definitely want to clarify on that. Indeed, we have the 4% progressive dividend will continue. That will be definitely maintained, and in terms of the dividend increase, it's the 15% now as well. So, we will use that all to increase in terms of the free cash flow per share. You'll see that play out in the 10% that we've given and through to 2025.

Wael Sawan

Thanks, Sinead. Great.

Tjerk Huysinga

Good there. Yeah, go to the right. Yeah. Sorry, Ian.

Roger Reed

Good morning, Roger Reed, Wells Fargo. Thanks for the presentation. One specific question on the CapEx for the renewables side, the $10-15 billion, given that we're kind of looking at a two-year period, what makes up the range? Like, that's a pretty wide area of, I don't know, I'd call it uncertainty or wiggle room, relatively speaking. The other question I had was trying to kind of put all this together and thinking about what you're delivering as the message, most importantly internally, is it to get the ROACE up a couple percentage points, as was highlighted? Is it to get OpEx down? Is it the 30-40% of cash flow from operations? There’s what you're telling us, but what's the message internally, and how are people thinking about being measured?

Wael Sawan

Great, Roger. Do you want to take the first one, and I'll take the second one?

Sinead Gorman

Yeah, sure. Indeed. So, there's actually a breakdown in the slides that you'll find, actually, on I think it's slide 43, which is quite a useful one in terms of the CapEx to look at, but in terms of the $10-15 not our intent to give wriggle room at all. It's just purely about the fact that what you will naturally see us do is to ensure that we allocate to value. So, if you remember, in terms of the low carbon aspects this year, I mean, I think it's fair to say that nature energy is already $2 billion of that already in there, and you see us do Volta and you see us continue, and you'll see us, actually, in the back of the pack, say $4-5 billion is on renewables as well. So, no intent to have wriggle room. It's just really to give you a bit of a feel for the fact that we all know that, when we enter into something, the timing of it can be plus or minus a month. That's it.

Wael Sawan

Thanks, and maybe just to correct, Roger, you talked about it being two years. It's three years. So, the $10-15 billion is over a three-year period, which includes 2023, and that's how we framed it. On what are we using internally. So, every single one of our businesses is at a different point in its evolution. So, if I look at an upstream business, there is a lot of sunk capital, and we are being very careful in how we deploy the new capital, and therefore, ROACE will spend more time looking backwards at the capital we deployed rather than just making sure that we are delivering the right returns today. Whereas a marketing business, we are looking at ROACE much more closely, and so, we're looking business by business to make sure that we are pointing to the right outcomes to be able to unlock the full potential of that individual business, and that's, again, part of this performance cadence I talked about earlier, getting really clear. What are we trying to achieve in the next 2-3 years? If I use the example of chemicals and products, some of the announcements we have made today around strategic review of Singapore, high grading of our European footprint is very much looking at the returns of those businesses. Can we see a pathway towards double-digit returns? Very difficult. So, we've had to take action. Whereas other businesses in the portfolio, in chemicals and products, we can see that pathway, and so, we're literally looking at it at a granular level, business by business.

Tjerk Huysinga

All right, Lydia. Now, it will be you, one less mic.

Lydia

Thanks. I can speak loudly as well, but it's Lydia Rainforth from Barclays, and Wael and Sinead, you've presented some actually quite compelling numbers around growth and the free cash flow per share and what you want to achieve, and yet, also, you talked about performance over promises as well. So, I guess what I'm getting to is are these ambitious numbers that you've set, or are they ones that you think you can easily achieve, and in terms of driving the organisation, and then linked to that, what's actually the most… what's the biggest challenge for you at this point?

Wael Sawan

Yeah, let me… I'll address those. So, I think are these ambitious? You know, so, we have staked the credibility of this management team on making sure that we deliver these targets. So, I think they are not soft targets, by any stretch of the imagination. We have very clear pathways to be able to achieve it, and most importantly, we are focusing on what are the levers, in case things start to go against us for whatever reason. So, this is not a hopeful set of targets. It's targets grounded in reality and what we believe are achievable outcomes. I'm really excited by the fact we can mobilise an organisation around these ultimately four big financial business targets, because I do think it's challenging, when you have 30-40 different targets, to be able to really align an organisation around outcomes, and I think that will help us go forward, Lydia. What's the biggest challenge? I think the biggest challenge is this is not a journey of sell a few assets, invest capital here or there. This is a fundamental culture journey. We have so much to be proud of as an organisation, and we are now at a point in time, at an inflection point, as we are taking that next step in our evolution. Taking 93,000 people through a journey can be both exciting and daunting. In particular, the number of countries we cover, in particular given the businesses we cover. So, to me, that is, you know, what I mentioned earlier. This management team’s opportunity, I think, is to unlock that latent potential that sits in that 93,000-strong staff base, which I think if we can unlock it, I think the trajectory of the company is an incredibly exciting one.

Tjerk Huysinga

Okay, cool. Chris. Yep. Here's Chris. Yeah.

Chris

Thank you. Chris Coupland from Bank of America. Two hopefully quick ones, Sinead, on Slide 15, can you be a bit more specific? You're showing a 50 nominal and a 70 nominal case, and I'm sorry, my ruler doesn't work very well on my screen, your $5 billion buyback comment for the second half, how does that fit into that buyback range you're showing on that slide, please? And then one for you, Wael. Again, forgive me if I've missed it, but I'm flipping through those slides, and can you maybe give us a reason why a number of the previous volumetric targets have disappeared, including, I think, a de-emphasis of scope three targets, but I'm also keen on hearing your view on what happened to hydrogen CCS volumetric targets, terawatt hours, etc. So, your philosophy behind it.

Wael Sawan

Thanks, Chris. Thank you. You want to take the first one, Sinead?

Sinead Gorman

Sure. There's always a risk, isn't there? Somebody's going to get a ruler out on me and do exactly this. No, Chris, you're right. So, indeed, it's… so, that slide, I hope, is actually what we're trying to do is to help people understand our thinking behind it and give us the scenarios for where we work them through. Those are illustrative. It's not any specific year that I put in there. It is to give you some form of scenario more than anything else. What you see on that is the intent, of course, is that from a dividend point of view, you see the break-even down to 40, and you also, see, of course, the buybacks even at 50. So, what you see on those two is on the $50, the left-hand side, you see buybacks still occurring at some four in there. That's the number that we've put in for there, and you see on the other side in terms of the 65, you see some eight in there. So, that gives you a bit of a feel for what it is. Now, of course, subject to board approval, and we will move between where we see value, but that gives you a feel specifically to that.

Wael Sawan

And Chris, your second question around the philosophy. I've grown up in the upstream business, and I think the curse of what we have done in the earlier part of the century was focused so much on production, it drove the wrong outcomes. I bring that same philosophy into Shell at the moment, which is I can have CCS targets of, you know, X million tonnes by 2030, and we can have hydrogen targets left, right and centre, but that speaks nothing to the value that comes as a result of that, and what I have seen, also in my time looking after integrated gas and renewables, is the organisation wants to do the right thing to deliver the targets we are promising, even if, sometimes, the value pools are simply not there. So, by giving the organisation the space to be able to say, no, this is a value-based decision. If you can actually demonstrate value, we will allocate capital. Simplifying it, making it much clearer that we are a value driven company, that is what we're trying to do. Does that mean that we don't talk any volumes? No. When we talk about production target, for example, it's not a target. It's 1.4 million barrels is what we will discuss later, is where we expect to be by 2030, plus or minus, right, and if we end up at 1.3 or 1.5, so be it, but it has to be value driven, and scope three, you'll just hear more about it in the energy transition strategy, more because of the fact that that can… that requires, I think, a real sort of dialog on its own, and what we have said is we continue to be committed to the targets we already have, and we will update, if anything, by March of 2024.

 

[SLIDE]

Disclaimer

[Text Onscreen]

#CapitalMarketsDay

SHELL INTERNATIONAL 2023

Title: Capital Markets Day 2023: Performance, Discipline, Simplification

Description:

Video footage of the presentation of the application of Integrated Gas and Upstream.

Capital Markets Day Presentation

[Background music begins]

Soothing instrumental music

[Video Footage]

Different red and yellow shapes appear on the screen with a white background. The shape of Shell’s logo ripples in the lower left-hand corner. The ripples continue as text appears on the screen.

[Text Onscreen]

Capital Markets Day 2023

Performance, Discipline, Simplification

Delivering more value, with less emissions

Shell plc

14^th June 2023

#PoweringProgress

[Video Footage]

A city skyline background appears on the screen with a yellow outline of the Shell logo on the right side of the screen. Text appears on the left side of the screen.

[Text Onscreen]

Integrated Gas and Upstream

Zoë Yujnovich

Capital Markets Day 2023 | June 14

[Video Footage]

Zoë stands in the centre of the shot at a podium labelled NYSE. The background consists of different coloured geometric shapes on a solid light-blue background.

Zoë Yujnovich

Wael spoke earlier about our focus on performance, discipline, and simplification.

[Text Onscreen]

Zoë Yujnovich Integrated Gas and Upstream Director

Zoë Yujnovich

And I’m going to talk about how we are applying this to the Integrated Gas and Upstream businesses that are key to our success.

[Graphic displayed]

Light gray background. In foreground is a heading that reads – Leading Integrated Gas and Advantaged Upstream in black font. Underneath this heading are three different images - a gas tanker, an oil rig, and a bar chart.

Zoë Yujnovich

Specifically, Integrated Gas and Upstream feature four outstanding businesses: Conventional Oil and Gas, Gas to Liquids, Liquefied Natural Gas, or LNG, and Deep Water. Today, I’m going to focus my comments on the distinctive world-class capabilities of our LNG and Deep Water business. We are the world leader in LNG… supplying our customers with secure, reliable energy today and in the future. LNG is deeply integrated with our trading and optimisation activities which enable us to capture additional value from the scale and breadth of our global LNG portfolio. And we’re growing that portfolio even more…. with around 11 million tons per year of new LNG capacity under construction, which will come on stream in the second half of the decade. This is almost a third of our current LNG portfolio. In our Upstream business, Deep Water has a proven track record of sustained cash flows from high-margin, lower-carbon barrels. And thanks to a strong portfolio of projects, which includes our resilient Conventional and Oil and Gas business, we have a break-even price of $30 per barrel on projects coming on stream between 2023 and 2025. Continued investments in oil and gas will be needed to make sure that the energy transition happens in a balanced way with a secure supply of affordable and increasingly lower-carbon energy. We will contribute to this balanced transition by focusing our investments on the most profitable and carbon-competitive projects… spending about $13 billion a year of capex in our Integrated Gas and Upstream business through the decade. Total production will grow from 2025 given our confidence in our portfolio and our capabilities. Now let’s see in more detail how these businesses will continue to extend their market leadership.

[Graphic displayed]

Graphic changes to a line chart and two different bar charts. The heading reads – Value over volume driving significant and resilient cash delivery.

