Shell Plans $30bn/Yr Capex Over 2021-2025 (Update)

(Adds comments from CEO, CFO from press briefing)

Shell plans to invest, on average, $30bn/year of cash capex over 2021-2025, including minor acquisition spend of up to $1bn, with a ceiling of $32bn/year, the Dutch major said June 4 while providing its strategy update. Of that, CEO Ben van Beurden told journalists, $11bn would be spent on upstream. The company has a lot of field opportunities to develop but some projects, such as Atlantic LNG in Trinidad & Tobago, need backfill gas. 

CFO Jessica Uhl said that the balance of oil and gas, in terms of annual production and reserves, would stay roughly 50-50. "There is no major shift in the near term," she said.

The capex target excludes "major inorganic opportunities" over the aforementioned period. Shell increased its organic free cash flow outlook to around $35bn for 2025 assuming $60/b Brent oil price. That compares with $28-33bn in free cash flow it expects to deliver by the end of next year.

“We have reshaped our company with a focus on value and have demonstrated a clear track record of delivering on our ambitious promises made at our Management Day in November 2017,” said van Beurden. “It is the success of our strategy and strength of our delivery today that gives us confidence for the future.”

By the end of next year, Shell plans to complete its $25bn share buyback programme. Looking further ahead to 2025, it plans to make distributions to shareholders of $125bn or more in the form of dividends and share buybacks in the period 2021-2025.  This is in comparison to around $52bn in shareholder distributions in the period of 2011-2015 and expected shareholder distributions of around $90bn in the period of 2016-2020. Shell will increase the dividend per share when "there is line of sight to the completion of the $25bn share buyback programme."

Shell will focus on three categories: core upstream, leading transition and emerging power. Deep water, shales and conventional oil and gas form the core upstream themes. Integrated gas, chemicals and oil products will make up the leading transition themes while the emerging power theme will focus on creating business models to meet evolving customer demands as society transitions to much greater levels of electrification, Shell said. It might also become involved with power plant construction, although an asset-light approach could also work, van Beurden said: "Trading is at the heart of businesses. We prefer the market."

Generally, the high risk and level of complexity that the energy transition represents, and more intermittent supply and demand, will lead to higher returns, he said.

The company expects to spend $2-$3bn/yr on emerging power, van Beurden said, assuming an 8%-12% return on average capital employed; but it might not spend so much for lower returns. "We have to prove the investment case before scaling up," he said.

Shell looks vulnerable to high gas prices in northwest Europe in the short to medium term: it has less equity gas and flexibility from the Netherlands and the UK; delays or sanctions could hit Nord Stream 2's timing and its capacity; and now it has no presence in the Russian Baltic LNG project, since its reconfiguration as a combined LNG and gas treatment plant, now with no foreign partners involved.

But van Beurden told NGW that Shell was "very well placed" thanks to its trading business Shell Energy Europe and its LNG business to meet demand. "How it will play out will be determined by market forces: how prices develop in Europe. Shell will take a dispassionate view on where we can get the most value from our global, very sophisticated portfolio. We do serious optimising."