Shell PLC

Welcome to Shell's second quarter 2022 financial results announcement. Shell's CEO Ben Van Burden and CFO Sinead Gorman will present the results, then host a Q&A session. If you would like to ask a question, please press star 1. If you wish to be removed from the queue, please press star 2. We will now begin the presentation.

Hello, Sinead and I welcome you to our second quarter results presentation. It was a turbulent quarter for the world and the global economy. The war in the Ukraine continued, destroying lives and disrupting supplies of food and energy and aggravating the life of so many more through high energy prices and the cost of living crisis. It all reinforces the importance of getting the balance right. We need a system that provides secure supply of energy that is reliable and low carbon and affordable. And governments play a crucial part in achieving this balance, not least because their policies affect our long-term investment planning. And we need reliable policies that ensure a stable supply of energy products today and significant investments in the energy system of tomorrow. For example, by speeding up reviews for offshore wind projects and allowing the accelerated tax depreciation of renewable assets. But we know we also have a significant role to play, and Shell has been taking action in Q2 to deliver the energy the world needs today. In the North Sea, in the short term, we are adding vital gas production by completing the refit of a floating production, storage, and offloading vessel to produce natural gas from the Pierce oil field. It's expected to start delivering gas as soon as this autumn. And we have taken the final investment decision for the Jackdaw field, which has the potential to supply more than 6% of the UK's gas production in the years ahead. And for the medium to longer term, we've also taken a final investment decision on the Crux field in Australia, which will provide gas for Prelude, our floating energy facility. And we see significant value to come from our investment in the Northfield East expansion in Qatar. But at the same time, we're also taking action to accelerate as an energy transition company. So in the Netherlands, we are building an electrolyzer that makes hydrogen for wind power. Holland Hydrogen One will be one of Europe's largest renewable hydrogen plants once it's operational in 2025. In fact, Shell owns and operates around 10% of the global electrolyzer capacity, and we plan to add further capacity to a strong funnel of hydrogen projects. So our company is truly changing. It's transforming for the future. And we are setting ourselves up for that success in that transformation. Just look at the foundations that we have built over the past decade. We have become more disciplined, we've become more resilient, and we have become a more profitable business. Now, the key similarity between today and how our operating environment looked in 2013 is the oil price. The average price of $108 a barrel for the first half of 2022 is almost what it was in the first half of 2013. But Shell has transformed since then, both financially and operationally. Over the first six months of this year, our adjusted earnings are up 65% compared with the first half of 2013. In the same period, comparatively, our organic free cash flow tripled. And we have doubled our shareholder distributions. In fact, this quarter, our cash distributions were the highest ever. And we have done all that safely and responsibly. Our teams achieved 83% fewer process safety incidents and 32% lower scope one and two carbon emissions. That's emissions from our operations and the energy that we use to run them. So what changed? Well, we have high graded our portfolio. divested around $80 billion worth of assets, and doubled down on integrated value delivery. And as a result, in our integrated gas business, we now sell over two times more LNG, while our CF of open barrel increased more than fivefold over the same period. And our upstream portfolio is much more concentrated, leading to 21% lower production, while our upstream CF of open barrel increased by 74%. So yes, energy prices are very high today, but they have been so before. And the real difference is that today we are performing much better in a similar price environment. And we are confident about the future because we have a strong capital framework and an energy transition plan that our shareholders firmly supported at our annual general meeting in May. So, we are increasing our shareholder distributions with a $6 billion share buyback program for the next quarter. Now, Sinead can tell you more about our results and these distributions.

Our performance in the second quarter was strong amid volatile energy prices. Our adjusted earnings were $11.5 billion. We saw stronger performance in upstream products and renewables and energy solutions, or RESs. Our adjusted EBITDA was more than $23 billion, and we delivered $18.7 billion of cash flow from operations. Our trading and optimization results across our businesses were strong overall, especially in gas and power in our res business. That brings me to our financial framework. The $6 billion share buyback program we announced today is expected to be completed by the time of our Q3 results announcement. and we expect our shareholder distributions to remain in excess of 30% of CFFO with the current energy sector outlook. Our net debt further decreased to $46.4 billion this quarter, and we will continue to strengthen our balance sheet given where we are in the cycle. We will be disciplined with the investment decisions we make and expect our cash capital expenditure to be in the $23 to $27 billion range for 2022.

So without doubt, our delivery this quarter reflects the macroeconomic environment. But even more so, it reflects a transformation of Shell into a more disciplined and a more resilient company. We are using our financial strength to benefit society through secure energy supplies and to benefit our shareholders to increase distributions and to position the company for the future of energy.

Thank you. We will now begin the question and answer session. People dialed in. If you have a question, please press star 1. If you wish to be removed from the queue, please press star 2. Phone callers are requested to mute the audio on their computer webcast and listen attentively to their telephone audio as we begin to progress through the telephone questions.

Well, thank you for joining us today, and we hope that after watching this presentation, you have a strong sense of how Shell is transforming. We continue to invest in energy security and the energy transition to provide the energy that the world needs today, but also in the future. So Sinead and I will be answering your questions today. And please, as usual, could we just have one or two each so that everyone has the opportunity to ask questions? And with that, could I have the first one, please, Elaine?

We will take our first question from Lydia Rainford from Barclays. Please go ahead.

Two questions, if I could, and it is noticeable how impressive the level of cash flow is, and I know that reflects a significant transformation. And two questions here. One on the financial frame, and I'm just wondering, why go with additional buybacks and not increase the dividend? And just within that, on the £6 billion buyback, should we now be thinking about that as £6.25 if this environment stays for next year? So just a little bit more detail about that, because that's on the financial frame. And then a second one, just in terms of the low-carbon business, clearly there's been a lot that has been done, but there's still lots of those value chains that have to be defined. So are you seeing more opportunities now in this environment, just as we are seeing higher interest rates and businesses changing? I'm just wondering how you're seeing opportunities in that space, effectively. Thanks.