Zoë Yujnovich

Our focus on value over volume, performance, and discipline has driven sector-leading unit cash flows… with our Integrated Gas and Upstream portfolios generating more cash flow per barrel than any other integrated oil and gas company over the past four years. LNG will play a key role in a balanced energy transition, as it produces fewer greenhouse gas emissions than coal when used to generate electricity and fewer emissions than petrol or diesel when used for transport fuel. We see continued strong demand for LNG in the medium term and expect to grow our LNG term sales by 20-30% by 2030. When we launched our Powering Progress strategy, we said that we expected a gradual decline in our oil production of around 1-2% a year to the end of 2030. We have achieved that reduction earlier than expected through targeted divestments, and now expect to maintain our liquids production at approximately 1.4 million barrels of oil equivalent a day by the end of the decade. This takes into account the decline we’ll see from portfolio simplification in areas like onshore Nigeria, where we intend to reduce our involvement in onshore oil production while remaining in deep-water and gas positions. As our oil production then stabilises over the next years, we will keep our focus on value over volume.

As Sinead mentioned earlier, we’ll achieve operating cost reductions through further portfolio simplification and through testing new business models and ways of working. For example, our Upstream position in the Netherlands has reduced base operating expenses, excluding utilities, by 30% since 2019 through the implementation of a lean operating model. We will continue to high-grade the portfolio, focusing our spending and expertise on opportunities with higher margins and lower carbon emissions.

[Graphic Displayed]

There are three images of two bar charts and a map. The heading reads - Longevity underpinned by strong resource base in high-margin Deepwater and LNG.

Zoë Yujnovich

As I just highlighted, our portfolio positions us well to generate significant cash flows into the next decade. Integrated Gas and Upstream combined have commercial resources with a life of more than 20 years. And if you look at total resources alone, we are right in the middle of our peer group, the sweet spot, you could argue, for a company pursuing a balanced energy transition. But what really differentiates our portfolio is the high-margin activities, with the largest percentage of our commercial resources in LNG and Deep Water, both areas where we are world-leading. From the beginning of 2023 through 2025, we will have brought online projects with a total peak production of more than 500,000 barrels of oil equivalent a day. This includes two new platforms in the Gulf of Mexico, three floating production storage and offloading vessels in Brazil, as well as Pierce and Penguins oil and gas fields in the UK. We are also developing many smaller projects, as shown in the chart on the bottom right. We will invest in areas where we have proven ourselves to have deep experience with the geology. Our hurdle rates for Integrated Gas will adjust to an 11% IRR, for Upstream, to a 15% IRR, and only where we see a risk profile that is consistent with that return. Although we believe that hydrocarbons will be needed for a long time to come, we are also acutely aware that these barrels will need to be increasingly lower carbon. With this in mind, I hope it’s clear that hurdle rates alone will not solely dictate our capital allocation, but they do remain an important factor. As stated before, Shell doesn’t anticipate new frontier exploration entries after 2025. We will focus our exploration efforts on extending the life of heartland positions and on the Atlantic Margin, where we have unique expertise and deep understanding of the geological features of this basin. Before I move on to LNG, let me briefly comment on our opportunity in Namibia, which is evolving quickly. 

Since 2022, we have drilled three exploration wells and one appraisal well in Namibia. We also recently conducted a successful flow test, the first ever test of this kind in the country. We are in the process of reviewing the encouraging results and are focused on determining commercial potential, moving efficiently and at pace.

[Graphic Displayed]

Three different images appear- a line chart, a bar chart with lines overlaying, and a bar chart. The headline reads - Integrated Gas value chain generates significant value.

Zoë Yujnovich- In LNG, our integrated model is at the heart of value creation, as we are the leading global marketer, with a business spanning upstream, liquefaction, shipping, marketing, optimising for our customers, and trading. To give you an idea of what I mean by value creation, we estimate that LNG marketing, trading, and optimisation contributes a 2 to 4% increase in return on average capital employed in Integrated Gas. And despite some quarterly volatility and partly because of our decision to position our portfolio towards the northern hemisphere winter, earnings over a 12-month period are stable and largely follow oil and gas price benchmarks.

The marketing side of our LNG business uses our supply portfolio to serve our extensive network of customers and generates stable margins from the spread between our portfolio of supply and sales contracts, in some cases, by purchasing gas against prices linked to Henry Hub and selling gas against prices linked to oil. With our global market presence, unrivalled access to customers and knowledge, our trading and optimisation organisation can create further upside and take positions that add value, especially during times of high price volatility. 

[Graphic Displayed]

Graphic shows two different bar charts with a spreadsheet of statistics listed below each one. The heading reads – Integrated Gas volumes will grow through end of decade.

Zoë Yujnovich--We invest in LNG capacity, where we have a competitive advantage.

For example, we are adding 11 million tons per year of LNG capacity through new projects in Qatar, along with an additional processing unit in Nigeria, and of course our project in Canada, where the plant is now more than 80% complete and on track for first cargo by the middle of the decade. Critically, this world-leading project is designed to achieve a lower carbon intensity than any other LNG plant in operation in the world today. Beyond our own production, we also add scale and flexibility to our LNG portfolio by buying LNG from others. Most of our new contracted volumes will come from North America, for example, from LNG projects, like Venture Global Plaquemines and Mexico Pacific. We can also use our scale and balance sheet to enter contracts in the early stages of projects and to obtain attractive terms.

[Graphic Displayed]

Two images are side by side. One on the left is a map with eight locations specified, and the one on the right is a line chart. The heading reads - Progressing on LNG feed gas supply and operational excellence.

Zoë Yujnovich

Increasing utilisation of existing LNG plants is the most important way we can increase short-term value as these are our lowest-cost additional LNG volumes available.

That’s why I’ve made it my top priority to address the supply and operational issues that have caused the under-utilisation of our LNG assets. And it’s why, over the next three years, we’ll invest around $2 billion every year in projects that increase the supply of natural gas to our existing LNG facilities.

I’m pleased to say that in the first half of 2023, we’ve already made progress.

In Trinidad and Tobago, for example, we have increased gas production through delivery of the Colibri and Barracuda projects. And we have further gas supply options, including the Manatee gas project.

In Nigeria, we have increased our capacity to produce gas in our Upstream business, but we are facing severe challenges in our work to increase the gas supply due to continued vandalism of the pipelines. Our teams continue to collaborate with the Nigerian government and other stakeholders with the aim of addressing crude theft from our facilities, and the resulting impacts on gas production. These efforts have already led to improved security. Another area where we are focusing on performance is Prelude, our floating LNG facility in Australia, which is a complex design with many first-time applications in a remote location. Our operational record at Prelude has been challenging, but we are seeing steady improvement and recently exceeded 100 days of continuous operation for the first time. We are also seeing faster recovery from operational trips with record production in March and April and continued strong performance in May.

We have a multi-year plan to improve Prelude’s operational performance, including a planned turnaround later in the year which will help reduce its vulnerabilities. We have demonstrated before, for example, when we commissioned our Pearl gas to liquids plant in Qatar, that we can use the breadth of Shell’s organisational capabilities to move from a challenged start to a high-performing world-class asset.

[Graphic displayed]

Three images appear with a map of the Gulf of Mexico that has three locations specified, a display of the replication of three projects, and an image of a ship in Brazil. The heading reads - Deepwater: Competitive delivery through advantaged capabilities.

Zoë Yujnovich

Turning our attention to another high-margin business where we have unique capabilities, let’s look at Deep Water.

This is a business with higher barriers to entry. And not only have we been first movers in deep water from the start, but we continue to reach even higher levels of performance through our near-field opportunities, our technical expertise, our strong partnerships, and our model of simplification and replication as we develop deep-water fields in the next decade.

We are the largest operator in the Gulf of Mexico and we are making the most of our portfolio, creating the most value by focusing on opportunities close to our existing assets which are in the best corridors of the Gulf of Mexico. This allows us to access the critical infrastructure to develop shorter-cycle high-value, tieback opportunities. We are top quartile in well-optimisation, according to industry benchmarks, which enables us to protect and grow our existing production, bringing us some of the lowest-cost barrels available. We also continue to innovate and add new volumes, projects like Vito, our newest platform in the Gulf of Mexico, with a peak production of 100,000 barrels of oil equivalent per day. Improvements to the original design of Vito reduced costs by more than 70% from the original concept and will reduce carbon emissions by about 80% over the lifetime of the facility. Vito will serve as a blueprint for other projects such as Whale.

In Brazil, we are the largest foreign producer. We are adding three additional Mero floating production storage and offloading vessels in the Santos Basin. And we are adding barrels where we have opportunities to leverage our world-class partnership and technical understanding for greater value, for example, by increasing our stake in the Atapu field.

[Graphic displayed]

The header reads Leading Integrated Gas and Advantaged Upstream.

Zoë Yujnovich

Let me summarise before going to your questions.

We believe oil and gas will play a significant role as the world transitions to a low-carbon energy system. Our leading Integrated Gas and advantaged Upstream businesses will continue to drive cash generation for Shell into the next decade.

Our performance is underpinned by our value-over-volume approach and a strong resource base. We will be disciplined with our capital… allocating around $13 billion in annual cash capex towards higher-margin and carbon-competitive opportunities. I’m really excited about creating even more value from this simplified structure of a combined Integrated Gas and Upstream business.

So, now over to your questions.

[VIDEO FOOTAGE]

Tjerk Huysinga walks on stage from the right side. He now stands on stage with Zoë.

Tjerk Huysinga

Got about 15 minutes of questions, so let’s go here.

[TEXT ONSCREEN]

Tjerk Huysinga EVP Investor Relations

James Hubbard

Thank you. James Hubbard from Deutsche Bank. Thanks so much, Zoe. Two quick questions. Tying back to some of the earlier questions, actually, the stable liquids target now from upstream of out to 2030. The prior target to me seemed to imply a liquids decline of at least 2% per annum and maybe closer to 4% per annum. And for scale of portfolio that you have, going from that to zero is actually a huge leap. If I recall over the last many years, how hard it has been for large oil companies to maintain production flat even without resorting to organic or investments into things, which they subsequently disposed of because they destroyed value. So I'm just wondering, is this all about more aggressive efforts on underlying decline mitigation, or should we expect a wave of new projects that are going to make their way faster through the hopper or go through the hopper, which maybe two years ago they wouldn't have done? And then secondly, Vito, I read this on the plane out here as well, the 70% decline in costs you achieved. I mean, is there any chance of any more detail on that? Because it just sounds staggering for an industry which has been installing deep water platforms of various designs in the area for well over 15 years. How did that 70% come about? Because it kind of begs the question, was the initial design gold-plated in some way? Thank you.

