Shell PLC

Welcome to Shell's 2024 First Quarter results. It's been nearly a year since Capital Markets Day when we showed you our plans to deliver more value. And in March, our energy transition update showed how we will do that with less emissions, demonstrating our commitment to being a net zero emissions energy business by 2050, whilst delivering enhanced shareholder returns. As we continue to turn our plans into action, I'm pleased that 2024 is off to a good start. we delivered yet another set of strong operational and financial results in the first quarter. In upstream, our conventional oil and gas business performed very well, with many of our core assets delivering high controllable availability. We also started production at our Rydberg field, which is connected to our Appomattox production hub, reinforcing our leading deep water position in the Gulf of Mexico, where our oil production has some of the lowest greenhouse gas intensity in the world. This is another project that supports the energy security the world needs and underpins the longevity of our cash flows. At Shell Polymers Monaca, our petrochemicals plant near Pittsburgh, we have successfully ramped up to full operation in Q1 and are on a pathway to longer term stability. In our renewables and energy solutions business, we have strategically diluted part of our stake in the Texan Brazos wind farm, whilst keeping access to 100% of the offtake as part of our integrated power strategy. This allows us to build on our strengths and leverage our world-class trading and optimization capabilities. We continue to focus on maximizing the value of every electron and molecule to help us deliver on all our targets. Moving on to our financial results, we continue to deliver strong results in the first quarter of 2024. Despite above average well write-offs, our adjusted earnings were $7.7 billion. and we generated $13.3 billion of cash flow from operations, driven by our consistent focus on performance. In the first quarter, we had high liquefaction volumes coupled with strong seasonal trading and optimization in our integrated gas business, even though market conditions were less favorable than in Q4. In chemicals, we saw marked improvement in performance compared with previous quarters, and we still have potential for further growth. and it was a strong quarter for our products business, particularly in trading and optimization, where we were able to capture high margins due to global product supply disruptions. Moving on to our financial framework, we continue to be disciplined about our capital spend and our balance sheet is strong. Regarding shareholder distributions, today we have announced another $3.5 billion share buyback program, which we expect to complete by the time of our Q2 results announcement in early August. That brings our expected shareholder distributions for the first half of the year to well over $10 billion. This demonstrates how we generate attractive shareholder returns in line with our guidance of 30 to 40% of our CFFO for shareholder distributions through the cycle. So to summarize, Q1 was a good start to the year, a quarter of strong operational and financial performance, And for the rest of 2024, we will keep driving performance, focus on our strengths and continue to deliver more value with less emissions. Lastly, there's an important upcoming event for your calendars. Our Annual General Meeting 2024 is on May 21st. We ask our shareholders to support our Energy Transition Update, in which we outline how we continue to make good progress in reducing emissions from our operations whilst investing in areas where we have strengths. These investments are helping our customers to decarbonize. With this in mind, we have set a new ambition to reduce customer emissions from the oil products we sell by 15 to 20% by 2030. Therefore, we ask our shareholders to vote against the alternative resolution. By doing so, our shareholders will be endorsing this management team, our board, and Shell's aim of being the investment case through the energy transition. Thank you.

We will now begin the question and answer session. People dialed in, if you have a question, please press star one. If you wish to be removed from the queue, please press star two. 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.

Thank you for joining us today. We hope that after watching this presentation, you've seen how we delivered strong results and how we continue to focus on operational performance. Today, Sinead and I will be answering your questions. But first, I'd like to just take a moment to thank Jörg Hausinger for all the work that he has done for us here at Shell. Chirk has had a 35-year career, a very impressive career, and has been pivotal in integrating the external market perspective into our strategy. So we thought we would wish him well with a very strong quarter and thank him for all the effort he has put in. And now, if we move to the questions, Luke, can we please have one or two questions, please, from every person on the call? And I hand it over to you, Luke, to let us know who the first caller is. Thank you.

Our first caller is Michele de la Viña from Goldman Sachs.

Thank you very much, Wael and Sinead, and congratulations on the strong delivery. And thank you, CERC, for all of your help over the years. I wanted to ask you two questions, if I may. The first one is, if I look at the delivery in this quarter, you've strengthened your balance sheet by $3 billion at the time when most of your peers actually increased the gearing. I was wondering what would give you at this point the confidence to increase the buyback from the current level take advantage of the really cheap valuation to continue to buy back shares and accrue value per share. And then my second question is about the growing debate about relisting in the US for some of the European oil companies. I've seen your comments. Total Energy has commented about it as well. I was wondering if you could walk us through perhaps what you think would be some of the benefits, but also some of the hurdles in considering such a potential material move. Thank you.

Great. Michele, thank you for that. Sinead, do you want to take the first one? I can take the second one.

Certainly. And indeed, Michele, what you saw was us put three billion towards the balance sheet this quarter. Of course, there's a couple of reasons about that. First of all, in this quarter, what we saw, of course, was fantastic operational performance, which drove good cash flows. So that gave one part of it. We saw lower capex, of course, which gave a little bit of a bump in terms of the free cash flow. But also, of course, in terms of our distributions, in terms of the buybacks, in terms of the phasing of them, a little bit fell into April. So there was a little bit more that came through. What we do, of course, with the balance sheet is, and with debt, you see our debt fluctuates a little bit. We use it to demonstrate value whenever it comes through. But fundamentally, your question is really about distributions and the choice to do 3.5 billion of share buybacks this quarter. As you know, we tend to look through various quarters. And what you saw, of course, in the past couple of quarters is we've had quarters with lower CFFO. And fundamentally, I've still done 3.5 billion buybacks at that point in time. So we're now at 10 quarters where we've done buybacks of at least $3 billion. So you see the pragmatic approach coming through and see some form of consistency.