Yeah, thanks very much, Lydia, and I hope you're doing well. Good to hear you. Let me take the second question first, and then Sinead will talk a little bit about the financial framework and the dividend question that I think we sort of anticipated. On low carbon, indeed, you know, the rest business is doing well. You see very strong results. We're pleased with that. But to your question, we indeed also do see more opportunities. But then again, let me just explain that the opportunities are not necessarily just more investments in commodity producing assets. We see more opportunities in building new businesses. So we see more opportunities every quarter again. by companies coming to us and say, we have a pledge to be at net zero or we want to reduce our carbon emissions, but we need help to do this. How can you help us? And our sort of customer back strategy and our overall strategy of basically decarbonizing our customers' use of energy is really helping us identify these opportunities. whether that is indeed more sustainable aviation fuels for the aviation business or for the customers of the aviation business that come through us to find ways and means to decarbonize their travel, or whether this is, for instance, through heavy-duty road transport companies who come to us for hydrogen or trucking companies who see the opportunities there as well. We see a lot of new businesses coming up. Now, of course, many of the business models with it are still immature, need to be proven out. So we talked in the video about Holland Hydrogen One. The ultimate business model is going to be for heavy-duty road transport. That business model, of course, still needs to be built out. So while the opportunities are there, we also see that we have to go on a joint learning curve with our customers and with governments to make sure that these opportunities crystallize. But I am more confident than ever, particularly also with the sort of macro environment and geopolitical environment that we are seeing today, that this trend will accelerate. But let's talk a little bit about the financial framework.

Thanks very much. And Lydia, good to hear from you. So indeed, we've chosen to go with $6 billion of share buyback this quarter. And the debate, of course, that happened internally in the same as what is on your mind at the moment is whether it should be dividend or should it be buyback. And the way we looked at it was from an excess cash point of view, we want to allocate it according to value. And that's very important to us. And frankly speaking, where the share price is at the moment, it made sense to therefore go for the share buybacks. And that $6 billion, just because you added the question there, is specifically for Q3. And we expect that $6 billion of buyback to be executed by the Q3 results, so by the time we come out with it then. And I guess just one other point to remind you, of course, is that in Q2, we effectively distributed $7.4 billion between the buybacks that we did in the quarter in terms of cash and in terms of the dividend. And I believe that's the highest we've actually ever done. So I hope that gives you some perspective of the thought process, Lydia.

Okay. Thanks, Lydia. Thanks, Sinead. And Elaine, can I have the next question, please?

We will take our next question from Baraj Burkatharia from RBC. Please go ahead.

Hi. Thanks for taking my question. Two, please. So the first one is on CapEx. As you're starting, I guess, to plan the 2023 budget, could you say what level of inflation you're sort of baking into your spending for next year? And maybe specifically for a project like Jackdaw, which you recently sanctioned, relative to what you put forward in 2021, can you talk about the difference in costs that project will be before and after? And then the second question is on the Pennsylvania cracker, which are due to start up. Is there any chance you can give more specific timing on both the startup for that project and also the timing to get to full capacity? Thank you.

Thanks, Biraj.

Let me take Pennsylvania and then the first questions will be dealt with by Sinead. So, Pennsylvania, we're done building it. Now, there's always a phase when you are completing construction and go into start-up mode. We try to do it as gradual as possible. And, of course, we have, in a way, been starting up support systems and utilities already for many quarters. But over the summer, we will indeed start bringing production on gradually. It's very important we do that safely and reliably, and therefore we do not put pressures on our teams to say you have to have product intent by X date. Everybody understands that today's environment is a good environment to start producing in. But I would imagine that somewhere in the third quarter we will make a lot of good progress, and I would imagine that somewhere in the fourth quarter this will be running more or less at design capacity. And next year, I think it should contribute the full pound to the results. It should be very welcome, of course, because this is a very advantaged project because of its feedstock cost, but also because of the location where it is in the middle of the large plastics demand in Northeast North America. But Sinead, over to you.

Thanks, Baraj. And particularly, so there are two parts in a way to that first question. So, first of all, as we go into 2023, we are looking to, of course, start going through our planning cycle. We will start setting our capex for next year. As we've said, for 2022, very much within the 23 to 27 billion range. We are, of course, seeing inflationary pressures coming through. That is happening already. But, of course, a company of our size has the benefits of being able to have the size and the volume that comes through. We're seeing things like steel being very much pressurized at the moment in terms of sort of 18% or so of inflation. But we run on framework agreements which allow us to be able to lock in prices over a period of time and with certain volumes. So we don't see that full amount coming through as well. It means we have a very resilient supply chain, which allows us to mitigate some of those inflationary pressures He talks about Jackdaw specifically. We're very pleased to, as you say, take FID on Jackdaw. You are correct. It has taken longer than we would have hoped for. Of course, that was outside of our control. But beyond that, we do see some pressures coming through with respect to Jackdaw, but the economics remain very sound. And as I said before, we have some of those contracts locked in already. Thank you.

Okay. Thanks, Viraj, and thanks, Sinead. Elaine, who is next?

We'll take our next question from Christian Malek. from JP Morgan. Please go ahead.