Zoë Yujnovich

Yeah. Thank you. Great questions. I think the first thing I'd say around our stable liquids production is, directionally, we're in that 1,400 million barrels, but we have flex to be slightly up, slightly down. The primary driver behind our forecast is really about making sure we continue with the value-over-volume thesis and, of course, making sure it's underpinned by generating the stable cash generation. You saw on the chart, we have about over 500,000 barrels being brought on stream in the next two years. And those projects, you see the breakdown, it's about 40% from deep water, just under 40% from our conventional oil and gas business. They have various decline rates. But on average, at Shell, we have about a 3% decline rate that offsets for the natural decline with things like WRFM activities and other waterflood and opportunities for optimisation. So when you think through the contingent resources that we've got and the commercial opportunities, I'm actually really confident about our ability to underpin that. I think the second question around Vito, in some respects it picks up on the thread that I think Wael referenced earlier around the days where, I think, upstream was much more driven by spending capital and protecting for any scenarios of subsurface facilities. So the approach that has been taken with the support of our projects and technology team within Shell is to really go through minimum scoping, really understanding “what's the minimum kit that's required,” recognising that the subsurface has a range of uncertain outcomes. And so we no longer manage our topside facilities on the basis of a P 50. It's actually more on the basis of a P 90 reservoir outcome that allows you to be more fit for purpose around the engineering aspects.

Tjerk Huysinga

Okay, cool. People we have not had yet. There, Peter.

Peter Lowe

Hi. Thanks. It's Peter Lowe from Redburn. Just a couple of clarifications. Can you give a bit more clarity on when you expect LNG Canada to start up? You mentioned the middle of the decade, but it doesn't look like it's included in 2025 in the volume chart on Slide 26. And then kind of sticking on that slide. Again, it looks like LNG offtake volumes are falling slightly to 2025. What's driving that? Is that contracts expiring or underlying declines in production at some assets? Thanks.

Zoë Yujnovich:

Yeah. Thank you. So I think we're stepping back and reminding ourselves that we look at the integrated value that we get out of our LNG portfolio. Of course, that's a combination of our equity production as well as the third-party contracts. What you see in our forecast is indeed the combination of the two, recognising that our world-class trading and optimisation provides the opportunity to glue that integrated system together. With respect to equity, that is around LNG Canada, which we have announced to be mid-part of the decade, but it's also around the volumes that we're bringing in through Qatar and the other work that we're doing around feed gas supply and operational improvements to underpin the equity production that we have. I think as it comes to the third-party contracts, we have continued to find access to valuable third-party contracts through the course of time. We have many of those contracts, which I think have been relatively de-risked. Calcasieu, for example, is already, of course, in operation and the Plaquemines is actually taken FID. So we've got confidence in our capabilities to continue to access value accretive third-party contracts over the course of time. And of course, that 2 to 4% royalty uplift is something that we have seen constant and fairly ratable over the course of time, which, of course, recently has seen quite different market contexts.

Tjerk Huysinga

All right. We will keep going. Okay. Here.

Frederico

Frederico from UBS. The first question is on the production outlook for liquids to 2030 to 1.4 and Namibia. Is this something that you've included within the target or we should think about maybe as potentially providing some upside to the 1.4? And then secondly, you mentioned, projects being carbon competitive. I'm wondering if you can elaborate on how you look at carbon intensity as you look to select prioritised projects.

Zoë Yujnovich

Yeah, thank you. Namibia is not included in the volumes that we have forecasted out to 2030. If we can further accelerate the de-risking of Namibia, it's possible that some volumes could come in at the very back end of that time horizon. But for now we've assumed that's largely outside the window of 2030. But we are, like I mentioned, I think what we're most pleased about in Namibia is that we have so far out of the three exploration wells and the one appraisal well that we have drilled, we have had top-quartile well-performance in every single one of our activities in Namibia. And so I think we are confident that we can de-risk that at pace. I think Sinead mentioned earlier that we've got access to the deep sea bolster, which is the rig enabling us to actually do well-performance across the seasons, so we can actually continue de-risking activities without taking seasonal breaks. I think in terms of carbon competitive, it's very much as I mentioned before. When we look at capital allocation, we are looking at not only the returns, but we also look at things like the break-even prices to determine resilience. And we also look at the carbon competitiveness of the project itself. And so that's fundamentally an integrated part of the way that we make our capital decisions.

Tjerk Huysinga

Okay, cool. You know, we've had a few people already, but then we're going to go in return. Okay. Martin, we haven't had you. You were a bit late at the table, though, so you're lucky. Okay, go ahead.

Martin Roberts

Yeah. Hi. Hello. It's Martin Roberts at Morgan Stanley. I want to ask you two questions about LNG. And the first one is a bit of a market question because the LNG market has sort of turned surprisingly soft after the events of last year. And there is a bit of a window where the market could be tight, but from sort of 2025 onwards, there's quite a lot of supply coming on. So if we're looking at two years, which are not so tight and then a lot of supply, it sort of could lead to a bit of a stretch of a bit of softness. But I was wondering how you sort of see that play out. And the second question, perhaps, if there are any sort of green shoots and Asian demand, that sort of thing, called the “gas switching,” if you have any view on that, that would be much appreciated. And connected to that, I was wondering if you have any comments about the likelihood of Tanzania Energy ever going ahead or not.

Zoë Yujnovich

Is that the third question? Tanzania LNG, okay. So the first one, I think, when you have a look at our performance in integrated gas, you see that we have been able to deliver consistent earnings over the course of various macro conditions. And of course, that's the essence of our leading strategy. You see that the equity supply that we have typically sort of maps to the absolute price context. The marketing and optimisation activities that we have are more around the spread between our supply contracts and our sales contracts. And then of course, our trading activities enable us to make money when there's volatility. You rarely have, as the markets evolve, all three of those collapsing in one hit. And hence, we do see the 2 to 4% uplift from our trading activities being relatively consistent over the course of time. Additionally, you can also see, despite the sort of seasonal volatility, where we do see various things shift, and because of the way we've got both the length and our prices focusing towards the northern hemisphere winter, on average, our annual performance is still quite consistent and pretty ratable. So I think for us, it's hard to predict how the market's going to evolve. But the strength of the underlying strategy that we have in our business model is that it's quite resilient, whether it be to absolute price to the spread or indeed to the volatility. I think to the question around Asian demand, and I think you may have heard Cedric and Steve. They were here giving their LNG outlook presentation a few months ago. We're still really quite positive about the LNG market and the opportunities that are likely to prevail. So I think still very confident in the LNG outlook from our position. And Tanzania LNG, I think we have been doing a lot of work, and pleasing to see some strong engagement by the government in the sort of commercial terms that could create the foundation of a decision in Tanzania. But we're not yet at the position where we're of course making any firm decisions, but one to watch as we seek to de-risk.

Tjerk Huysinga

I think a very short question. Paul, you have a short question.

Paul

Thank you. Could you just clarify again on LNG Canada, when do you plan to start it up and what are the risks? Thank you.

Zoë Yujnovich

Yes. We are 80% complete. We've de-risked a significant part. We're not giving any more clarity than the mid part of the decade. So we're feeling confident about mid part of the decade that that will come online.

Disclaimer appears onscreen

[Text Onscreen]

#CapitalMarketsDay

© SHELL INTERNATIONAL 2023

Title: Capital Markets Day 2023: Performance, Discipline, Simplification

Description:

Video footage of the presentation of the application of Integrated Gas and Upstream.

Capital Markets Day Presentation

[Background music begins]

Soothing instrumental music

[Video Footage]

Different red and yellow shapes appear on the screen with a white background. The shape of Shell’s logo ripples in the lower left-hand corner. The ripples continue as text appears on the screen.

[Text displays]

Capital Markets Day 2023

Performance, Discipline, Simplification

Delivering more value, with less emissions

Shell plc

14^th June 2023

#PoweringProgress

[Text displays]

Downstream and

Renewables &

Energy Solutions

Huibert Vigeveno

Capital Markets Day 2023 | June 14

Huibert Vigeveno

You’ve just heard about our leading Upstream and Integrated Gas businesses and now I want to tell you about Downstream, Renewables & Energy Solutions businesses where customers are at the heart of everything we do. Bringing these businesses together emphasises our ability to help our customers decarbonise through the energy transition.

[Text displays]

Huibert Vigeveno Downstream and Renewables & Energy Solutions Tjerk Huysinga

Huibert Vigeveno

What our customers need will change over time. Therefore, our focus will change over time.

[Graphic displays]

Profitably decarbonising our customers

Huibert Vigeveno

Today, we have leading businesses like Marketing, which we will get the most value out of. For tomorrow, we are building businesses such as Low Carbon Fuels that will allow us to capture attractive growth leveraging our competitive advantages.

And to be ready for the future, we are seeding options in parts of the energy system where we have the capabilities to win. For example, in hydrogen, Wael spoke earlier about our focus on molecules. To enable the molecules businesses of today, tomorrow, and the future, we will need access to green electrons, both to decarbonise our own assets and to help decarbonise our customers especially those in industry and transport.

Our optimisation capabilities will be key to us successfully delivering this strategy. And we are starting from a place of strength. Our extensive customer reach means we are well-placed to deliver more value, with less emissions. Let me talk you through how we will enhance the value of our business, as we help our customers decarbonise.

[Graphic displays]

Today: Repurposing Energy & Chemical Parks to help decarbonise customers

Huibert Vigeveno

Our Chemicals and Products business include both chemicals and refining, in addition to trading and optimisation of crude and oil products. Over a number of years we have high-graded our chemicals and refining portfolio, resulting in a more focused set of assets. Since 2020, Shell has divested five refineries, closed one, and converted one into a terminal. We are now repurposing our portfolio to offer more low-carbon solutions to our customers. We will focus on our assets in North America and China which are well placed to enable this. This means we are initiating a strategic review of both our Bukom and Jurong Island assets in Singapore. This is mainly driven by the nature of the products they make and the demand that they serve.

We will also high-grade and right-size our Energy and Chemicals Parks in Europe. This means retiring certain units and continuing with some divestments we have already announced. The remaining parks in our portfolio will support our low-carbon opportunities… with investments like our HEFA biofuels plant, which will enable us to provide cleaner fuels to our customers. In the short term, our financial delivery will be supported by the ramp-up of Shell Polymers Monaca in Pennsylvania.

Given our investments to date and our focus on low-carbon solutions, our capital employed will remain stable over the decade. This means investing around $3 billion a year to maintain and manage our assets, with some capital for brownfield development only where we see attractive returns. Through simplifying and exercising discipline, we expect to generate Adjusted Earnings in the range of

$3 to $4 billion by 2025.

Now moving to our Marketing businesses.

[Graphic displays]

Today: Delivering improved Marketing performance

Huibert Vigeveno

To start with, I’d like to acknowledge that our performance in recent years was below expectations. Today we are lowering our expected 2025 earnings to $4 to 5 billion. We recognise that we will need to earn back the right to grow, and therefore we are reducing our capex to some $3 billion a year from $6 billion this year.