Thanks, Sinead. Michele, to your second question around the relisting. I think firstly, maybe just to sort of split it up into two. I think let's start with the fundamentals, the valuation of this company. And what we have said in Capital Markets Day last June is our focus is on how we're going to grow those fundamentals, both on the free cash flow side, absolute, as well as the free cash flow per share. the latter being something we want to grow 10 plus percent per annum through to 2025 and the former all the way through to 2030 growing it at roughly six percent per year. That is what our focus is. So what we have said is performance, discipline and simplification are at the core of what we need to be driving and you already see through this quarter for example the outcome of that. You're starting to see more stability on the operational performance. You're starting to see the cost move in the right direction. You're starting to see the discipline on capital started to shine through. And of course, all the subsequent benefits of a stronger balance sheet and so on and so forth. That is what the focus and that's what the priority is. Then there's a second bucket, which admittedly we acknowledge that we see our share price as being below what we think is a fair market value at the moment. And what we are doing there, again, what we said in Capital Markets Day, what we're going to do is to continue to lean into buybacks. And once again, here's another $3.5 billion buyback for this quarter, which I think underpins that commitment that we have going forward. The simply relisting is not going to address the first point around the fundamental valuation. It could potentially play a role in this disconnect that we see. But for now, what we're focused on very much is the buyback. And so, of course, as a management team, we have a duty of care to continue to look at all opportunities to bridge that valuation. And so we will always have something like a listing or other elements under review. But I can tell you it is not a live discussion at the moment for us. Our absolute focus is on driving the strategy more value with less emissions to make us that investment case through the energy transition. Michele, thank you for the question. Luke, can I have the next question, please?

Our next caller is Viraj Borkataria from RBC Capital Markets.

Hi, thanks for taking my questions. The first one was just on the LNG segment. It's encouraging to see the LNG volumes at the top end of the guide and stuff. You narrowed it to the trading update. But I noticed that in addition to the higher volumes, the gas realization in integrated gas was quite a bit higher than I would have expected. the last few quarters it's been quite predictable, and I guess the big change is prelude quarter on quarter. So is that what is driving, can you just talk a bit about what's driving that? That would be helpful, or if it's something else. And then the second question is on OPEX, and you just highlighted you continue to drive it lower. I was just wondering at the group level, can you talk about the difference between the structural cost reductions of what you're seeing relative to the inflationary pressures that are coming through? Because the net result is lower, but I was trying to understand how you think you're performing on the controllables. And then maybe a cheeky third question, but you've removed some of the disclosures on mobility. I'm just wondering why that was. Thank you.

All right. Thank you, Biraj. Do you want to take those, Suneet?

Sure. On your first one, Biraj. So actually, let me just take the last one as a really quick one. Just very clear, we're trying to simplify everything across the organization at the moment. So we looked at our disclosures, which are quite extensive, as you probably know, looking at our data book in some detail. And we looked at which ones are actually used most and where do we get the questions. So we simplified across everything. It's basically bang for the buck. How much effort does it put into ensuring that we have all of these up to date, et cetera. So nothing more than that. um on the lng side you asked about in terms of the realized price you're right you saw that a change between i think it was eight and nine dollars you saw that coming through on the realized price really simply put for us what you see of course is that we're quite heavily in terms of brent price or oil priced markers on some of this so some of them are oil some of them are pure jcc and of course others are gas priced but In Q1, what we saw was, of course, Brent relatively flat. But JCC with that lag, that really played through now. And that completely overweighted or compared or covered for, in effect, the slightly weaker gas prices as well. So that's what played out. On the OPEX side, in terms of just where are we, in terms of differences in structural performance, et cetera, you saw OPEX come down this quarter. You're right. But I would say, remember this phasing. So you always see, in terms of us, Q4 OPEX going higher. Just to remind you on that, of course, Q4 is always decommissioning and restoration updates come through a few on bonuses and largely basically people billing us towards the end and that comes through as well. So we're seeing good progress and we talked about it at Q4 of, you know, a billion down of the total of two to three that we had talked about. Where are we seeing it come out? We'll do another update for you at the end of Q2 and walk you through some detail on that. But we're seeing good progress. It's beginning to filter through the organization. You already saw the portfolio side of things, the where we play. Now, how we play in terms of structural change is coming through. It's a simplification. One of the ones I just gave you earlier in terms of what we disclose, what we spend our time on and trying to focus on that, which makes most sense. So you see a simplify, try and speed up accountability and make sure actually the business is focused on what it should be, which is really about delivering value at the end of the day. And each part of that is different per asset.

Thank you, Sinead. Biraj, thank you for those questions. Luke, can we go to the next question, please?

Our next caller is Lydia Rainforth from Barclays.

Thanks and good afternoon to you both. And clearly very, very good 1Q. But just an observation, 1Q does tend to benefit from better trading volumes, which don't always repeat in 2Q, 3Q. So can I just talk to you what we can expect from that Sprint 1 program that really keeps the momentum going for Shell into the rest of the year? And I suspect probably linked to that on the cost base, just coming back to that, I think you're introducing a new process as of July this year in terms of that kind of theme approach in terms of really simplifying things. What sort of impact do you expect that to have? Thanks.

You want to take those two?