Good afternoon and congratulations on the results. So two questions. First of all, just in terms of back to the financial frame and how you think about sort of allying your sort of macro outlook in the context of a sort of clearer line of sight in terms of how you think about dividend and buyback mix going forward. It does feel at the moment somewhat reactive to the macro outlook as opposed to sort of more proactive in terms of providing a sort of a more explicit frame given you've now broken through a 30% threshold and you used to provide that range and it now seems that we'd be heading to 40, 50. If you can provide any sort of visibility in the context of how you see macro and how you think about anchoring your financial frame in the context of that. And then the second question is around the sort of high grading of your portfolio as you've done so successfully. are there any assets, particularly within the upstream piece, that you feel – or sort of within the portfolio that you feel are missing and with, like, demographic, region? And to that end, would you sort of reconsider some of the assets which you had up for sale now that, as you point out, Ben, the macro outlook is very different? And maybe being more prescriptive around it, for example, Nigeria, where it looks very different now in the context of the opportunity and others – we don't know about that you may be rethinking. Thank you for those two questions.

Thanks, Christian.

Let me have a stab at both, and then I'm sure that Sinead may want to add a little bit on the first one. What I will cover on the first one, Christian, is the sort of link between the macro that you referenced. So we are, particularly if you look at the energy outlook, we are actually quite bullish. If you look at where we are today with supply-demand balances, the market is very tight. And there's not a lot of SPAC capacity around. OPEC hardly has any SPAC capacity. You could think of a little bit more coming out of shills. Strangely enough, the SPR release has actually helped, but that's hardly a price management tool, of course. So we are running out of steam a little bit in coming with supply-side solutions. And on the demand side, we haven't even seen a full recovery to 2019 type of demand. So, my concern is that we will have a very tight situation, a lot of volatility now. Sometimes we can benefit a lot from volatility, but I think that will continue to persist. The other thing to bear in mind, which may not be a very popular thing to say, but it is a fact, is that the impact on Russia in terms of self-sanctioning and all sorts of other actions that have been taken has actually been quite minimal. The volume of crude coming out of Russia has been diminished, but only with a few hundreds of thousands of barrels a day, not a sort of two or three million that was originally foreseen. That might actually change in a new year when the real sanctions are starting to bite. So I think we're going to see a tight situation for some time to come. And then I haven't spoken yet about gas in Europe and the impact that it has on the global energy market. So altogether, I think there is more upside risk than downside risk. Now, what does it mean for our financial framework? I will say one thing, and then maybe Sinead can add to it, is we have changed the philosophy on our payout from one where we want to, first of all, earn the cash and then distribute. And that's why we are saying, you know, the payout that we will see in the next quarter depends on how much we made in the last four quarters on average. And that will continue. So it is more a payout mechanism than a sort of forecasting mechanism that you will have to get used to here. On high-grading the portfolio, we have been high-grading quite comprehensively, as you will have seen. We probably sold more assets than our peer group combined. And, of course, we invested quite significantly as well, BG, of course, being a large fund too. But I do think the trend that we have to deal with the tail assets, to deal with our lean portfolio, is not going to change because we see very supportive economics at the moment. You referenced Nigeria in there, Christian. Nigeria for us, the intent is very clear. We want to be out of onshore oil. no matter how the macro might perhaps change your outlook for those assets. And that is a case of risk management and an appetite for dealing with the challenges onshore. So, no, I don't think there will be a big change in our portfolio stance on tail assets. But, yeah, the portfolio, of course, as a result of it, is performing a whole lot better. Sinead, anything you would like to add on the financial frame?

I think just a small add to that, Ben, which is, Christian, we've talked about 20% to 30% of distributions of CFFO through the cycle, and that's very much what this is about. But what is effectively happening here, what we're saying is, in effect, we have a hard floor and we have a soft ceiling, and that's what you're seeing. When the appropriate moment is there, we distribute an awful lot more than that. You saw it last quarter with $7.4 billion of distributions, and you're seeing it with what we're suggesting now, which is, of course, $6 billion of shared buybacks and, of course, the usual dividend of $1.8 to $1.9 billion as well. So these are significant sums of money, all in all, a quarter to be proud of.

Absolutely. Thanks, Sinead. Thanks, Christian. And Elaine, who is next?

Our next question is from Irina Himona from Societe Generale. Please go ahead.

Thank you. Good afternoon and congratulations on these results. Two questions, please. Firstly, could you perhaps give us an indication of what you expect the North Sea windfall tax to cost Shell? And then secondly, as you mentioned, your customers approach you seeking to decarbonize their energy, do you get a sense of whether it is reasonable to expect that due to the complete immaturity of these value chains, due to the fact that actually markets do not as yet exist, your returns can actually be quite significant? Thank you.

Thanks, Irene. That's a really good second question. I will take that first, and I will ask Sinead to talk about the windfall tax. Well, the short version of the answer is yes, we do, because we believe ultimately there is more value that customers will put on product attributes that really help them at a stated problem than what you can make if you serve commodity markets by being just a little bit better than the next person. And take as an example our vPower business. I've used this, I think, before. But we make really very good profits and very good margins on vPower simply because of the quality of the product and the appeal that it has for customers. And that is not because we have better refineries for making this particular grade of fuel. It is because it's a superior product that customers are prepared to pay a premium for. Now, the analog for that does exist in the energy transition as well. Customers who have a need to deal with energy transition challenges will pay a premium if you provide a product that will help them there, which could be, indeed, just a plain vanilla product like gas. clean electricity, or it could be a product which is equipped with attributes like risk management, continuity of supply, or other attributes like, for instance, negative emissions, et cetera, et cetera. And that's where we see the value. We are harvesting that value, and we believe there is a much bigger business pie out there for us to go after. And we believe we are uniquely placed because we have the best brands in the industry, and we have a lot of experience with the attributes that are going to be needed for customers, like risk management and, indeed, like superior formulations. So it's a bit of an article of faith on the one hand, Irene, But on the other hand, we have plenty of analogs to prove that it works.