We have a world-leading Marketing business, and it’s our obligation to get the most out of it. This will be our focus. And we will do this by applying value over volume across our footprint, identifying and driving cost efficiencies, and selectively growing where we see truly compelling opportunities.

We have the most valuable brand in the industry, valued at around $50 billion. We’re the number one global lubricants supplier... and have been for 16 years running. And we serve around 32 million customers daily at our mobility sites.

But how can we turn these enablers into better financial performance? Going forward, there will be three things we will do to improve. First, we will high-grade our network. We will retire our ambition for 55,000 Shell-branded Mobility stations by 2025...and drive value over volume, disposing of sites and taking opportunities when they arise, allowing us to focus on attractive markets only. As an example, we plan to exit our shareholding in Shell Pakistan Ltd subject to regulatory approvals. Shell Pakistan has a large retail and lubricants business, and we are seeing strong interest from international buyers.

Second, we will pursue paced growth in key markets where we can generate high returns, like here in the US… and increase direct ownership of our retail stations.

For instance, with the purchase of Landmark, including the Timewise brand in Texas, we have more control over convenience retail, and that is where we want to keep growing. Since 2018, our convenience retail business has achieved an average growth rate of 5% through increased basket sizes, sales of ready-to-cook meals and greater margins from coffee, up 57% since 2018.

And third, we will grow our premium margin, and expand offerings such as V-Power and premium lubricant products. Gross margin contribution of premium lubricants, like Helix Ultra, has increased from 39% to 45% over the last four years.

[Graphic displays]

Tomorrow: Positioned for profitable growth in EV charging

Huibert Vigeveno

Now let’s move to EV charging. As electric vehicles become more popular, more people will want to charge on the go, and we are building an EV business for tomorrow’s demand. And as New Yorkers know well, living in a city can mean no driveway and no home charging. And this is actually the situation for the majority of people in the world. And even if you do have a home charger, you are likely to need the option of topping up away from home.

So that is why we are focusing on more public charging… faster charging... at the right locations. We have the second-largest public EV network amongst global players after Tesla in terms of country reach. This is more than 30,000 public charge points, which we expect to increase to around 70,000 by 2025, and 200,000 by 2030.

To measure our progress, we have moved to a public charge-point figure, and this is actually a more meaningful metric, because 60% of the value resides in public charging. And in terms of the right locations, we have a major advantage, thanks to our global network of service stations… which none of our peers can match. And there are also synergies with our traditional marketing business that we can use to make our EV charging business more profitable.

As I told you earlier, our convenience retail is thriving. And there is an opportunity to generate further value by growing convenience retail in parallel with our EV offering. The average basket spend of EV drivers is about twice that of customers who buy gasoline or diesel. China, Europe and the US are our key markets for EV charging.

In China we saw a 25% utilisation rate of our EV chargers in 2022, which was two-and-a-half times that of the industry average. And we continue to see higher utilisation rates across our network. In financial terms, we are targeting an internal rate of return of 12%… and expect to deliver EBITDA of about $1.0 to $1.5 billion by 2030.

Let us move to low-carbon fuels.

[Graphic displays]

Tomorrow: Growing our Low Carbon Fuels business

Huibert Vigeveno

Low-carbon fuels, such as biofuels, are critical for sectors that cannot easily switch to electricity like aviation, like shipping and like heavy industry. Known as drop-in fuels, they allow customers to decarbonise without making significant investments and changes to their vehicles and machinery.

Here in the US you may have watched the Indy 500 recently. It was a historic day for Josef Newgarden, who brought home his first Indy 500 victory... but it was also a big day for biofuels. Because all the Indy 500 race cars were powered by Shell’s 100% renewable race fuel… a biofuel made from ethanol. Same cars on the same track... but with different fuel in the tank and less emissions.

We expect the market for low-carbon fuels to grow, driven by stronger regulations and voluntary demand. At Shell, we have three main competitive advantages in this area. Our first competitive advantage is that we have access to low-carbon fuels through our own production and those we buy from third parties. Through our Raízen joint venture in Brazil, we are the world’s largest producer of low-carbon ethanol. In fact, if Raízen were a country, it would be the fifth-largest producer of ethanol globally.

Another example is our HEFA facility in Rotterdam, which will be among the biggest in Europe. And our acquisition of Nature Energy earlier this year, which makes us Europe’s largest producer of renewable natural gas.

Our second competitive advantage is in trading and optimisation.… which gives us the ability to generate value by connecting supply and demand. Shell is one of the world’s largest traders and blenders of biofuels. In 2022 we sold 14 times more low-carbon fuel than we produced… and we delivered an average adjusted EBITDA of more than $300 million in 2021 and 2022.

And our third competitive advantage is that we are already starting from a strong customer base... with more than one million B2B customers across transport and industry. Our low-carbon fuels business is profitable today, and has a pathway to greater profitability in the future. We expect an internal rate of return greater than 12% for new investments and $1 to $2 billion in EBITDA by 2030.

[Graphic displays]

Future: Hydrogen and CCS

Huibert Vigeveno

It’s one thing having a vision of the future. It’s quite another turning a vision into a reality. In line with our molecular emphasis, we see hydrogen and CCS as hugely important low-carbon solutions for the future… both for Shell, and for our customers, especially in sectors that cannot be fully electrified, like industry and transport.

The technology works. It’s already in use today. But the vision I’m talking about here is of a future where hydrogen and CCS are used at a much larger scale. And where these are profitable businesses for Shell.

Shell is uniquely positioned today, given our natural strengths in this area… such as our understanding our fuels value chains, our experience in delivering complex projects, and our technological ability. Our plan is to integrate hydrogen and CCS into our existing facilities, like at our Energy and Chemicals Park Rotterdam, allowing us to reduce our own emissions and those of the products we sell. As the market develops over time, we will unlock opportunities for future deployment at scale and leverage our customer relationships to meet increasing demand.

If we look at the Netherlands in more detail, here we are building Europe’s largest green hydrogen plant, powered by our offshore wind joint venture. The hydrogen produced will help to lower the carbon intensity of the energy products made at the Rotterdam park. And CCS also plays an important role with two projects… Porthos, where we are the anchor customer, and Aramis, a joint venture… and both are pre-FID.

Projects like these could lower our emissions and those of nearby industries, which make up for the Rotterdam Clean Energy Hub. However, to close the gap between where we are today and the future, stronger policy and regulatory support is needed. A good example is the Inflation Reduction Act here in the US, which can make our investments more resilient and competitive. We also need growth in voluntary markets and more innovation, helping to scale up and reduce costs.

Our plan is to invest up to $1 billion a year in hydrogen and CCS in 2024 and 2025, focusing on regions such as north-west Europe, and here, in North America, regions where we have an existing footprint, where policy support exists… where demand from customers is expected to be strong, and where we see a pathway to profitability.

And that brings me to our Power business, which will help to decarbonise our assets and our customers, and enable our molecular businesses of the future.

[Graphic displays]

Power: Enabling growth today, tomorrow, and in the future

Huibert Vigeveno

Well, let me start by acknowledging that we do not believe we have a distinct competitive advantage when it comes to power generation. Where we do have a distinct competitive advantage is in the optimisation and marketing of molecules.

But as the energy system continues to electrify, customers who buy molecules from us today will also expect us to offer alternatives... primarily power. In addition to serving our customers, we will need renewable power to decarbonise our assets and to enable the production of low-carbon molecules.

As demand for green electrons increases, we expect the market to be tight... so we have been growing our portfolio with solar, wind and storage assets. We must now deliver value from this portfolio... which means making disciplined and difficult choices, such as stepping back from opportunities that do not fit our strategy or do not generate enough returns.

In line with this, we have taken decisions to exit projects in Ireland and France. And we are in the process of divesting our home energy retail business in Europe. We will be disciplined with our investments and will limit capex to $2 billion a year in 2024 and 2025.

This is a net figure, so proceeds from dilutions of around $1 to $2 billion offset the gross cash capex figure. With this capital we will develop our existing assets... and target new opportunities where we can integrate across the value chain... in key markets such as the US, Europe, India, and Australia. We will leverage our strengths in trading and optimisation... and our existing customer relations across the industry and transport sectors.

While we expect returns in power generation to be in line with the market… at around 6-8%, there remains upside to this in several areas.… such as trading and optimisation, merchant risk, dilutions, and future growth in low-carbon molecules. We expect this business to generate more than $3 billion of EBITDA in 2030.

[Graphic displays]

Profitably decarbonising our customers

Huibert Vigeveno

Today we have talked about enhancing the value of our business while helping our customers decarbonise. Before we wrap up, let me quickly summarise a few key points. For our established businesses of today, we are focusing on strengthening performance in Marketing and both repurposing and high-grading our Chemicals and Products business, while holding capital employed stable.

We have attractive growth opportunities in EV charging and Low Carbon Fuels, strengthening these businesses for tomorrow. And finally, with Hydrogen and CCS we are seeding growth for the energy businesses of the future, which will be supported by Power. Doing this allows us to profitably help decarbonise our customers and enable Shell to deliver more value, with less emissions.

With that, I’d like to thank you and open the floor for any questions.

Tjerk Huysinga

All right, who wants to start? Similar faces, similar names.

[Text onscreen]

Tjerk Huysinga EVP Investor Relations

Tjerk Huysinga

Okay, we’ll go with Lydia, and then we go there. We’ve got 15 minutes of Q&A, and then we’ll have a break, and then we’ll have 45 minutes of Q&A with everyone, okay?

Lydia

Hi, I’ll keep this short. So it’s Lydia from Barclays here. Just if I add up the low carbon fuels EV charging and the power side, I’m getting to sort of $5-6.5 billion from the low carbon business, does that sound right? And then secondly, if I’m thinking about earlier about discipline and simplification, if I think about you have a lot of different businesses that you have to control, how do you drive that simplification through the organisation?

Huibert Vigeveno

Thanks very much, Lydia. That’s around right. It’s around the 5 billion mark, and I think you can also see by what Wael Sawan said, that we will invest between $10 and 15 billion between ’23 and ’25 in the energy transition, which are very much those businesses that we allude to. Around how we drive the discipline, it comes very much back to first the main theme, which will be around value over volume, which is a change for certain parts of our businesses, particularly on the mobility side, where we have moved away from 55,000 sites, so an opportune growth over growth rate, but then it’s really around implementing performance simplification and discipline, which we’re doing on a monthly cadence basis. So the examples I gave on the performance side, on the mobility side, taking out 500 sites per annum, which is around 4% of our company-owned, company-operated sites, so rigorously doing that. On the chemicals and products side, on the one hand, we announced the strategic review of our Singapore, Jurong, and Bukom assets. But, at the same time, we will high grade our European chemicals and products businesses, looking on a unit per unit basis, and that’s something which is ongoing, and we’ve already taken some actions there. We’ll continue the discipline of divesting our JV shares and PCK Schwedt in Germany, as well as Mero, so those things will continue. I think on the question around discipline as well, moving the capital from marketing from 6 to 3 billion does require a lot of discipline and requires a lot of emphasising on increasing the returns of those businesses, so what I’m really after on the marketing side, and what I alluded to is increased return on average capital employed, which I think has been lacking a bit due to many reasons, but also due to things that we could control ourselves. The other thing I would like to say is that the entire leadership team of Downstream Renewables, we had already quite some off sites, if you call, and everybody stands behind us, so we all believe in it. It’s not something which we’re just presenting. It’s something we’re operationalising, because we absolutely think it’s the right thing for the company across the entire businesses that we have.