Sure. In terms of, yes, so Lydia, the comment of Q1 tends to be higher. So there is that element for us with Q4 and Q1. We are skewed towards, particularly from a trading point of view, the Northern Hemisphere winter for our LNG business. However, what I would say is actually some of the trading and optimization, which you referred to, plays out at different times. Actually, just different aspects come through. So there are elements, for instance, of maintenance, that play at different times so you see maintenance heavier in one quarter than another but you also see seasonality around for instance driving season so we would expect to see of course our marketing results come up with driving season increasing within the the us as well we then see of course beyond that we see different things like for instance for loops It tends to be about industrial maintenance and industrial activities. So, for instance, Q1 tends to be a little bit higher and we see Q4 also higher. So that spreads out across the various assets. What you will see, though, and what is key here is that this is an organisation who is looking to deliver on what is promised. So what you're going to see, Lydia, is us continue to be focused on quarter after quarter being distinctly boring on this and delivering on exactly what we said. So what you also see then is each asset knowing exactly what they need to deliver in terms of value and playing to that strength. So that should provide the consistency across there. And of course you're going to see the drumbeat of further announcements coming through as we continue with delivering on exactly what we were We told you we would do. The second part, of course, was around cost and the pace of it and taking things out. Good catch indeed around SEMA, and I think Wael referred to it last quarter as well, where we talked about changing. And this is about our, for others, it's about many of the standards that we have linked to the assets. What we've basically said is how do we reduce those down to what is the bare minimum? What is really required to hit our values? safety and actually correct operation for the environment etc but what is needed has to be fit for purpose for each asset and it's not the same between an onshore asset and a deep water asset or a mobility asset or a refinery so that's the sort of thought process so those same standards are reducing by some 70 percent but it's much more than that it's not just that 70 percent it's then how is that taken by each of the assets to do what they think is correct It comes down to what assets need in terms of management information, what they need in terms of staffing levels, what they need in terms of legal support, etc. And that's the change that you're seeing. Each asset, each part of the business is looking at what are the risks and therefore what they need to cover those and to maximise value. So that cultural change will come through and it's done very purposefully.

Thank you, Sinead. Lydia, thank you for those questions. If we can go look to the next question, please.

Our next caller is Alastair Sim from Citi.

Thanks, Sinead. Well, look, I'll definitely share my best wishes to CHIRC. The powers have intersected on several occasions over a long number of years, and sometimes we've agreed and sometimes we haven't, but it's always been first-class interaction. So I look forward to sharing a drink in a few weeks. A quick question, where do we stand on Bookham, if you could give us a little update on that, and then a longer one. You know, while as you think about the strategic plan in year one, I wanted to know whether your assumptions and the competitive landscape has remained sort of broadly within your range of expectations, or has there been anything out there that's made you, you know, tweak your plan, push or pull harder in any one or more areas?

Thanks for that, Alistair, and thank you for the kind words for CHIRC as well. Did you want to say a quick word on Bookham first?

Yeah, one liner on that. I think we had said previously that we were going through a strategic review and that we concluded that and that our preferred option was towards divestment. We're continuing to pursue that route at this moment, and I look forward to being able to give you an update at some point in the future. You'll understand I can't say more than that at the moment.

Great, thanks. And to your second question there, Alistair, look, I think The world around us, of course, has continued to be uncertain and volatile. And what you have seen is a number of things. I'd say, one, the amount of geopolitical risk that has played up, the accentuation of the Russia-Ukraine issue, what we are seeing, of course, in the Middle East at the moment, and the challenging relationship across the US-China axis, all of it, of course, has just meant that that volatility, that uncertainty that we had expected has been magnified, and we need to be able to adapt to that. And this is where I think... It's reinforced my own conviction in the strategy that we have in something like LNG, where our ability to be able to have multiple supply points, our ability to have multiple demand points, our cross-commodity exposures afford us quite some resilience when you have such volatility. Also what we're seeing, of course, is, from an external perspective, is different countries are dealing with their own respective challenges, whether that's fiscal challenges, whether that is the need to step up, for example, defense budgets, health care services. And, therefore, the pace of the energy transition in some of those countries is varying. And once again, I think our strength of being really focused on the global picture but then honing in on the local realities has been key. And so what does all this mean for the way that we are responding? I think we're doubling down on what we saw coming into Capital Markets Day. We said at the time that there are some core basics we need to continue to follow through. We need to unlock the full potential of the asset base we have in place. And I think Q1 offered us a good glimpse of what that looks like when Monaco's up and running, when Prelude's up and running, and so on and so forth. We need to continue to keep that funnel of opportunities coming through LNG Canada, our Brazilian projects, our Gulf of Mexico projects. We need to continue that cost momentum and bring down the structural cost and we need to keep that discipline. So all of those elements continue to play up in my mind and critically to contribute to the direction we're going. With all of that, we continue to see that disconnect between what our share price is and what that underlying valuation is, which is why, if anything, we have become hungry to continue to go for even more of, I think it was Martin Reitz who said, eating shell, our ability to continue to buy back more of shell over the coming years, when in particular our free cash flow yield continues to be a comfortable double-digit one or mid-double digits. So all of that, I think, reinforces our direction and reinforces the need for that cultural evolution that we have committed to make, of which I see some real green shoots and growing in confidence that we can move at a pace even faster than what we had anticipated. Thank you for the questions. Luke, can we go to the next one, please?

Our next caller is Paul Cheng from Scotiabank.

Thank you. Good morning, or good afternoon, your time. Two questions, please. The way that your Pittsburgh, you're saying that in the first quarter, you're now running at full capacity. So at this point on, to improve the result in that, what is the operational improvement that we should expect? Or that it's just going to be a function of selling the non-profitable assets and also hoping for the margin to improve? That's the first question. Second question, Q is that, It looks like the pace of energy transition perhaps is going to be a bit slower than previously assumed and oil production may not peak until sometime next decade You've been looking for your production in liquid production essentially flat about 1.4 million barrel per day for the rest of the decade Should we revisit whether that is the right target and whether that we should also eliminate the artificial ban of looking at the exploration regions outside the existing area by 2025 or 2026. Thank you.