Thanks, Ben. Thanks, Irene. On the topic of windfall tax or the energy profits levy, of course, it was enacted on the 14th of July. So what we're seeing is it's not hitting Q2. But what we expect to see in Q3 is around about 420 million of an impact on deferred tax. So you'll see that come through in our Q3 results as well. But beyond that, very relaxed sense of the windfall tax. We know how it's going to hit on this. We know that we've got the ability to continue to invest in the UK, as we've discussed before. So we are very much focused on Jackdaw and being able to get that investment through with the associated ability to take deductions with that as well. Thank you.

Thanks very much.

Thanks, Irene. And Elaine, who is next, please?

Our next question is from Christopher Coupland from Bank of America. Please go ahead.

Thank you very much. Good afternoon. Two hopefully quick ones for me. Ben, maybe for you, because it's kind of next door. What's your view on the Groningen gas field becoming a possible solution to Europe's gas crisis? And I'm not asking you because Shell is involved, but giving us a bit of an update on where you think the political debate stands today. And secondly, I wanted to see what your views are about the long list of potential FIDs in fresh LNG coming out of the U.S., and whether you believe there are some interesting opportunities there to act not as an equity owner, as you're doing in Qatar, but actually as an off-taker, considering a number of these operators that are proposing to build these terminals may not have the balance sheet to do so without off-take support. Hopefully, those will be quick. Thank you.

They're very good questions, Christopher. When you say next door, I'm not sure whether you refer to next door overseas or next door to Germany, because, of course, a lot of the questions have come out of Germany, as I'm sure you are aware. On Groningen, though, I can be very quick on it and just say, well, basically, this is for the government to decide, and it is. And we have no say, nor do we want to have a say, in making the very difficult trade-off between Germany public safety or perceptions of public safety and security of supply. But in case you haven't really picked up on the sort of sentiment of the dialogue in the Netherlands, no, the government is very clear. We want to use it as the very, very last resort. And only if indeed it is almost sort of like a matter of life and death. If hospitals and schools and et cetera are getting sort of starved of gas, then maybe we want to consider it. And we're good with that. I think that is a good position to take. And we, of course, follow that debate with as much interest as many others in Europe. I hope it won't come to that, Christopher, to be perfectly honest. On U.S. LNG, yes, indeed, we participate in U.S. LNG on the terms that you suggest, so as an off-taker. which can be advantageous. There's not as many, by the way, as we used to have. That is two FIDs so far this year. But we are keen to understand how they can help us in our book of supply sources. But to invest, I'd much rather bet on the ECO versus JKM Delta than the Henry Hub to Europe at this point in time. For the long run, I believe that it's a better bet for us to invest in. But it doesn't mean that we wouldn't participate as an off-taker in North American projects. Thanks, Christopher. And can we have the next question, please, Jolien? Sorry, Elaine.

Mm-hmm. Thank you. We'll take our next question from Martin Rath from Morgan Stanley. Please go ahead.

Yeah, good afternoon. I've got two. First of all, I recognize that a lot of questions have already been asked about the dividend and the financial framework. And I do appreciate the observation that the shares are cheap and therefore there is a preference for share buybacks. But I was wondering if it had been part of your consideration that perhaps the reason why the shares might be so cheap is that the dividend is too low. As in, I'm a bit worried that we end up in a sort of cycle where the shares are cheap, then excess cash is used for buybacks. It's not translated in dividend growth. The shares stay cheap and the observation, you know, the next time round will still be, geez, we better do buybacks because the shares look so cheap. I was wondering what you would say to that logic. And the second question I wanted to ask relates to LNG, and particularly LNG trade. I recently revisited some of the observations in the IEA's net zero document from last year, and although there is a much stronger story for gas in the long run than, say, for oil, it struck me how fast LNG trade actually declines in that scenario. Basically, after 2030, it really starts to deteriorate very, very fast in the IEA scenario, and I was wondering if this has any sort of impact on your sort of willingness or appetite to do new LNG liquefaction projects on that type of timeline. Is that entering your considerations?

Thanks. Thanks, Martijn. I think you did a different question one more time, but this particular version of it. But let me first of all talk a little bit about the IEA and the role of LNG in it. Yes, you're right. Of course, we have to bear in mind that the IEA is a normative scenario, Martijn. So it's, in other words, working back from a preordained outcome and then basically drawing a sort of linear line to how would you get there. So if you now look at that scenario, which is a bit over a year old, and you sort of track the progress against how we are doing with that one year into it, then we are more than two and a half years behind already. So in other words, we are traveling in the opposite direction. So that shows a little bit, you know, how challenging it is to sort of turn the big ship around. And we may, of course, have wishes and hopes and expectations that it all will get better. But for now, it's not. So, therefore, I don't want to put too much cold water on the IA report. But I think it is important to have a reality check. and just say, well, you know, is this really happening? And if it's not happening, well, why would that be? And maybe this has to do something with demand not being decarbonized rather than supply not disappearing fast enough. But having said that, though, I'm very mindful of the fact that we cannot continue to grow the LNG pie without decarbonizing that item. So, therefore, we have a very clear philosophy that whatever project we undertake, so we build the asset, which is, of course, the portion of the value chain that could be at risk if all of a sudden there is no carbon budget for it anymore. Whatever we build needs to be carbon competitive. And therefore, we are pursuing projects like LNG Canada, and the projects that we are pursuing on top of it need to be having even better carbon credentials, because the risk is indeed there, or the risk, the reality is going to be there, that when we get to net zero, we have to have indeed a reduction in LNG carbon intensity, and in LNG itself as well. Now, you will also see that a large part of our energy portfolio is a needed traded portfolio. So we take energy from somebody else's asset and add value to it that comes to us. And therefore, we have a lot of flexibility to flex depending on where the world will go, how fast it will go, and what detours it will take to get to net zero in 2050. That's our stated strategy. And so far, I think it proves to be the right strategy. But on the dividend side,

Indeed, it's a popular topic. Thanks for my time. The first part of your question, am I worried about a vicious circle? No, I'm not. This is a choice that we have to make, and we're very, very conscious about making that choice in the quarter, which is what we've done in this quarter. What is very clear, of course, is by doing the buybacks, it creates dividend capacity in the future. I'm very aware of that as a conversation we have regularly. So this gives us flexibility to look at the dividend per share and to have a sustainable and meaningful dividend in the future when the time is right.