Tjerk Huysinga

All right. There.

Amy Wong

Hi, it’s Amy Wong from Credit Suisse. Thanks, Huibert, for taking the question. You started answering a little bit there. It’s more specifically on your marketing business. In the past, you kind of talked about an IRR of 15 to 25%, a kind of range for returns, and your messaging today really suggests that that’s really come down quite a bit. Mind you, I do see you are trying to address the improving the returns are, but could you elaborate more? Is it really the opportunities that has really shrunk? Is it your operational model in marketing that’s kind of caused that returns to fall? And can you just kind of bridge where we are now in you kind of getting it back up.

Huibert Vigeveno

Yeah, on the marketing side, first I would like to say it’s clear we have by far the most valuable brand, the most recognised brand, and we have by far the best franchise or network, but I think we got a bit ahead of ourselves in terms of growth, so I think we tried to grow too much in countries where actually government inventions, particularly with high commodity prices was higher than we might have anticipated. I recognised that, and we’re doing something about it. So I’m focusing much more on areas where I can get the returns for the growth investments I have, particularly when they relate to different areas, like convenience retailing. That’s why we acquired Landmark here in Texas with the Timewise brand. I think the other thing on the marketing side is over the last two years, of course we had COVID. Of course we had the war in Ukraine, which has really led to cost of goods sold prices become very high, particularly on the lubricant side, and it’s taking some time to get that through. But what I’m focusing on now more, rather than on the volume, is the value, much more premium products, more V-Power, more lubricants premiums, because the margins I can generate for the dollar investment I do is substantially higher. So it’s just a recalibration around the possibility and get the most out of that business, and from that, we will see how we want to take it further. Your question on IRR, the IRR of at least 15% still stands in marketing. The only thing I’m saying, the IRR for EV charging, for example, that’s 12%, given the growth that we see in that area.

Tjerk Huysinga

Cool, all right. Go here, Sam.

Sam

Hi, it’s Sam again from Wolf Research. On RNES, because of the trading business that dominates it today, it’s been pretty volatile in cash generation. There was a big working capital add flow last year, and then some of that’s coming back this year. It’s not so asset laden today, so as you develop assets in that segment, do you expect cash flows to take on more of a ratable pattern? Or is trading always just going to be a big part of it, and it’s going to be hard to model on that side?

Huibert Vigeveno

Well, if you look on the power trading side, we’re actually the third largest power trader in the US, and, if there’s one thing around being part of our global trading and optimisation is we know how to manage that volatility. I think if you look at the asset generation side, I think what I’m saying is that being purely in asset generation, renewable asset generation, I don’t see any big competitive advantage for us, so what I need to do is I want to have renewable asset generations which are tied in that I can do trading and optimisation around it and actually bring those electrons to B2B customers. The regions where I can do that is the US, is Europe, is India, and is Australia. So I’m not going to have an approach. I’m going to look everywhere in the world. I’m going to concentrate in those areas that really play to my strengths. And that is what we will develop over the next few years.

Tjerk Huysinga

Go to Chase here.

Chase

[INDISCERNIBLE 00:26:55] ABN AMRO and ODDO BHF. Questions only [INDISCERNIBLE 00:27:00] can you maybe indicate where capital employed in EV charging is right now, whether your IRR and EBITDA only include EV charging but also include also your shopping margins, and most shop sales probably now in the petrol station shops. Can you give an indication on what is currently the electricity volume sold in your EV charging business and what is the percentage China and that volume?

Huibert Vigeveno

First, I think what we acknowledge is this could be very exciting business for us, EV charging. It’s very complimentary to what we do. Actually, in our top 20 markets, probably 90% of the population lives within 15 to 20 minutes of a current Shell mobility site, so that leads itself extremely well for EV charging in those areas. It’s something we know well. To the example I gave is we look at an IRR of 12% towards for EV charging, which we’re running for, and the EBITDA will be 1 to 1.5 billion by 2030. We don’t say exactly how much that comes from convenience retailing. I think it’s predominantly what we can do on the charging itself, but the convenience retailing is extremely important, because that’s what attracts customers, so it’s not around just recharging your car. It’s about also recharging yourself. And the examples I gave is from the data that I look at, you know, we’re now the second largest global player in EV charging after Tesla is that an EV customer spends twice as much on the convenience retailing than a normal customer, and the example we gave in China is that EV customers actually come twice as much as a conventional customer for internal combustion engine. Why we’re emphasising China as well is because it’s really taking off. I think this year Chin will sell around 8 million EV cars in a very urbanised environment. So fast charging really plays to our strengths. Brand plays very much to our strengths, so I’m very excited about the opportunities there. But the opportunities in other areas are very large as well. Some of you, I don’t know if you’ve gone to, but, for instance, have gone to the Fullham EV site which we have in London. Used to be 100% petrol, is now 100% fast charging. And, if I look at the utilisation rates there, it’s above 40%, so the return cycle of that investment has been tremendous, as well as what it’s doing for the neighbourhood and the convenience retailing of that, so those, I’m starting to address some of your questions, and I’m sure we’ll have more discussions later on.

Tjerk Huysinga

All right, last question. Lucas put your hand up first.

Lucas

Thanks very much. Sorry, Lucas Herrman at BNP Paribas or Exane. Thanks for being very frank and open in terms of the comments around the business and how it’s performed and where it’s going. Too, if I might, just if I start with chemicals, just to try to better understand, if you—I know we have issues, they’re issues around the startup of Monaca, fine, put those aside. But if you look up the business, ex-Monaca, ex I guess some of the assets in Asia, what’s the underlying profitability been like? So, in part, it sits asking, you know, how challenging are the targets that you’re now setting yourself for improvement relative to a base, if I start taking out the problem children. And the second question, if I might, is just on biogas, and I’m trying to understand why it is that you’ve chosen Europe as a playground, not least given your comments around IRA, not least given Shell’s competence in trading, why you’d focus on a market which is more disjointed, where pricing’s typically tied to electricity and electrical contracts and where the opportunity really seems a little more constrained and fragmented.

Huibert Vigeveno

Thanks, Lucas. A couple things on the chemical side, so if you look at our chemicals kept employed, it’s close to 30 billion, it’s 28 billion, and indeed a large part of that is Shell polymers Monaca, so if we take that aside, it will be operational in Q1 of next year. Then you look at the remaining capital employed, and you will see that around 20% of what’s remaining is tied into Singapore, so it’s a [INDISCERNIBLE 00:31:34]. So where we’re now with the strategic review. Then you look at the remaining assets, and you have China where we have our joint venture [INDISCERNIBLE 00:31:43] or CSBC, which is absolutely top quartile. We have particularly the Gulf Coast here in the United States, where we are the number one leading technologies with linear off oliphants, where we make our higher oliphants and detergents, which is very robust also from a return standpoint. Then we have Canada, which is tied into Scotford, and at Scotford we have an advantage position given the dislocation in the markets between the evacuation of products. So that leaves Europe. And in Europe what I’ve announced today is that we will do a review unit per unit to ensure that we get the returns into a better place. The one thing you do have to consider in Europe is that I cannot look at chemicals alone. It’s fully integrated with my refining business, but particularly the value it gives me for trading and optimisation. So the Chem-Feed business I have in trading is actually a very attractive business. At the same time, these are also the assets where I want to provide low carbon products for our customers, so two examples. If I look at Pernis HEFA, which will be the largest biofuels plant in Europe or one of them, I can produce sustainable aviation fuel. I can produce renewable diesel or bionafta. And the bionafta can go to the chemical industry, where now many brand owners on the chemical side are paying premium for those products, so that’s how you have to look and tie them in. With the cabin capture and storage in portals, I can further reduce the carbon intensity of that product to basically have a net zero chemicals proposition to those customers, which is actually quite exciting in itself. Then on your question on why Europe for natural energy, we are, as I mentioned, a very big blender and trader of biofuels. We actually blend and sell 14 times as much as we produce. We actually saw and see a lot of interesting propositions for renewable gas in Europe, because we have such a strong marketing position, so I can provide renewable natural gas to our commercial road transport business, where we’re actually very strong position in Europe immediately. First of all, in the mobility sites we have or directly to customers, and then I can use trading and optimisation to work with the flows. Does that mean I’m not looking in the United States? Quite to the contrary. We have a very big biofuels business in the United States. As we speak, natural energy for us in Europe was a very attractive proposition and was available at that time, and I’m very pleased we did that.

[Background music plays]

[Text displays]

#CapitalMarket Day

©SHELL INTERNATIONAL 2023

Title: Capital Markets Day 2023: Performance, Discipline, Simplification

Description:

Video footage of the presentation of the application of Integrated Gas and Upstream.

Capital Markets Day Presentation

[Background music begins]

Soothing instrumental music

[Video Footage]

Different red and yellow shapes appear on the screen with a white background. The shape of Shell’s logo ripples in the lower left-hand corner. The ripples continue as text appears on the screen.

 [TEXT ONSCREEN]

Capital Markets Day 2023

Performance, Discipline, Simplification

Delivering more value, with less emissions

Shell plc

14th June 2023

#PoweringProgress

[TEXT ONSCREEN]

Key Takeaways and Q&A

Wael Sawan, Chief Executive Officer

Sinead Gorman, Chief Financial Officer

Zoe Yujnovich, Integrated Gas & Upstream Director

Huibert Vigeveno, Downstream and Renewables & Energy Solutions Director

Capital Markets Day 2023 June 14

Wael Sawan

So, before we open up for Q&A, let me just run through the key messages that I hope you take away from today. Given our belief that oil and gas will continue to play an important part in delivering energy security for the foreseeable future, we will be sustaining our liquids production while growing our leading integrated gas portfolio through 2030. We are clear on the pathway to high grade and improved performance in our marketing and chemicals and products businesses. We will continue to utilise our molecular and customer capabilities by growing our low carbon fuels and EV charging businesses. Both represent attractive opportunities wherein we can leverage existing adjacencies and play to our strengths in our differentiated downstream business. Underpinning all that, we will be ruthless in our focus on performance, discipline, and simplification, and you heard Sinead outline our plans

[GRAPHIC]

The investment case through the energy transition

to get the most out of the OpEx and the CapEx that we spend. All of this supports our ambition to grow free cash flow per share by greater than 10% per annum through 2025, and most importantly, provides us with the confidence to increase our distributions to 30 to 40% of CFFO through the cycle, and hence today, we have announced our intention to increase the dividend per share by 15% and to set a floor for buybacks of $5 billion for the second half of this year. This is why, as I outlined earlier, I believe Shell will be the investment case through the energy transition. With that, I'd like to thank you, and I'd like to open up for Q&A and invite my colleagues to join as well.