Great. Let me, I'll try to cover both of those, Paul. And firstly, let me make a quick apology. My team here informed me that it was actually Lucas who said we were eating ourselves, not Martijn. So I stand corrected. Paul, on your point around Monaco or Shell Polymers Monaco. A couple of things. I think firstly to recognize this first quarter was one where we were indeed trying to drive up the performance of all the trains, in particular that third train, which you'd recall had the equipment failure or equipment faulty realization, which is what we were working to improve. And now that we have been able to fix that, we have seen all three trains at or above capacity. As we go into the next quarter, it's all about reliable operations now. it's stabilizing that facility. What I'm particularly proud of, I spoke earlier about culture change, and this was a great example that the team in Monaco showed that this is a culture change that is no longer just top-down, but actually now what you see is truly across the organization, people grabbing onto the mantra of how are we going to achieve our values and drive value. And what the team there did was, you'll recall we had talked about the facility potentially allowing us to produce around 40 different grades of polyethylene. The current cash generation opportunity, given the disconnect between oil prices and gas prices, is just about flow. It's just about how much we can get polyethylene through. And so the team pivoted to be able to drive what they call a faster for longer strategy. Sorry, fewer for longer strategy. And in essence, what they're doing is they're going for a handful of grades where we know the operating envelope is working well, and they will drive that to the limit so that we can get as much volume throughput as we can to be able to generate the cash. A really nice example of how they were able to adjust to the circumstances in the market to unlock value. And so expect that to play up, expect us to continue to drive value through that as we stabilize the facility and over time continue to premiumize. This is a journey of multiple months and years, of course, but we are moving very much in the right direction. On your broader point around liquid production, the pace of the energy transition is consistent with what our beliefs have been. So, there hasn't been a fundamental change. This is not a new revelation. We have always said that we want to be able to be resilient to different degrees of—or different paces of the energy transition, simply because both the shape and the pace of the energy transition are uncertain. And so our strategy has been one that is resilient to that. And so what we have done on the LNG side is to say we are going to grow that LNG business by 20 to 30 percent through to 2030. On the liquid side, on the oil production side to your point, We see that continuing to be a delivery of around the 1.4 million barrels per day, plus or minus. And that's a focus that we have to be able to continue to high grade and make sure that it's not just about liquids production or volumes. It's all about making sure we continue to focus on those highest margin barrels, the ones which we have enjoyed in our portfolio, the ones that have given us the leading CFFO per barrel compared to our peers. And our reserve base, of course, given it is preferentially skewed towards the Porter and LNG, allows us to do more of that. On your point around exploration, the focus of our exploration is to tap into basins where we feel we have a true competitive edge. true competitive edge. And you've seen that in particular in the Atlantic Basin, where we are leveraging Gulf of Mexico, Brazil, Nigeria into a place like Namibia, and we will do more of that. So we are not necessarily constraining ourselves, but we are focusing on the areas where we can get the highest bang for our buck. And in a world of making sure that we are focused and constrained in how we allocate every dollar of capital, I think that's a wise move for us to continue to follow through on. Thank you for the questions, Paul. Luke, let's go to the next question, please.

Our next caller is Josh Stone from UBS.

Yeah, thanks, and good afternoon. Two questions, please. One on LNG. You've been connected in the press with a couple of transactions that would expand your LNG portfolio. I understand you won't be able to comment, but maybe more broadly, Can you talk about why now would be the right time to add to your LNG portfolio through acquisition and how you would ensure you get a fair value given what it seems to be a competitive process? And second question on the departure from the power market in China. Maybe just talk about what was it about this business that led to your decision to depart? Also curious, you haven't exited the EV charging business, so is it the case that maybe you don't see the need to integrate between your power business and your EV charging business for the portfolio more broadly? Thank you.

Thank you, Josh. I'll take the first one, Sinead, if you want to take the power market. I suspect I have a sense of the deals that you have referenced there, Josh, that are being talked about in the press. I'd sort of be, I'd separate them. I think one, for example, been talked about, Ruways, LNG, and Abu Dhabi. That's one which Abu Dhabi is developing on a greenfield basis. I won't give any specific comments other than to say organic opportunities to continue to grow our LNG portfolio, opportunities that potentially can add more supply points to the portfolio in attractive locations where the carbon intensity is low and the value potential is high are very much down the lane that we want to continue to grow. We have a fundamental conviction that this is not an LNG sprint of a few years, but that LNG will be required for decades to come. And this is why continuing to find those differentiated opportunities is something we will look at. We are indeed not looking at big M&A in that space. Whenever we're looking at LNG opportunities, we're looking at bolt-ons to our existing portfolio where we feel that the capabilities we have, the portfolio we have, the positions that we have built up over the years would allow us to be able to unlock more value than maybe a seller would be. And so we would be looking at any of these opportunities, of course, being accretive to our overall delivery as an LNG business for Shell. I'll leave it at that and maybe leave it to you, Sinead.

I think this one's quite a simple one in the sense that what we talked about with respect to power is that we will be very disciplined in this area, be very focused. And I think it was last quarter that I actually talked through that will stay in a select number of markets, which I referenced, you know, places like the US, places like, you know, potentially parts of Europe, etc. And we went through that in some detail. But whilst China remains attractive, it is a very different market as well, of course. And what you're drawing is the linkage between the fundamental selling B2B linked to EV. And those are, of course, very, very different. So why are we exiting one and staying in the EV side? So in terms of the exit, we want to stay in markets where we bring differentiated capabilities, where we have the ability to deal with intermittency, where we have the ability to use our trading and optimization capability, battery power, a range of different things. And we didn't have that skill from a dedicated perspective in China. That wasn't one way we were going to have a capability versus somebody else. However, on the EV side, that's where our brand, our experience and our partnerships have really, really played out. Of course, China is slightly different. There's very high utilization rates compared to anywhere else, frankly, compared to the US or Europe. And therefore, what we see is very attractive returns. But of course, that's going to change over time. So it will all depend on how policies play out across the world. But specifically to your China point, we're very comfortable decoupling what was a B2B business versus, in effect, linked to the EV side of things, where frankly, our brand plays out in a very strong way.

Thank you, Sinead. Let's go to the next question, please, Luke.

Our next caller is Irene Hamona from Bernstein.

Thank you very much and congratulations on these very strong results. Two questions. First, on Upstream, you referred to improved performance and higher controllable availability. How sustainable do you think that is and what drives it? If you can talk around, is it a change in processes or working practices and so on? And then my second question, trading was strong in power and products. In your 2023-20F, you very helpfully quantify the contribution last year of trading for both power and products. Can we hope or expect perhaps a similar annual disclosure regarding LNG trading? Thank you.