Thank you. Thank you very much. And thanks, Martijn. And Elaine, can I have the next question, please?

We will take our next question from Giacomo Romeo from Jefferies. Please go ahead.

Yes, thank you. And two questions. The first one, if I can again on dividend and props, just – looking at your decision to increase your oil price, in particular your long-term view on the oil price, just wondering how that fits within your broader view of sustainability of your dividend. And then the second question is on LNG, and I think you talked at the end of last year about a return to normalized liquefaction volumes by the end of the second quarter. Obviously, a lot has changed since then, Sakhalin in particular, but just wondering where we stand in that respect, and particularly regarding Atlantic LNG, Energy LNG, what sort of timeline do you think you'll be able to go back to a normalized level of utilization?

Okay, very good. Thank you, Giacomo. And let me take the first question, and... Sinead will talk about LNG utilization and the normalization of the outages that you were referring to. And I think I already partly answered it in response to the previous question. So, yes, indeed, we do have a bullish outlook on oil and gas prices generally and then, of course, particularly, of course, in areas of greater stress like in Europe. And that is why we are also quite confident to say that, hey, if the conditions that we are witnessing today are persisting, then we expect to be paying out more than 30% of our cash flow. And, of course, this is a cash flow that is also already significantly higher. So it is a higher percentage of a higher cash flow. And you will see, indeed, the effect that it has on numbers like the 7.4 billion record payouts in Q2, which we're going to beat in this quarter. So, indeed, you know, confidence in the macro should translate for you in confidence in payouts that we are going to be able to pay. And, therefore, I do think that if you want to sort of come back to the dividend, the dividend is very sustainable at the level where it is. It's $7.5 billion a year, roughly, and a 4% growth. With the buybacks that we are doing, the absolute dividend quantum is actually declining. And therefore, I would like to add to the point that Sinead made just now. So we are building, every time we do a significant buyback, we are building a significant capacity for a dividend per share increase. So the buybacks eventually will crystallize in terms of value in a DPS increase. And that is the model that we have. That is the financial framework that we launched over a year ago. And that is how we intend to prosecute it. Now, on the LNG portion.

Indeed. And, Giacomo, thank you for that. I think you're referring back to where are we in terms of the strength of our equity volumes, our own production volumes across the LNG plants. So we have very strong performance in Q2, really proud of how the integrated gas business has operated there. What we saw, of course, was credit back up and running in Q2. We will deal with some of the action afterwards that's coming through. But particularly, we saw Peru and Trinidad and Tobago OK, back again, all being able to produce where they should be. And, of course, Calibri has been added to that as well. What we do see, of course, with Nigeria, NLNG still being impacted by some of the security issues. That is well known and not a surprise there. What you do see going forward, of course, is that we have taken out the SACLIN equity volumes, from our predictions for Q3. And that's what you'll see in terms of the noise going forward there.

Thanks, Sinead. Thanks very much. And Elaine, can I have the next question, please?

We will take our next question from Henry Patrickott from UBS. Please go ahead.

Yes, everyone, thanks for the update. I have two questions, please. The first one, holding up on the topic of LNG and long-term opportunities, you mentioned that you've added Qatar, you've taken the Crux SID. Can you comment on some of the other pre-SID options and whether you've come to the point where you actually already have quite a lot in your portfolio and then maybe a pause or are you still looking to accelerate, thinking in particular about the Canada LNG expansion? And then secondly, I wanted to ask about the renewables segment, which had an exceptional quarter. And I wanted to get a sense here to what extent you can continue to maintain maybe not quite this level of performance, but something close to the first half result and continue to see significant price volatility. Thank you.

Thanks very much, Henry. Good questions. Jeanette, would you like to take the second one? I will take the first one then.

So with respect to the renewable sector, you're exactly spot on, Henry. We've had very good first half performance. And of course, what you saw was the res segment. You saw actually 700 million of adjusted earnings in Q2. Now, of course, what you're seeing there is that's coming from significant volatility, particularly within Europe. So remember, what we're seeing there is, of course, gas as an input, power as an output, and that spark spread really giving us some room to make some money around the volatility. That is very much playing out in our results. That will change over time. That is not going to be a prediction of quarter by quarter. But what will occur, of course, is that we have many underlying businesses in there to do with solar, to do with wind, and many others that are beginning to come through as well. So you'll start to see those becoming more and more a large part of our results as well.

Thanks, Jeanette. And on LNG, of course, we have actually quite a big program going on at the moment. We are right in the middle of building the LNG Canada project, a very large project. And you're right, Henry, we see also potential to do a third and a fourth train. But that is not an imminent FID. We want to, first of all, of course, finish trains one and two. uh but uh then we have qatar which we will be in in construction and spending phase on as we speak more or less and of course we have another set of opportunities that can come behind that i hope they are familiar to you so uh things like tanzania for instance we are working by the way also in train 7 in nigeria and some other opportunities that that are a bit further back in the funnel But at this point in time, it is also really important that we look at market development. So we are focusing on new energy import capacity in Europe. So we've seen this sign in MOU for capacity in the Punsboetel terminal in northern Germany. But we've also taken capacity in the Emshaven, which is the large port that is actually on the border of Germany and the Netherlands, close to Groningen and therefore close to European gas infrastructure. And, of course, we are looking at other opportunities as well, in addition to what we already have in Europe. But that's an important part, too. It's not only at this point in time about developing new supply points, but also developing more optionality on the demand side. Thanks very much, Henry.