[FULLSCREEN GRAPHIC]

The investment case through the energy transition

Tjerk Huysinga

All right. We're going to go for the Q&A now.

[TEXT ONSCREEN]

Tjerk Huysinga EVP Investor Relations

Okay. Go here. Yeah. Thank you, Michael. Yeah.

Ryan Todd

Okay. Thanks. Ryan Todd, Piper Sandler. Maybe a question as you think about the longevity of the oil and gas business, particularly on the liquid side, maybe a couple of things. On the on the 500,000 barrels a day, by 2025, a big chunk of that on your slide is other projects. Maybe a little bit, is that a lot of tieback kind of infill opportunity? Is there maybe any visibility on that, and then as you think about the post-2025 timeframe and your resource base, in the queue in the back there, there are basically two deepwater projects in there. What can you provide in terms of confidence in terms of the depth of the resource base that you have to sustain this in 2025+, and in recent years, you've been more of a seller than buyer of resource. Is there an opportunity, and is that optically possible for you guys to participate on the M&A side in terms of not just on the disposition of assets, but even on the acquisition of resource as well?

Wael Sawan

Great. Thank you. I'll very quickly touch on the last part and then ask Zoe to provide some details around the underlying strength of the portfolio. You're right.

[TEXT ONSCREEN]

Wael Sawan CEO

We have been a more of a seller, as we have really looked to high grade our portfolio in line with the strategy that we outlined a couple of years ago, when we classified our core lean, and then over time, we looked to tighten that into what is today, I think, a much stronger portfolio, high graded portfolio. As we look into the future, we will indeed be looking at opportunities to continue to grow, mainly organically, but there is nothing that would prevent us. I think you sort of alluded to, would we be concerned about buying a resource? Absolutely not. We are committed to this business, and we will go after the resource as and where there are opportunities to create value from it. We don't anticipate we need it, but what we will do is we will continue to be selective in our approach if we see the right opportunities coming. Zoe?

Zoe Yujnovich

Yeah, and I think it's on slide 24 that you're referring to. Overall, the other does include a lot of projects in our conventional oil and gas business,

[TEXT ONSCREEN]

Zoe Yujnovich Integrated Gas & Upstream Director

where we see relatively stable production and significantly less decline. So, things like PDO in Oman is an example where we've got a relatively stable business that's consistently growing to offer us that upside. Overall, about, in that chart, you've got about 40% of it comes from deepwater, just shy of 40% of it comes from conventional oil and gas, and then just above 20% comes from LNG growth. I think, just to sort of circle back on to the resources, we shared, the commercial resources that we have, have about 20 years of life, and so, we've got a really strong portfolio, particularly in the deepwater and the LNG business. The commercial resources are done on the basis of a P50 estimation, and they do include projects that are pre-FID, which is quite different than what you would normally see in the SEC proved reserves, and I think it's important to draw that differentiation, because a lot of people do extrapolate our proved reserves as sort of the longevity for which our upstream business has access to, and there are some quite unique aspects to deepwater and LNG which can make it more difficult to actually record proved reserves that you don't get when you look at the broader commercial resources, and I'm happy to go into those in detail. It's mostly around sort of the confidence. If we choose to take sort of spot market risk, and we don't have a supply contract at the end of the LNG chain, then you can't actually do the reserve bookings in LNG, as an example, and deepwater, you tend to find you have less analogues and details around well tests, which again, means it's difficult to get the proved reserves higher. So, I think, as a result, we're really confident. When you look at the world-class capabilities we have in deepwater and LNG, that's where we have most of our commercial resources. They're the reasons you don't see them come up in proved reserves, because they have unique aspects in the way that they're recorded, but the longevity of the business still is very strong.

Wael Sawan

Thanks. Cool. All right.

Tjerk Huysinga

You go, there, Alastair?

Alastair

Hi, Alastair Syme from Citi. Firstly, on the… I don't want to go back in history, but in 2019, the target for 2025 was $35 billion of free cash flow. We're now at $25. I think I understand from Huibert’s explanation about what's happened in the downstream. I'm less clear of where the negative revisions have come in upstream integrated gas. So, maybe you could just help with that, and then secondly, while we sit here in the in the halls of the New York Stock Exchange, how do you approach the re-domicile question? I think we can all see that U.S. companies trade on higher multiples, because there's a bigger pool of investor capital that wants to invest in energy. You know, how do you approach that question?

Wael Sawan

Great. I'll take the second one, and Sinead, if you want to sort of link up between the two strategy days. Look, I think, firstly, to recognise we have a very strong presence here in the U.S. to start with. It's the place where we have the largest capital employed in one country. It's the place where we are spending the most capital amongst any other country we're spending in. It's where we have the largest staff base, 12,000 people, and we have a significant investor base here. So, the U.S. is a critical part of a portfolio, of a global portfolio along with the likes of Brazil and the likes of Australia, the likes of Qatar, which really underpin the strength of this portfolio. So, while we're headquartered in Europe, we are a global company, first and foremost. I think, to your point around multiples and realisation of the multiples, what we have been very clear on with this sprint is there's a lot of self-help that we can do. The focus on performance, discipline, and simplification is just to get our house in order on all fronts, to be able to unlock the full value potential, and we always have options to be able to unlock further value, portfolio-wise, or in other means later, but at the heart of it, if we can get our cost structure into the right place, if we can get the distributions into the right place, and if we can demonstrate, or if we can actually embed the confidence in the market, we believe that we will significantly grow the value of this company over the coming 2-3 years and create more options for us as we go into the next sprint. Sinead?

Sinead Gorman

Thanks, Wael, and I'll keep it short, because, Alastair, you alluded to it perfectly. Of course, different price lines that come through in the period and, of course, different portfolio underlying. So, as you can see,

[TEXT ONSCREEN]

Sinead Gorman CFO

what we provided for 2025, you'll see in the appendix, actually, we give you quite a lot of depth in terms of the price lines and include the mid-cycle scenario for some of the chemicals and products side of things as well that flows through, but fundamentally, what you’re looking at here is free cash flow per share increasing, and that's really what we're going after, the 10% growth that you see between now and the end of 2025. So, that's what we're trying to deliver for shareholders, making sure we really increase the intrinsic value there as well. Thank you.

Wael Sawan

Thanks, Sinead.

Tjerk Huysinga

Going next. Irene, we haven't had Irene. I'm trying to be evenly spread. Sorry, guys, I'll come to everyone.

Irene

Thank you. Irene Himona, Societe Generale. Firstly, a question on power, if I may, just to clarify something. Perhaps I missed it, but I wasn't clear whether you have maintained or dropped the previous target to double electricity sales by 2030, and my second question: you announced today the intention to reset various parts of the portfolio in the pursuit of value. Is there an explicit asset disposal plan for ‘23-‘24? Thank you.

Wael Sawan

Thank you for that. Let me take the first one, and then in terms of the overall portfolio, I think maybe I’ll invite Huibert, if you want to say a few words on the specific asset disposal plan. On power, like everything else, the target has been dropped when it comes to volumes, because it was driving the wrong outcomes. We potentially might grow volumes, but only in service of value creation, and so, at this stage, we have retired that target, and we'll focus much more on how do we create that integrated value. Huibert?

Huibert Vigeveno

Yeah. On the disposal plan, we're implementing quite a large disposal plan in our ambition to drive value over volume. So, first, it was alluded to, how we're disposing of our B2C energy business

[TEXT ONSCREEN]

Huibert Vigeveno Downstream and Renewables & Energy Solutions Director

in Europe, which will save us around $300 million of operating cost per annum. Today, we've also, announced our intent to sell our 77% interest in Shell, Pakistan, and we've seen quite some international interest. Further, we've, now, we're going to do a strategic review of Bukom and Jurong and then, of course, what I mentioned around the European Energy and Chemicals Parks. What we're still disposing of and that's ongoing is our interest in PCK Schwedt in East Germany, former East Germany, and in our joint venture, Mero, near Stuttgart in Germany. Also, we are continuing with the divestment of our South Africa refinery. So, a lot’s happening in that side. Are there more things that we could possibly dispose of? Definitely, but we will continue to drive that in the mantra which we're having here around it's all around promise, deliver the performance, show me the discipline, and then let's drive the simplification. If you cannot do that without the returns, we'll have a review.

Wael Sawan

Thank you for that, Huibert. Cool.

Tjerk Huysinga

Okay, here we go. Amy, I'll come around. Don't worry.

Amy Wong

Hi, it's Amy Wong from Credit Suisse, and thanks for letting me double dip. My question is one topic, but a few parts to the question. It's on your 2-4% return on capital employed enhancement from trading and optimisation. I'd like to understand how that is at the same kind of range for all the different businesses, firstly, and then, secondly, I think a lot of the majors and yourself and your peers talk about how integrated everything is. So, internally, how do you guys count, like what is the 2-4% return enhancement, what's operation, and maybe the third part to that question is, internally, how do you incentivise the right behaviour between the people who are running the operations and the people who are trading and optimising?

Wael Sawan

Super. Thanks, Amy. Can I suggest Sinead, if you want to take the first couple and then maybe bring it to life, Huibert, with the third one around incentives?

Sinead Gorman

Certainly. Thanks, Amy. That's quite a series of questions there. In terms of the trading optimisation, exactly. We say that we see it, or we expect it to have 2-4% of an uplift, which is based on what we have seen historically. So, there's a few things in there as well. So, you ask specifically, is it a range depending on where it is? So, you heard Zoe talk earlier about the fact that, for integrated gas, we really do see it in that range, and really at the higher end of that range. It does differ across businesses. What's really quite fascinating here, though, is the idea that what we do really well is moving things around and optimising according to where we can get value, and that's what a TNL organisation does. The ability to implement that, which we're doing really, really well in the integrated gas business, and to implement that in biofuels, as an example, that's where we can really make value. So, you do see differences between them at the moment with expectations to hopefully be able to replicate across, but it averages 2-4% across it. In terms of just how do we, well, sorry, you were going to go to the operational…

Huibert Vigeveno

No, no, I think important is trading and optimisation is a huge competitive advantage we have over many other peers, and it's in our DNA. It's in our culture. Our culture is Shell transport and trading company. So, we've worked like that for over a hundred years. How do we do that in practice? Well, if I look at how do I optimise a refinery, I have the trader sitting next to the economic and scheduler, sitting next to the channel optimiser. They run the value chain, and then the trader determines where do I see the most value and the crude flexibility I want and the product flexibility I want? What do I make? What do I buy, or what do I sell? So, that's how it works in practice. The other thing to say is that, if you look at trading optimisation, we have a very strong mobility business, which we will further improve, but we operate in more than 80 countries. We only have refineries in five of them. So, trading optimisation is trading optimisation distribution, it's terminals, it's road transport. That's what ensures the entire flow of products. So, it's very much integrated between, say, the various businesses that we have, and many of the people in trading optimisation actually do come from the other businesses which we have. So, that's a very natural coordination, and I think a huge competitive strength, particularly in a volatile world.