All right. Thank you, Irene. I'll take the first one and then leave what I suspect will be a short second one to Sinead. I think, firstly, on the upstream side, a lot of work has gotten us here. This is not a question of months or even a year. This has been a multi-year journey that has gotten this level of reliability and focus across our assets. We're seeing it, by the way, in our deep water business. We've seen it in the conventional oil and gas business. And it seems to be now really sort of coming across many of the assets. And that's very pleasing. I think it's a tribute to some of our leaders, someone like Zoe, who's leading the integrated gas upstream business and her executive vice presidents, who have made this operational performance an absolute key focus area for them. And what are they doing with that? They're looking at, indeed, the processes and making sure that the processes are pointing the different contributors to reliability in the same direction. You see it, for example, in the way that some of our projects and technology teams are working with our asset teams. We've seen it in the deep water space recently. The objectives are much more aligned. The goals are much more aligned. And you're seeing the power of that coming through day in and day out. By the way, does that mean that All is fine? No, of course, we have a long, long way to go. But we are institutionalizing over the quarters, one quarter at a time, that real rigor in the way that we drive operational performance. An element of it is how also we reward folks, where the consistency of excellent delivery, rather than just thinking about the next new project, is an important part of it. I also have to recognize some of the improvements that we have made in areas like overall proactive maintenance, where, for example, using some of the AI capabilities we have, you know, we have five trillion rows of data that are being fed from some five million sensors across the organization with 17,000, 18,000 pieces of equipment that are feeding into it. nerve centers that are sitting in places like the U.S. and Bangalore, looking to be able to create capabilities that allow or that create signals for our operators to intervene ahead of certain upsets. It's helped us in the LNG space, as I've mentioned in the past, to the tune of 1 to 2 percent improvement in reliability at no cost. All of that is just building that next level of rigor when it comes to operational performance and something that I think we are growing in confidence around and starting to be able to sort of embed on a much more consistent basis through the company.

Yeah, and on your trading question, Irene, one of the reasons, of course, that we disclose a little bit more in terms of the res sector, in terms of the information there, is simply because we don't have as many underlying assets there. So that's why we give you a little bit of the breakdown. And of course, fundamentally, across our assets, our T&O, our trading and optimisation, works because of the underlying assets. So it's not as though you could have one without the other. The magic happens when we link the two together because they're taking the products and ensuring molecules, electrons, whatever it may be, they're in the right place at the right time. And a huge part of that is coming from the underlying assets, slightly different in res. In terms of the disclosures, of course, what we gave you was 2% to 4% ROACHI uplift for our T&O business or T&O part of the organization. And we said specifically, which is the bit that you should probably look to, is that integrated gas or the LNG part is at the mid to upper end of that. And of course, our oil products part is at the mid to lower end. So I think those are the disclosures that we've given you. Thank you.

Great. Thanks, Sinead. Thanks, Irena. Can we now go to the next question, please, Luke?

Our next caller is Ryan Todd from Piper Sandler.

Thanks. Maybe a follow-up on the comments on trading and optimization in your integrated gas business. As you think about the outlook over the next one to two years, given an LNG market that seems to have settled into a more maybe a more modestly priced LNG environment with maybe a little less volatility than we've seen over the past couple of years. How should we think about the trading and optimization outlook for the integrated gas business in the medium term? And then maybe a second question on CapEx. Last year, you reduced the targeted median term outlook for capital spend. You've done a great job instilling confidence in terms of cost control and downward pressure there. What are you seeing in terms of cost inflation across your portfolio, particularly in LNG and deepwater? And what risk or tension does that pose as you try to drive capital costs lower across the portfolio?

Great. All right. How about you want to take the first one? I can touch on the second one.

Certainly. In terms of sort of the trading and optimisation outlook, in terms of going forward on LNG, I think it comes back again to the fact that we marry the two parts together, as you know, Ryan. So it is that underlying equity story. So the volumes that we've got. And of course, then depending on the length that we have, how much we can actually play into the market. What we are seeing, of course, is at this sort of price point, you're seeing latent demand actually lift, particularly in Southeast Asia. So, of course, interesting at these sort of prices, you're seeing parties like Vietnam, Pakistan, even India coming in more into the market and therefore creating more demand and, of course, inching the price upwards as well. It's quite small, but you can see that change over coming from coal often as well. So the small changes in supply will actually have an outsized impact on price from time to time because it is a tight market that we see going forward. I go back to, was Freeport last year or just before that, but it was just an immense change, a tiny volume, frankly, but you saw how much it played out in the market. And that for us is where it's an interesting one, because given the size of the assets we have, so not just the liquefaction assets and the production, we also, of course, have an amazing amount of vessels. And those vessels allow us to be able to move the product where it needs to be, or in this case, the LNG where it needs to be. So when that volatility or those changes or disruptions in the market happen, that's where we manage to take advantage of and actually make even more returns. So it's very difficult to predict what's going to happen in the next two years in terms of the LNG market, but we see more demand coming in.

Thank you, Sinead. And, Ryan, on your inflationary question, what we are – there's a couple of things. I think, firstly, it's just becoming much more rigorous in the way that we allocate capital, and you see that, I think, coming through. We've had opportunities where we could have accepted lower returns because of the inflationary pressure, where we decided to pause. Gato do Mato in Brazil is a good example, where we've said no. We want to recycle it and we want to get a better price point. Otherwise, we're not going to simply invest for the sake of it. And so I think there's an element of rigor and capital allocation discipline that's important here. On the inflationary end of it, what we see at the moment is inflation, call it from portfolio basis, portfolio level at around the 5% mark. plus or minus. There are certain elements or certain categories that are more in the 6% to 10% range. You see it, for example, in FPSOs. You see it with subsea hardware. But by and large, on a portfolio basis, you're talking about 5%. And so a big focus for us is what can we continue to do to be able to at least mitigate a portion of that, difficult to mitigate all of it, but a portion of it, while we continue to exercise enhanced discipline in the way we allocate that capital. Thank you for the questions, Ryan. Luke, let's go to the next question, please.