And can I have the next question, please, Elaine?

Our next question comes from Peter Lowe from Redburn. Please go ahead.

Hi, thanks. Yes, there's a strong quarter, but chemicals is one area which is still struggling. Can you perhaps kind of go through what the primary driver of that weakness is and kind of what has to happen to turn that around? And then secondly, just on CapEx, I think on the last call you intimated you'd be towards the middle of the $23 to $27 billion range. Is that still the case, or is there any other color you can give on that today?

Thanks. Yeah, okay. If I need to take the CapEx one, I will take the chemicals one.

Absolutely. So on CAPEX, indeed, our range is very clear. It's 23 to 27 billion, and we intend to remain very disciplined to remain within that range. In terms of will it be at the middle, will it be at the end, difficult to tell at this point in time, Peter. So what we are saying is within the range, what you'll see is some of the new projects that are coming in, whether that was this quarter, the payment of the signature bonus in Brazil for Atapu, whether that is Project Spring, which is the acquisition in India in terms of renewables acquisition, all of those will come in within that range as well. So I won't go further than that, apart from 23 to 27 and remaining disciplined.

And on chemicals, indeed, the chemicals results are not strong this quarter. That is because the chemical sector that we are exposed to is actually still at the low end, if not the bottom of the cycle. Now, it's always difficult to compare chemicals with chemicals if you look between the chemical competitors. But we are exposed to a different type of product package, basically because we're not large in polyolefins, particularly not in North America. We will fix that, of course, once we have Pennsylvania on stream. But that's, of course, a very significant moneymaker at this point in time that we don't partake in. As a matter of fact, we are more exposed still to base chemicals and therefore to the main cracker margin rather than the derivative chemicals, the derivative margins rather, that follow from that. On top of it, if you again were to do comparison contrasts, of course, we are more exposed to European chemicals where we, of course, see high energy costs as well. We're not atypical, by the way. Our chemicals performance is good. And if you look across the cycle, chemicals is one of the best performing segments in the portfolio with strong double digit returns but it is a cyclical business and it is a cyclical business that behaves differently for different companies depending on how they are exposed with their products to different parts of the economy can we have the next question please we will take our next question from Lucas Herman from BNP please go ahead

Thanks very much. And Ben and Sinead, nice to have the opportunity. A couple of them, I might. The first is just refining and to try and better understand the moving parts. You know, clearly that the marker margin moved up pretty aggressively. I can see the volumes were, you know, somewhat more modest than the first quarter. But just was there anything that we should be or you can make us aware of that should have led to lower capture? than I think most of us would have assumed, you know, going into the quarter. It was clearly evident, you know, from the trading statement. And secondly, apologies, I kind of want to come back to the dividend and rebase again. And look, I agree entirely with the direction taking in terms of, you know, maintain the absolute dividend at a particular level, reduce the share count, so on and so forth. You know, you're about 400 million shares down now on where you were, I think, you know, just a year ago. By the end of the year, depends on price, obviously, but given the guidance at present, it looks like you'll be about, you know, 800 million down, which is a 10% or so reduction in, you know, in the absolute level, and I guess allowing for the increase, you know, 6% below AP. So your break-even, you know, is improving all the time, and your break-even is low anyway, not least given the more bullish view on oil and gas prices into the medium term. So when do you actually prosecute on a potential rebate in dividend. Can you give us any indications of how you may be thinking? Sorry, it was a bit long-winded.

No, that's okay, Lucas. I think they're two very good questions, and I think I will take them both. On the dividend, I think we more or less said everything, and then I think you summarized it very well as well, and you And you also illustrated with numbers, which are indeed the correct numbers, Lucas. We will be significantly retiring shares, so we'll buy back a very significant part of the company. And therefore, as I said before, and as Sinead also said, we're building up a significant capacity for dividend per share increase. And that's the way we want to have dividends and share buybacks interacting with each other. So rather than say, let's raise the dividend and then we'll buy back some shares, I would much rather do it the other way around. And that is the way we articulate the financial framework when we launched it back in 2021. But the timing of that, I think the only thing I can reasonably say about it is when the board has decided to do so. And there is no news on that today. So I'm afraid that we do not have some sort of formulaic guidance of, well, this is the moment when. But I hope you can see what it is that we are trying to achieve. And your logic is indeed completely impeccable. On refining, I heard you say lower capture and the market margin. Yes, so the market margin has gone up significantly. You will have seen that in the QUN note as well. If you are referring to, well, but I can't work out how with the rule of thumb you have come to the results that you booked, it is basically because extrapolations with the rule of thumb in a single quarter over such a wide range. simply don't work anymore. There are just too many variables in there for that to mathematically work out. It works in a small range, but not in a large range. But what is really working or what's really happening in the refining business, Lucas, is, of course, that we are very short refining and we are short products. And that is largely because of Russia, of course, because a lot of Russian refining capacity is basically locked out. It's constipated because they cannot get every stream of the refining system out of the country. That part of the sanctioning and self-sanctioning is working very well. But it's also because the products like diesel, for instance, are difficult to place, particularly because they tended to go to Europe, the same with chemical feedstocks, and therefore everything in that field is going to be very tight. And it's going to be very tight for a while to come. I think the refining segment is going to be driven for a long time by the availability of middle distillates, so diesel, jet fuel, for which there is actually very limited price elasticity. But on top of it, we also see China not exporting for all sorts of reasons. So I think this tightness is going to persist for some time, not forever. So we're not in the golden age of refining, or if it is a golden age, it will be a relatively short-lived one. So ultimately, everything will refer back to mean again. But at this point in time, yes, we are seeing a dislocation that we are indeed – benefiting from, not only in our refining system, but also because we have the most capable trading team to really take advantage of the opportunities that it brings.