Tjerk Huysinga

All right. We're going to go here. Here first.

Wael Sawan

New voices in the room. It's good.

Colin Temple

Hi. Yeah, this is Colin Temple from Westwood Global. Last time we were here, I think it was in response to what we kind of saw the middle of last decade, but there was a lot in terms of capital planning that revolved around lowering break-evens, reducing payback periods, and that was kind of seemingly the framework for which capital was being allocated, and today, we're hearing a lot more about IRRs, and so, I'm just wondering how much of a philosophical change there's been in that capital allocation process and how that's impacting some of the decision making.

Wael Sawan

Thanks for the question. Zoe, do you want to bring that to life in upstream integrated gas?

Zoe Yujnovich

Yeah, I mentioned it in the presentation. I think the hurdle rates are one component, but they're by no means the be-all, end-all, and I think that's evidenced when you look at the 2023-2025 production that we're bringing on board. We have a $30 breakeven point, which you could argue is very competitive and certainly brings to life, I think, a lot of our competitive strengths. So, I think we still look at an array of different factors, as we're starting to understand how best to do capital allocation. I think the other thing worth mentioning is perhaps it's a proof point of our strategy, but relative to 2014, where we saw a fairly similar macro to what we saw in 2022, we were able to generate, in our upstream business, 80% more cash with 20% less production. So, that focus on margins, which I showed against our IOC majors, is significantly differentiated relative to other performance. So, I think really strong business, definitely focusing on value, and making sure that it's leveraging our competitive strengths.

Wael Sawan

Thanks, Zoe.

Tjerk Huysinga

Good. All right. We go now, Christian, we get the same voices in the room. Others, please don't hesitate here as well. Okay? Yeah. Giacomo.

Christian

I just, when you think about your focus on value, and I've got two questions. What I don't, I can't, I'm struggling to reconcile, is in one part of your business, you're, what do you want to achieve, 25% plus returns and IRR, and then in your power business, you've got projects that are at 6-8%. How can you justify being… the range is so wide, but how can you justify being in businesses that are that low, particularly with the risk/reward being somewhat muted, if interest rates continue to rise, and it becomes more difficult? That almost feels like an aspiration. So, I just wanted to stand your thinking around, you know, portfolio allocation in terms of returns with that range across projects and assets. The second question, and coming back to the 25+ horizon, no risk, no reward, and I think about your sort of macro outlook, and it sort of concerns me that, if you can't deliver or sort of articulate what's going to happen beyond 25 from a macro perspective, how can we, and I think of that in the context of projects that, if you were to sanction them now, could come online in five years, because it takes time, and specifically Namibia. Now, why can't that be sanctioned earlier? Is it because you're sort of waiting to see what the macro is before you then sanction the projects? So, maybe it's a slightly unfair question but just trying to work backwards from a mid-term outlook. Thank you.

Wael Sawan

Great. I'll address the second one and then maybe ask, Sinead, if you want to go for the first one. Look. So, I think the reference prices we provide, the $65 per barrel real term as well as the $4 Henry Hub and the like, give you a frame of where our thinking is around the reference. So, that holds. Clearly, when we look at investment decisions, in particular in our upstream and integrated gas business, paybacks typically are a bit longer, and so, you need to have a longer-term perspective. Everything we're doing between 23 and 25 is with that frame of mind, is with that frame of mind, that sort of macroeconomic outlook that you are going to, of course, have volatility and uncertainty, but 65 RT like a good place to be. That doesn't mean that we don't continue to focus on resilience. The $30 per barrel resilience gives you that downside protection, and critically, back to Zoe's point earlier, we want to continue to go for those high margin barrels, which also, typically, go into more of tax royalty schemes that allow you to enjoy some of the upside. So, from a portfolio building perspective, you are, of course, taking a view on post-2025, but what we are saying at this moment is that from a capital allocation perspective, 23-25 is now clear. We have, of course, a good view of what it might be in 26 going forward, but that has to be on the basis of real delivery and track record from the different businesses, so that we can allocate that capital going forward. Let me invite you, Sinead, for the next one.

Sinead Gorman

Certainly, and Christian, let me be really clear. The IRRs we're talking about today are hurdle rates. They are not the average across the portfolio. So, you will see a range in there as well, which of course, does mean, yeah, you're going to have some that are incredibly high. I mean, I think, Zoe, you mentioned in your presentation, the near-term ones, particularly in the Gulf of Mexico, are of considerable IRRs, greater than 25%, etcetera, but what you're really alluding to, if I read it right, Christian, is the 6-8% in power is really where you're going to on that. When we look at any of the different projects we look at, we look at, first and foremost, run your economics, put your carbon prices in, and everything else. Where does it fit? Where does it fit on the IRR? Does it hit the hurdle rate, yes, or no? Then I can actually look across them and say, does it fit my strategy, and fundamentally, after that, does it actually change the energy system in some way? So, do I see it being advantaged into the future, regardless of which way it goes? So, that's how we play it out in our own minds. The 6-8% on power we've talked about. I mean, Huibert, you talked about it very well in the sense of saying we're not going to go into generation for the sake of going into generation. This is about enabling a number of things. First and foremost, it's about decarbonising our own assets. That is part of what we have to do in terms of running our business. Secondly, it's about providing the returns to the customers, or providing what they need at that point in time, and beyond that, it's also about providing the future of the ability to decarbonise for molecules, in other words, green electrons into green molecules, where we are very confident we will be able to make superior returns. So, when we talk about a 6-8% return, that's the base. You then build upon it, whether it's through Steve, through trading, whether that's through delivery to customer needs, etcetera, and we integrate around that. So, I'll go back to the fact it's a hurdle, not anything else.

Wael Sawan

Cool. Thanks.

Tjerk Huysinga

Yeah, we're going to go to Giacomo now first. Very good.

Giacomo

Thank you. Giacomo Romeo, Jefferies. First question: I would like to go back to that 2-4% return from trading, and particularly, in the context of all the portfolio changes that have happened in downstream and all of the potential changes that could be coming with strategic reviews, and sort of what you've discussed in the presentation is, at what point your, as you shave assets, your ability to generate these type of returns comes down. I mean, how do you assure that you will be able to retain that level of… the ability to add value via the trading of these organisations as you lose physical assets? The second question is around the lower carbon. You provided some helpful EBITDA references through 2030, and you don't have one associated with hydrogen and CCS. Is it just, do you see those projects really as just an enabler for you to decarbonise your existing physical assets, or do you think that, by 2030, you will have the ability to develop a market and actually to generate some EBITDA from outside the organisation out of those assets?

Wael Sawan

Good. Let me take the second one. I'm going to come to you, Huibert, for the first one in a moment. So, to be ready. So, the… look, we could put an EBITDA number on hydrogen and CCS, but I would be deeply uncomfortable with the credibility of that number, given this is a market that is literally nascent, and the business models are being developed. So, what we are doing at this stage is saying, transparently, we are putting some capital into this, because we fundamentally believe we have a differentiated capability. We are looking at these double-digit returns when we go into that market. So, we have to be able to string a pathway to achieving that, but to start to pretend that I can give you a number at the latter part of the decade, it might be good for the models, but in all reality, it's not something that I would hold as credible. I would hope in the next 3 to 4 years, as we bring the likes of a Holland Hydrogen 1 on stream, and as we take advantage of some of the policy and regulations that are in place, and as we look at how customers respond to it, we'll have a much clearer line of sight as to what is actually the business model and what is the sort of EBITDA that can be generated, and so, we have tried to ground as much of the numbers we gave you today in reality and in real line of sight, while being transparent on how we're allocating the capital to create options for the future. Huibert?

Huibert Vigeveno

Yeah, thanks. On the trading and optimisation side, I think, 25 years ago, we might have had 55 refineries. Early 2020, we had 16. Now, we're going back to 5 to 4. Yet we increase a lot of the value we have in our trading and optimisation. How is that possible? Well, we take a lot of supply contracts, and we take a lot of offtake contracts as we go through this. The example of biofuels, I think, is a clear one. We blend and trade 14 times as much as we produce, and that's the context that you can look into. So, I used to run trading and supply for Europe and Africa, and what I'm really interested in is flexible logistics. What I'm interested in is the marketing short, and then I can organise the flow around it, and then I can determine not only what can I make myself, but what do I want to blend, or what do I just want to buy. So, that flexibility, that's the DNA of our organisation of trading and supply. It’s not just around can you produce it yourself, and therefore, can you trade around it. So, I think that's very much an evolution, and we have much more opportunity to take that even further across downstream and renewables, and also, we're making… also, I want to make clear that all divestment or investment decisions we take is very much on an integrated basis around what do we think the value for trading and optimisation would be. So, when we acquired Nature Energy for $2 Billion December last year, it was also very much from a mindset, okay, how can that help bolster that great biofuels trading desk that we have, just to bring that into perspective.

Wael Sawan

Cool.

Tjerk Huysinga

All right. Going to Oswald now.

Oswald

Thank you very much again for the opportunity. I wanted to ask about levers if things go wrong, just walk through some of those key levers that you have at your disposal, and also, including in their tax risk. I mean, Kazakhstan's coming for money. Brazil's getting money. The UK, I'm sure you've lobbied, but it hasn't quite worked just yet in terms of decreasing that fiscal tax burden. That's the first thing, and then secondly, the 2030 free cash flow number, which is… it's not a hard number, it's a fuzzy shaded bar chart, but it's $30 billion. You talked about being deeply uncomfortable giving hydrogen numbers for 2030, but are you comfortable giving this $30 billion number here, in the context of the comments of your stock being undervalued? If we could believe that number and start to discount that, it's quite interesting. Thank you.

Wael Sawan

Thanks, Oswald. Can I suggest maybe the levers, if you want to touch on that, Zoe, given I think, Oswald, a lot of it was in the context of also tax challenges, and maybe Sinead, if you want to talk to the 2030 free cash flow.

Zoe Yujnovich

So, yeah, I think on the levers, I'd bring it back to performance, discipline, and simplification, because in essence, performance is really about getting value from the installed capital that we have. So, when you hit a lower macroenvironment, it's very much around how do you optimise within the capital envelope that you've already invested in, and so, the sorts of choices we can make are around what operating expenditures we may put into WRFN activities, right, the world's reservoir and facility management, because they're the sorts of activities that have different incentive curves on the back of the macro. So, we can make choices around OpEx to ensure that we're investing prudently around the incentive to optimise the existing capital installed, and of course, we can also, as it comes to discipline, thinking through where we should add additional capital, because it can either be countercyclical, where we see better access to whether it be rig rates, or whether it be opportunities to go into a market at a given time, because we've got confidence in the long-term capabilities that we've got for the business. So, I think the way in which we invest capital also has some leverage points, of course, as the market cycles. So, yeah, very much one around performance, very much around how we then invest capital through the course of time.