Our next caller is Alejandro Vigil from Santander.

Hello, thank you for taking my questions. One question about Namibia has been a very exciting quarter for some of the players in the area. What can you tell us about your exploration works there and update on your activity? And the second question is about divestment. You have announced $1 billion. Which are your expectations for the rest of the years in terms of cashing from divestment? Thank you.

Thank you, Alejandro. Do you want to start with the divestment one? I can touch on that with you.

Yeah, very short on that one indeed. I think it's probably coming back to what we said at Capital Markets Day, where we play. We will play where we have differentiated capabilities. And you see us, you know, that exit that we talked about earlier, the great question earlier around from Paul in terms of China. as well and moving out of that B2B business. You've seen that on other things. This quarter, indeed, South Coast wind in the US, where we just don't feel that we can play in the right way given the returns that we would see, and we leave it to others who can do so in a different manner to us. So there's a number of those that you see coming through as well. And of course, we've already announced the Pakistan divestment. We're looking to go towards completion. So you'll see a drumbeat coming through of where we step back or exit and divest from certain aspects of the portfolio where simply it doesn't hit our hurdle. And that comes back to what Wael was saying, the discipline that we are showing to ensure that we hit everything that we said to you that we were going to do, performance not promises, I've said it before, that is playing out across the full portfolio. And we're doing that because we have a wonderful position to be in. When you're sitting where we are, where the business is delivering very well, as you've seen from this quarter, where you're delivering over seven billion on earnings, over 13 billion in terms of CFFO and more to come as we show the discipline on CAPEX, show the discipline on OPEX, etc. Our alternative is always going to be to have the ability to buy back shares. And you've seen us do that now ten quarters in a row. So above three billion. So in terms of the divestments that are come, there is definitely more to come. And of course, we look forward to updating you as we go through.

Thanks, Sinead. Your first question on Namibia, Alejandro, what I would say is We continue our de-risking program there. We continue to drill exploration and appraisal wells and study the results of it. And importantly, we continue to study the results from many of our neighboring blocks to be able to better inform our own choices. We're not in a race here to be able to put the facility in place. What we have been very clear with the team on is this is a new basin. This is a complex reservoir. significant volume is clear, but complex in terms of the porosities and the permeabilities. And so it is important that we continue to ensure that if we are to invest significant capital here, we want to be able to have sufficiently de-risked it and made sure that we can deliver the sort of returns that our shareholders expect of us. And that's the mandate that the team is working on. So working as quickly as they can, but with a clear objective to provide the right de-risking for us. I think the recent discovery from GALP, I think, adds some excellent data points for the overall basin, and those will be taken into our broader considerations as we think about where we go next in our de-risking program. Thank you for the question, Alejandro. I'll go back to you, Luke, please, for the next question.

Our next caller is Christian Malek from JP Morgan.

Hi, thanks for taking my questions. And yes, just thank you very much, Chuck, for all the help over the years and also congrats to Oswald. So the first question, if I may, is regarding what seems to be still quite a large degree of inconsistency in terms of cash flow. The cash flow is from last quarter to this quarter, I mean, 60% move. If I compare your cash flow variability to, let's say, Exxon, it's far more. And I guess the question I'm asking is, what level or range of cash flow through the quarters are you comfortable with, given that volatility can be quite unpredictable? And within that same question, Where do you think a normalized level of cash flow should be? Because I'm also trying to understand when you say the sprint, when does the sprint finish? What are you happy with? In the context of your case, I just say we're done. We can now move to the marathon because all of the things you talk about are improvements that all businesses should be doing. And it's wonderful to see it. I just want to understand what's the end of the runway on this first initial phase. And that sort of segues into my second question around your molecules. The energy business is exceptional. I just wonder whether you're thinking of planning to be as competitive and as scalable in the oil business, given your comments around energy transition and what seems to be potentially a bullish scenario. Why aren't you thinking or talking about potential for consolidation, given the window that we have to acquire oil barrels, and particularly given the difficulty into building with a huge increase in capacity necessary? So I just want to understand, what's your thinking around buy versus build? Are you comfortable with the molecules that you have currently, particularly, let's say in this scenario, oil doubles, or we are in a strong cycle, Are you back solving from that today? Thank you.

Yeah, great. Thank you for those two questions, Christian, and for the recognition both for CHIRC and Oswald. I'll take the second question first, and then I'm going to come to Sinead to have a moment to think about the first one. I think on the oil business, A couple of things I'd say. Firstly, over the next six years, we have guided, of course, to stable liquid production on the back of what we already have in the portfolio. So that's our base case. The consolidation question, I think, is a good one. And we continue to look for opportunities to be able to, of course, bulk up, as any good company should be doing. We have a couple of challenges here. One is, of course, our share price, we don't think, is reflective of an opportunity to be buying somebody else and creating accretive returns for our shareholders. That, in my mind, is a must-do. If we start to sort of run on the back of value destructive deals, then we've lost the plot. So we want to continue to be doing the right thing by our shareholders in that context. The second point, of course, is that all the deals we're seeing out there at the moment pale in comparison to actually buying back our shares. against a double-digit free cash flow yield with a suite of portfolios, whether it's in Deepwater, LNG, our trading business, our marketing business, which we know very well, which is much more de-risked, which doesn't require as much of an integration effort and as much of a premium to be able to adjust. We can buy those at the discount today. And so we will continue to do that. And we will continue to do that until we actually see that the share price has responded in a way and that we have the currency to do anything else. And that's why we've said very clearly for this first sprint, it is all about getting the fundamentals right. And I'm sure Sinead will address the end point, but my two cents on it is the first sprint is nothing more than a milestone. There will be more that we need to continue to do well beyond that first sprint in terms of getting the business to its full potential. There is an enormous amount of latent potential, and that's what we're going to go after and unlock. Sinead.