Thanks, Lucas. And Helene, can I have the next question, please?

Our next question will come from Paul Cheng from Scotiabank. Please go ahead.

Thank you. Good afternoon. Ben, the world seems to be in a tug-of-war between the recession fear and the supply concern, and commodity prices are very strong. Under this cross-current, I mean, how internally, when you guys are looking at next year's budget, activity level, shareholder return, ownership positioning, I mean, how do you factor the fear of recession or the recession risk? into the thinking and is there any positioning that you guys will do differently as a result? That's the first question. Second question, with the natural gas situation in Europe, does it in any shape or form change the way how you look at the hydrogen investment over there? Will you change the pace or that that that's not how you guys will decide or that the decision process. Thank you.

Thank you, Paul. I'll have Sinead talk about recession fear. The only thing I will say about it is that we are not as bearish as a lot of people are when it comes to recessions. On Europe and natural gas, well, it's – Let me say two things about it. First of all, the whole idea that we can also do blue hydrogen in Europe. So in other words, take natural gas, reform it and do CCS with CO2. That I think is a little bit difficult, of course, with the sort of gas prices that we are seeing. So I think for some while. Europe will focus very much on making green hydrogen, so hydrogen out of electricity, renewable electricity. And maybe over time, indeed, we'll also look at importing hydrogen, which can then be also blue hydrogen, for instance, if it comes out of gas-rich countries. But when it comes to hydrogen, we are driven in the long run by the value of hydrogen in the transportation system. Of course, at the moment, there is no hydrogen-based transportation system that has to be built. So the large hydrogen plant that we are building in Rotterdam will actually be using the hydrogen to feed our refinery and make the products in that refinery a little bit greener, for which we get a regulatory premium, which pays more or less for the capex. But then ultimately, of course, the value uplift needs to come from building out a transportation hydrogen infrastructure through Europe. That is not going to really compete or be driven by natural gas. That is going to be much more driven by how competitive can you make this against middle distillates. And again, how fast do transportation companies or the customers of transportation companies want to decarbonize the logistics that they depend on? And we believe there's a tremendous potential there and, of course, also a tremendous driver from governments to make these things happen. And that, I think, is much more determinant for how the hydrogen business will develop in Europe than what might happen with natural gas.

And Paul, you asked what really would happen in terms of how do we plan for whether there's going to be a recession or not. And we're going through the planning process at the moment. We're just kicking it off. So it's great timing to ask the question. We run our plan with scenarios. We look at the what if, what could happen in different scenarios, and we plan accordingly. So we look at if that scenario were to happen, what would be the capex level we would be comfortable with to ensure our balance sheet remains strong and our returns to our investors equally remain compelling and strong. We run that through, and that means we will vary the investments that we make. But fundamentally, what we're looking for is, for each of the investments we make, what is that return we're going to get? And we look at that investment by investment and stress test it, high scenario, low scenario, and our base scenario. And that allows us to be prepared. We don't wait for it to happen. We know what our creaming curve is, and we know what we're going to do when it hits us and if it hits us.

Excellent. Thanks, Paul. Elaine, who's next?

We have Jason Kenney from Santander. Please go ahead.

Well, thanks for taking the time to answer a question, Greg. Looking for some guidance on the renewable and energy solutions business, because it was a relatively low-key contributor to EBITDA 2020-21, and then your 4Q rolling EBITDA at 1.5 billion. It's quite a step up, actually. And so I don't know if you've got in your mind what an EBITDA contribution from that business could be by the middle of the decade. I know you're aiming to double the external power sales terawatt hours by 2030, but what kind of uplift are you going to get from pipeline gas sales? What portion of revenues do you think renewables could be or portion of EBITDA? Any kind of split in that business and the direction of travel and the magnitude of change over the next few years would be very interesting. Thanks.

Great question, Jason.

And I'm going to give it to Sinead first and then see whether I can add something to it.

It's also a difficult one, Jason, as well. So I think there's two parts to this business. There is the fact that we have, as I said before, sort of the gas and power and the trading around it, being able to deliver that to the end customers. And what, of course, you're seeing at the moment and what you're pointing out perfectly is that over the last year, that spark spread, that difference between gas as the input and power as the output, that has created a huge amount of volatility between them. And we have been able to trade around that incredibly well. And that's what you're seeing on, I think, used 1.5 billion, which is approximately where I would go in terms of the four-year – sorry, the four-quarter EBITDA. What I would say on that, of course, is that's subject to the market, and it depends what happens in the market. Alongside that, we have a significant number of other businesses in there as well. We have delivery of power and gas to homes in the U.K. We've got carbon capture and storage. We've got hydrogen, the Holland hydrogen that Ben alluded to earlier. All of those, of course, are building up, and we're really at the start of those as well. So you're right to suggest that by 2025, you will see that much more heavily as part of our portfolio. But those are developing markets, and those price lines are also developing as well. So we're focusing in on making sure that we can get great returns from them, but that will take time for us to build ours as well.

Absolutely, and 2025 will indeed be an important year, but not so much a year to target, but a point where we will see the great inflection with this business really taking off. Okay, thank you very much. And Elaine, who's next?