Sinead Gorman

I'll take the fuzzy bar. Thanks, Oswald. Indeed. So, as we go out looking to 2030, I think what you see there is a good indication of where we expect it to be, given the conditions that we've outlined. However, of course, there is upside. There is volatility in the market as it plays through. What we are very, very confident on, so, per Wael’s comment in terms of going out for hydrogen, what we put in there, we can and will deliver. We have levers to pull, I think. So, you put it perfectly. So, if, for instance, hydrogen ramps up, we will have Anna make sure that she is really going much more heavily into that. If it's in low carbon fuels, we'll make sure it's covering that as well. You will see us be dynamic in our response, and that's what you will see. So, we have the variability to be able to move between those. I'm absolutely convinced, have complete conviction that 2030, the numbers we're giving you, we can and will deliver, but we will make the choices, I think, on your OpEx and CapEx, Zoe, as well. You know, if something were to go wrong, which I hope it does not, but if something were to go wrong, of course, sitting at $22-25 billion of CapEx, we've pulled CapEx below $20 billion before during Covid. This has to be about value. This shouldn't be about pulling levers for the sake of meeting a target. It's about creating value at the end of the day.

Tjerk Huysinga

All right, let's go. Okay, there.

Victor

Victor Swishchuk with Letko Brosseau in Montreal, Canada. My question is: we keep hearing there's underinvestment in the upstream side of the business and globally, especially when it comes to comments coming out of OPEC justifying why oil prices are high. So, the question is, especially when it comes to the developed world and companies representing the developed world: is there a desire, or do you think there will be a desire to increase upstream production at some point, especially given the fact that, if you look at the OECD countries, they consume 46-47 million barrels a day, produce only 30. So, we're naturally short, and we're beginning to see that national security plays an important role in ensuring that we can continue to live the lifestyles that we do. Thank you.

Wael Sawan

That's a big question. Look, I think we haven't minced our words around this. The world is under-investing, and what we find at the moment is… just look at last year, right? I mean, just last year, the massive amount of volatility that was resulting from that 1% drop in overall energy supply, I think, speaks volumes to the fragility of the overall system, and therefore, what we need to do is to continue to make sure that while we are continuing to grow, as we must, low carbon investments, we need to make sure that the 4 or 5% decline rates that you see in the sector, you need that investment to be able to at least hold flat if not grow, because growth is what's happening. If you look at the majority of the locations where we are invested from a production perspective, it tends to be actually places like Brazil, Qatar, Australia, the U.S., less so, in Europe these days, right, and that short is growing into Europe, and so, the message we would continue to echo is this has to be a balanced energy transition. This has to be an energy transition that is looking to invest in the oil and gas the world needs, until that dependence starts to diminish, which we don't see for a while to come. This is a much broader topic with politics involved, societal desires. What we are trying to do is to be factual, but also, actually intentionally lean in to support some of those low carbon solutions, which are absolutely required in places like Europe, but also, around the world, and so, we hope that balance that we bring today is seen and is recognised, rather than actually swinging the pendulum one way or the other.

Tjerk Huysinga

Great. All right. Okay. Paul, you go for a second one.

Paul

Thank you. Sankey Research. Clearly, you've come to, and referenced trying to narrow the gap, the huge valuation gap that there is between the U.S. major oils and the European major oils, and there's an obvious similarity between the three European major oils, which is that you're located in Europe. You gave an excellent answer as to why you should relocate the company to Texas. You didn't explain why you should stay in a place where governments are hostile to you, and where U.S. investors perceive you effectively to be government owned. However, I'll give you another shot at maybe explaining why you should stay in Europe. The bigger, more exciting thing might be to split Shell, and I just wondered where, clearly the differentiation between Shell, Total, and BP is your global LNG business, which is clearly a global leader in a clean energy. Why wouldn't you release the enormous multiple differential that is implicit in a publicly quoted LNG company versus the Shell multiple currently? Thank you very much, Wael.

Wael Sawan

Yeah, great question. Look, a couple of things. I think firstly to recognise we're not trying to emulate a European model or a U.S. model of valuations. What we're trying to do is to maximise the value of this investment thesis, an investment thesis that is leading in integrated gas, an investment thesis that is leading in our differentiated upstream business, but also, an investment thesis that has capabilities that nobody else has, that Huibert alluded to: our marketing businesses, our trading businesses. If you become purely an upstream business, you are going to have to have a very clear and compelling decarbonisation strategy for the future. Why split up a company to then force either side to have to go back to what it was before we split it up? The beauty of what we are offering, I think, is an investment case that says you can actually play across the multiple energy vectors in spaces where you have a leading franchise in almost every part of it. Nobody can offer you that. In terms of where we list, right now, we've just moved over to the UK. There are all sorts of reasons people give me around, you should move here, you should move there. What we have said is before we think about moving anywhere, we want to focus on unlocking the value that we know sits in the enterprise, and for the next 2 to 3 years, that's what we want to do. To be able to unlock that value creates real options for us as an enterprise to be able to do whatever it is that we think is the right thing to do at that point in time. Also, let's not forget, for us to move anywhere, we need over 75% of our shareholders to support that vote. So, there are realities that I wouldn't gloss over in a world where we need to be able to really focus our 93,000 folks in delivering the value that our shareholders deserve out of holding us.

Tjerk Huysinga

All right. Getting to the last couple of questions before lunch. So, let's see someone new. Kim, relatively new.

Kim

Hi. Thank you. It's Kim Fustier from HSBC. I had two questions, please. The first is on low carbon spending. Within that $10-15 billion range of CapEx guidance to 2025, how much you spend, within that range. Is it about acquisitions or farm downs, or is it about whether certain projects do come to fruition or not? I'm just trying to reconcile that with an earlier comment you made about, if you add up spending in power low carbon fuels and EV charging get to roughly $5-6 billion per annum. So, that would tend to indicate that's above the sort of $10-15 billion cumulative. So, I'm just trying to reconcile those numbers. My second question is on distributions. With the guidance of at least $5 billion of buybacks in H2, are you essentially committing to $2.5 billion of quarterly buybacks going forward, and did you consider, at any point, giving guidance on an absolute buyback range, I think similar to what your U.S. competitors do, in order to give perhaps more visibility, rather than as a percentage of CFFO? Thank you.

Wael Sawan

Great questions. Sinead, do you want to just cover both?

Sinead Gorman

Sure. So, in terms of, Kim, the low carbon spend, indeed, it covers the range of different aspects that you said. We will go back to the overall principle of value. So, that's what we will look at as we go through those. So, Huibert has a range of different things which are about the normal day-to-day business, where we will spend, and where we have confidence, but there are also, some opportunities that he and the team are looking at that will come down to do they actually hit the hurdle rates, do they have the carbon footprint, all of those different things as we go through. So, it gives us the $10-15 that we've given across it. You then said about the $5 billion. Let me be really clear. It is a minimum of $5 billion for the next two quarters. So, what we have basically said, so, for the second half of this year, a minimum of $5 billion will be paid out. So, in effect, what am I doing there? I'm creating a floor for it. So, that is what we are doing there. We haven't said how we will play that out quarter to quarter. We'll be pragmatic on that. Kim, you know we always are from that perspective as well. There are so many different ways you can do this. Could you give a guidance out for several years? Absolutely, you could, but what we are looking at is making sure that we make decisions in the moment, rather than getting stuck with a target of however many billion for five years out, which doesn't make rational sense. This is about us allocating capital where we see it makes sense, which is why, at this moment in time, it is about doing buybacks, and we'll continue to do so.

Wael Sawan

Thanks, Sinead.

Tjerk Huysinga

All right. Last question. Where are we going? Yeah, Roger.

Roger

Thank you. Roger Reed Wells Fargo. Maybe the dog that didn't bark. Two things that haven't brought up today. One, something on the exploration side, whether or not that's needed. You did mention the resource base. The other one is part of a longer-term sort of cost reduction or just automation of the company. Anything on digitisation or AI or anything like that?

Wael Sawan

Super, yeah, you want to take the first one? I'll take the second one.

Zoe Yujnovich

Yeah. The exploration ones are relatively easy. I mean, I said in the speech that we don't anticipate doing any new frontiers post-2025. That's consistent with the message we've given. Historically, you see, there's a definition of frontier exploration in the back of the book, which I think is worth drawing your attention to, but we do see exploration as still being quite important, particularly around near-field and around our hubs, and so, we will continue to prosecute exploration opportunities around the areas where we know we've got that geological expertise to drive value. The other thing I think just worth noting is that I think our opportunity to develop exploration will be balanced around whether we should be investing in exploration or acquiring or putting our capital or money elsewhere. So, we'll make prudent decisions around what we think is the most value between exploration or acquisition, as the opportunities get evaluated.

Wael Sawan

Thanks, Zoe. I think an elegant way then to finish on looking at the future. I mean, firstly, to say, this company’s strengths today are built on the pioneering spirit of those that came well before us. If you look at what anchors us today, it is our LNG business that we developed very much in the late 1950s and 1960s, our gas to liquids business, our deepwater business, including starting here in the Gulf of Mexico, in places like our chemicals business with linear alpha olefins. That is really that pioneering spirit we are looking to rekindle, and so, later in the break, Robin is here. Robin is leading our projects and technology organisation as of July 1^st. The mandate Robin has is how do we now really change the orientation towards one of innovation and focusing on how we're going to create the next winners for the future. On digitalisation specifically, we're very proud of how far we've come in that space, and there's multiple examples which we can also discuss in the break. I was particularly comforted recently going to meet folks at Microsoft just to ask them, give me feedback as I come into this job and about digitalisation in Shell, and their feedback was instructive to me. They said, you can be slow in picking up digital technologies. It takes you guys time. Your risk tolerance maybe is not as high as it needs to be, but when you guys touch it, and you decide to scale it up, no one can beat you, and so, that's the mental model that we want to approach. We want to try to be able to become a bit more confident in our approach of new and novel technologies that could potentially unlock value, but also, to be able to make sure that we use the leverage of the scale of Shell to really create the value, a bit like what I… the example I gave earlier, the 1-2% improvement in LNG was very much on the basis of technology that was evolved, and so, we will be shameless in going out and borrowing technologies and looking at our real capabilities around system integration to pull those technologies into a place where we can apply them to create value for us as an enterprise.

[GRAPHIC]

Cautionary Note

[TEXT ONSCREEN]

#CapitalMarketsDay

Shell International 2023