Indeed. And thank you, Christian. And this is where you'll always get me excited about it, because, OK, so your comment, I can take it in two ways. So the way I will refer to it is, of course, more than 13 billion of CFFO, despite approximately 3 billion, just under 3 billion of working capital out. So you're right. 16 billion of cash flow is an awful lot. And indeed, every quarter there is a lot of cash flow coming through from this business. And of course, that's what gives us the confidence to be able to do the buybacks. And that's exactly what we're doing despite the volatility. You've heard me talk about it before. We actually welcome volatility in the sense that we have a strong balance sheet. We take the time to be able to deliver from time to time. And we also, of course, manage to provide consistency. And that's the key point for investors in terms of the buyback. To remind you, since the Permian deal, including what we've announced now, we've done 40 billion, over 40 billion worth of share buybacks. That's a huge proportion that has come through. And this is ten quarters of three billion or more. So in terms of inconsistency or consistency, I would say absolutely not. You see that drumbeat time and time again. We are predictable in terms of what we do and how can we do that? We do it because of the underlying cash flows of this business. You're right. It does change quarter to quarter. And that's why I look through the quarters to be able to provide that stability throughout. that's why we've provided targets out there in the market in terms of the free cash flow and free cash flow per share we have confidence in the levers of that so that's exactly what we're doing stability in terms of the capex discipline opex down buybacks through debt being able to be delivered as well providing that overall investment case as well so am i worried and what should i think in terms of the free cash flow What's key to me is to ensure that I have a balance sheet that allows me to invest through the cycle, allows me to be able to continue to buy back shares, which at this price are frankly just undervalued. And I get excited about the fact that the share price today is not even representing the underlying value of the business today, let alone what we are going to do in terms of capital markets day delivery as well. So, yep, all good on that. And you said, when does the sprint finish? As you can see, I can get excited about this. The sprint will finish at the end of 2025. That's what we've said so far. So thank you.

Excellent. Thank you, Sinead. Christian, thank you again for the good questions. Can we go, Luke, to the next question, please?

Our next caller is Lucas Herman from BNP.

Thanks very much. And thanks for the... Eat away, Sinead. Well, just keep eating away and make Chirk very happy in his retirement as a Shell shareholder. Don't stop. A couple, if I might. I just wanted to come back to chemicals and to try and... I guess it's back to Paul's question around utilization. Great. You've moved away from 60%. You're guiding towards 72% to 80%. And I'm presuming you're saying within that the moniker is running, if anything, it's down above nameplate. So it's really trying to understand why the numbers remain as modest as they are. Is that a consequence of a very difficult margin environment and you're actively deciding you're not going to run plant? Do you think that on the 25 billion of capital that's invested in that business, how much of that capital do you think can earn a cost of capital return? How much of it not? And secondly, and sorry to stay on some of the businesses where I don't quite understand what they're delivering, sectors and decarbonisation. If I look back That business used to deliver, you know, 600, 700 million of net income per annum. It's done 20 million in the first quarter. Has it kind of become an area of experimentation and development and spend for the future and for the power and progress strategy? Or what kind of level of net income do you think we should realistically anticipate from that business in the near to medium term rather than long? That's it. Thanks very much.

Lukas, thank you for that. And we will indeed keep eating away. Let me take the first one and then ask Sinead to address the second one. On chemicals, You'll recall, Lucas, of course, in June we talked about chemicals and how we were positioning chemicals. We had some assets in the portfolio that were, if anything, actually destroying value, their negative return on capital employed, others that were sort of at the—coming out from a nonproductive phase of capital deployment into productive phase, such as Shell Polymers, Monaco. and others that were somewhere in between, like our European assets, and we had to sort of do some work on them. I think it's fair to say that on all three, we're making good progress at the moment, right? So, of the $25-plus billion of capital employed, we have already talked about the planned divestment of Bukomjerong, which is the Singapore asset base. We have announced a couple of things on a few of the units in Europe, and then the other 50 percent of that capital employed sits in Shell Polymers Monaco. There's a lot that we are doing in that space. We have talked about selling or high grading the portfolio by selling the assets that are underperforming. We have talked about other specific units that are underperforming. We will either shut them down or convert them. We have recognized that our cost structure in that business needs to be addressed and we've made some moves, including for example, a few months ago where we trimmed down significantly the commercial staff base. We have shifted the interaction between our chemicals and products and our trading organization where there are some elements which we had duplication. We have now removed that duplication and consolidated. So we're doing all the things we can do to be able to bring this business to be the best it can be within the constraints that we continue to have. As we continue to step up on Shell Polymers Monaco, what you will see is continued improvement there, of course. As we look to go into the next grade of products and the next grade of products, we will be locking windows with many of our customers. That typically happens in the late third quarter, early fourth quarter. So all of that is yet to come. But right now, we're maximizing value within the constraints we have. And I would say, to your point, margins continue to be very challenged. The indicative chemical margin for this quarter was 150, better than what it was in Q4, but that is still woeful compared to the historic trends. And so, we will do all we can within what we can control and position ourselves to have choices thereafter.