We will take our next question from Roger Reid from Wells Fargo. Please go ahead.

The questions that are really good have been hit, but I was curious, as we think about the energy security aspect of the overall market competing a little more with the energy transition, what kind of discussions, if any, are you having with any of the host governments in the countries you work in in terms of changing – some of the investments pushing faster on some of the others. I mean, you mentioned earlier to Paul's question on hydrogen. You know, it probably has more to do with demand more so than just a cost structure. But I was curious, from a policy standpoint or a request standpoint, anything that's changed on that in the last roughly six months, right, since the Ukraine conflict brought a lot of this to the fore?

Yeah, thanks, Roger. And you said lots of good questions being asked already. Well, this one is a really good question as well. I think in the last six months since the conflict started, sadly, I should say, I've never had as many good discussions with governments since then compared to before. And yes, a lot of them on energy security, a lot of them indeed, well, how does this work? What can you do? A deeper realization of the depth of the challenge that we are in when it comes to energy security. Also a better appreciation that Well, if this is what it takes to deal with conventional energy, how difficult can the energy transition then really be? And so I think the quality and the depth of the discussion, the intensity is definitely stepping up. I think governments are also realizing that we need to work harder on demand, which is, of course, what we have been saying for a long time. And you see the policies coming into effect as well. Now, I think at this stage, it's probably fair to say that Europe is still leading when it comes to demand side policies. But I think soon enough that will go across the world. But different discussions, more effective discussions, and I think also much more enabling discussions for us to make the investments, to take on the risks, also new business model risks that we are looking for. And that is across the board. It's not just in power. It's not just in hydrogen. It's also in sustainable aviation fuels and other ways of bringing both energy security and energy transition, which in a way, of course, go hand in hand. Thanks for that good question. Elaine, who's next?

We will take our next question from Amy Wong from Credit Swift. Please go ahead.

Hi, good afternoon. Two quick ones from me, please. Firstly, in your prepared remarks, you do a very interesting exercise comparing and contrast your financial results today to the 2013 period. So clearly, it's a reflection of of the hard work your organization has gone through to streamline the business and do some cost savings there. So the first question is, what's the scope to improve that profitability? And then my second question is in your upstream business, and you mentioned that on an underlying basis, your field decline was offset by growth from new fields. So my question is, what is your decline rates in your field at the moment? Given some of the comments around inflation, how are you managing those decline rates? Are the fields behaving the way you expected them to when you set out your upstream strategy? And is the CapEx allocation to the upstream business appropriate? Thank you.

There's a lot of questions in there, Elaine, and let me have a go at some of them. I take it your first question was really about comparing 2022 with 2013. Interesting, but what really can you do going forward from 2022? And I would say, well, first of all, it is very important to look back on how much we have strengthened this company. And the reason for doing it really is because there's also a narrative out there that the results we are seeing today are accidental. or actually just a windfall because there happens to be a war on the continent here. And while indeed the war is a driver of a lot of the pricing that we are seeing, if you reference it back to the last time we saw this price, of course, you cannot just explain it away by just the price effect. And indeed, we have significantly improved the portfolio. We have significantly improved the strength of the organization. We just picked out the number of indicators. I could have picked another dozen to just show that the company has become a better company, a higher quality company. And on the back of that, I would say that, yes, we can therefore also grab more opportunities. We have more discipline, not only demonstrated, but we just have a better discipline discipline. So in other words, when we take decisions right now, we are just better able to understand what is right, what is wrong. And we are basically high grading all the decisions that we can make into the best decisions possible. So I would say, yes, there is more running room when it comes to the performance going forward. On the fuel decline, I'm not entirely sure whether I got your question in the right spirit, so therefore I will also ask Sinead to add. If you look back on the upstream side, we actually reduced production compared to 2013. by 21%. That's not field decline, of course. That's also portfolio, but it's also taking into account a very significant acquisition with BG. So, in other words, again, you see that we have significantly upgraded the portfolio in terms of production because at 21%, we have coincides with 74% CFO per barrel increase. I think in general, field declines, I don't have the number off the top of my head, but I don't think we see surprises there, Sinead.

No, indeed. And post-Permian, what we expect to see between now and 2025 is around about 1% to 2% decline. coming through, Amy. But what I would say is, I mean, you look at our upstream business at the moment and you look at 4.9 billion of adjusted earnings in this quarter, which just shows you that, and that, by the way, is significant. Actually, the last time I think we got near that was 2011. So it's even beyond the debts that we're looking at now at similar prices. So what we are seeing is is significantly lower production, but really the value over volume coming through is really working. So quite relaxed from that perspective on it as well. And you asked a little bit about the CapEx as well coming through. So we're spending $7 to $9 billion. That's the intent for our upstream business. What we're seeing there is an awful lot of new things coming in. You saw Atapu. You saw, of course, Pierce will come back online, Jackdaw FID. Of course, Miro One starting up this quarter as well. So there's a lot happening in our upstream business. And clearly it's a business that we're very proud of as well.

Thank you very much. And that was actually the final question. I'm very mindful that there's still quite a few questions in the queue and apologies for those that haven't had time to speak. But we will get to you and make sure that your question is being taken care of as well. For now, I would say thank you so much for all your questions. We really enjoyed doing this call together with you. But I also hope that you have enjoyed it and that this has given you some insights to the delivery of our strategy, how we are striving to ensure secure supplies of energy during one of the most challenging periods the world has faced. But we also hope to see you in person at our Shell Insights event on marketing on October the 6th, which will be here in London, and which will be hosted by Herbert Ficoveno and our marketing team. And I wish you a very pleasant end of the week, and I hope you and your families will stay safe and will stay well. Thank you very much.