Yep. And on sectors and decarbonisation, I'll keep it reasonably short, Lukas, because I think there's a number of parts in here. You've got parts like Holland Hydrogen One, you've got the heifer plant in the Netherlands, both of which you're right, they're not generating any net income at the moment, but they will in the future. And of course, you have to invest for that. And you know the investment case around those. So no need to talk about that. We also, of course, have had a difference between what would have been the voluntary market before in terms of the drop-in, of course, of different fuels. You're right, that has come down in recent times, but that obviously goes back and forth along the way. The other part of it, of course, is that Ryazan sits there as well. And Ryazan, of course, in what we've seen in Brazil over the last couple of quarters is we've seen actually a lot of ethanol into the market now i can either take that as being very worrying or actually take it as being we know there will be a change because what brazil will do as it typically does you have the flexibility of course for cars to run their dual fuel they can flip between ethanol and normal fuel they will change the requirements there which is what they've done year on year and that will require basically more ethanol input into which will increase the market as well So you see that, but you're right, it's at a low price now. And beyond that, of course, there's things like aviation and marine in there. And of course, what you typically see is that you'll see the ramp up, particularly for aviation, coming towards the traveling season. It's pretty low at the moment, but to be fair, it has not come back since what we saw pre-COVID as well. Beyond that... which I think is where you're going to as well. Investments going forward, clearly they'll be at the hurdle rate and that's where we're very thoughtful. What we've seen is actually the EVP for that business actually looking at where she can step back from certain things and say, do I have a differentiating capability? So we don't serve the mining sector for decarbonisation in there anymore because that's not where we add a lot of value. We don't make good margins. So I'll keep it there.

Thank you, Sinead. Luke, I think we're close to time. Any more questions?

Our final caller today is Christopher Kaplent from Bank of America.

Thank you. I'll try and keep it short. So, Jack, we'll speak later. A quick one. Maybe, Sinead, you can, of course, point to seasonality in capex. It's been a light quarter, but maybe you can talk to that seasonality versus real underlying efforts of spending less. I've noticed that spending levels have halved, basically, in mobility, for example. Maybe you can touch on a few points there. And maybe you refer to the AGM that's upcoming in your opening remarks. So I'll leave it to you while maybe to comment on how Shell is this time around, at least in the AGM season, made an example amongst the big oils and the shareholder resolution that you're up against. Can you maybe put that into context, considering the conversation, whether live or not, about where your primary listing should be? Thank you.

Excellent. Thank you very much, Christopher. Let me hand over to you, Sinead, for the first one.

Yeah, I'll keep it short to allow enough time for the second one. You're right, CapEx is low, absolutely, this first quarter. It tends to be very lumpy, though, as well. I think it was Lydia in Q3 last year actually called us on that and asked for a bit more. What we're seeing, of course, is just that capital discipline is kicking in. You're absolutely right on that. You see that in mobility, etc. But it is about timing as well. So a lot of our payments tend to be a little bit lumpy. So you see it at different times. So Q4, as you will have seen, was quite an uptick there as well. But that discipline lens is going through the whole organisation. You'll see lumpiness, things like whale, et cetera, different payments that still have to come through in the course of the year. So I'm not reducing the guidance at the moment, keeping it in terms of 22 to 25.

Thank you, Sinead. And to your broader question, Christopher, thank you for the opportunity maybe to comment on the AGM on May 21st. Say a few things. One is we go into this AGM with, I think, real momentum in the share price. A few of the comments that I received at the last AGM were many of the shareholders with a few shares, retail shareholders, saying, hey, we've been holding your shares for a long, long time. We want to be able to see some uptick. And hopefully we can stand proud and say we have been able to continue to drive some of the valuation of the company while recognizing there is a lot more to go. And so we will humbly submit that there's a lot more running room. We will also, of course, be putting forward our energy transition strategy for a vote, which hopefully everyone will have seen the thoughtfulness that we put behind it, the broader understanding of the energy system. What I would say is a company that is truly leaning forward in the energy transition, but in a thoughtful and profitable way, because ultimately that transition is only going to materialize with scalable and profitable business models, which is what we are trying to unlock. And that will require us. It will require governments. It will require customers to step to the plate. There is, of course, also the follow this resolution, I think, to your implicit point around—to make an example, I think it is a focus on Shell, which we welcome, because at the end of the day, we have the opportunity to be able to, I think, tell a very compelling story, a story of how this company has invested 10 to—or will be investing 10 to $15 billion between 2023 and 2025, and invested $5.6 billion in the low-carbon space last year. a company that is investing in the largest green hydrogen facility in Europe and looking to create real value out of that when others have made promises but have not followed through. And so it would be a real opportunity to tell our story. But importantly as well, a reminder that the resolution, while appearing noble in its intent, fundamentally hits a few key points for us. One is it is bad governance. It looks at one specific metric without looking at the entire energy system. And this is where we would ask our shareholders to spend time just reading through the energy transition strategy and looking at how we are thinking about the broader positioning of the company. We also think that that resolution is going to be very bad for shareholders. We will be giving up businesses to others just for the sake of it. It will be bad for our customers who are depending on us to actually support them in this transformation and in this transition. And it will not actually help the climate because all it will result in is us getting out of businesses that others would serve. And so for all those reasons, you've seen a unanimous support or unanimous advice from both the management team and the board for the eighth year in a row. to say, do not support that resolution and support management's resolution. And I think—I hope that through the efforts and through the debate that is becoming much more qualified these days and a deeper understanding of how we need to keep the balance through the energy system, our shareholders will vote in the right way in support of management's recommendations. And I look forward to that. Very little in terms of how this all impacts listing. The ESG agenda, when done in the right way, should be done all over the world. So that's not a Europe or UK specific thing. But hopefully it's more the investors leaning in and being able to truly get much more detailed in the way we're thinking about our energy transition and not fall prey to what is too simplistic and to some extent a destructive resolution that has been tabled. Let me leave it there. Christopher, thank you very much for that. And apologies for those who haven't been able to get their questions in. I'm sure your questions will be more than adequately addressed by our IR team. Let me close off by saying thank you to all of you for the questions, for joining the call. In conclusion, we have delivered yet another strong quarter. We announced another $3.5 billion of share buybacks, which makes this, as Sinead already said, 10 quarters in a row with buybacks of at least $3 billion. I think we are building now a track record of consistency and are progressing well in our first sprint to deliver more value with less emissions. And we continue to aim to be the investment case through the energy transition. We wish all of you very well and have a pleasant end of the week. Thank you all.