Shell plc (NYSE:SHEL) Q4 2023 Earnings Call Transcript

Shell plc (NYSE:SHEL) Q4 2023 Earnings Call Transcript February 1, 2024

Shell plc beats earnings expectations. Reported EPS is $2.15, expectations were $1.94. Shell plc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to Shell’s Fourth Quarter and Full Year 2023 Financial Results Announcement. Shell’s CEO, Wael Sawan; and CFO, Sinead Gorman will present the results, then host a Q&A session. [Operator Instructions]. We will now begin the presentation.

Wael Sawan: Welcome, everyone. Today, Sinead and I will present to you the 2023 Fourth quarter and Full year results. We had another year of very strong performance, delivering the second highest cash flow from operations in Shell’s history despite the external uncertainty and volatility. Starting with safety, which remains our top priority. Our personal safety results last year were slightly lower than in 2022, and our teams are determined to make sure 2024 is a year of improvement. I am, however, really pleased that our safety results set a new record for Shell, confirming our top-tier performance in the industry. We are also making good progress across the targets outlined at our Capital Markets Day and expect more to come as we progress through 2024 and beyond.

In 2023, we demonstrated our strong commitment to capital discipline by delivering at the lower end of our $23 billion to $27 billion range. In addition, we have already achieved $1 billion in structural cost reductions, well on our way to a reduction of $2 billion to $3 billion by 2025. This reduction is a first step, this is not a one-off change program. We are building the capability to continuously adapt to changes through the energy transition. The reductions will be staggered. The most significant contribution in the short term comes from focusing on where we play, which are essentially portfolio choices. And at the same time, we are emphasizing a bottom-up focus to create a leaner more agile organization that delivers more value. We are also leveraging new technologies such as artificial intelligence to improve the performance of our assets.

We have millions of sensors collecting over 5 trillion rows of data that our AI models, combined with our conventional models used to monitor equipment 24 hours a day, 7 days a week, alerting engineers to anomalies from a distance. This enables us to intervene and fix issues early, improving our performance, and we continue to high-grade our portfolio and position the company for growth into the future. This past month, we agreed to sell our Nigerian onshore subsidiary, SPDC, subject to government approvals and other conditions. This is an important step for the company, and we hope to complete the deal as soon as is possible. In 2023, we saw production growth with the startup of a number of key new projects in our advantaged upstream business.

The projects which came on stream this past year at their peak, will add over 200,000 barrels of oil equivalent a day. They are part of our larger funnel set for start-up by 2025. Together at their peak, all projects will add more than 0.5 million barrels of oil equivalent a day to our production. And they will enable us to continue providing the energy security that the world needs while delivering cash flow longevity into the future. We also continue to invest to help enable the energy transition in areas where we can create value. Last year, we invested $5.6 billion in low-carbon energy, such as our Nature Energy acquisition and the CrossWind JV, which will supply renewable power to Holland Hydrogen I, Europe’s largest electrolyzer. In short, we’re working hard to deliver the energy the world needs today and we’re helping to build the energy system of the future.

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Q&A Session

Our relentless focus on performance, discipline and simplification allowed us to deliver compelling returns and create more value for our shareholders in 2023. Our shareholder distributions for the year were over 42% of our CFFO. And today, we increased our dividend by another 4%, taking our total increase over the last 12 months to around 20%. We continue to progress towards our destination of a net zero emissions business. Our preliminary results show that we have further reduced our Scope 1 and 2 emissions in 2023. We are only halfway through the timeline to our 2030 target, yet we have already achieved more than 60% of the reductions needed to reach the target. With that, let’s go to Sinead for more financial results.

Sinead Gorman : Thank you, Wael. We delivered strong results in Q4, driven by our strong trading and optimization in LNG and robust operational performance. One of this quarter’s highlights came from QGC in Australia. This quarter, they had their highest ever LNG production, which helped deliver Cargo number 1000 since startup. Moving to our financial results. Our adjusted earnings were $7.3 billion for the quarter, and $28.3 billion for the full year. In the fourth quarter, we saw $4 billion in post-tax impairments driven by macro outlook and portfolio choices in line with what we announced at Capital Markets Day. We generated $12.6 billion of cash flow from operations, contributing to a total of $54.2 billion for the full year 2023, our second-best year ever.

Our strong performance allowed us to return $23 billion to our shareholders, delivering in excess of our 30% to 40% CFFO range. And today, we have announced a new $3.5 billion share buyback program, which we expect to complete by the time of our Q1 results announcement in May. We have also announced a dividend increase of 4%, in line with our progressive dividend policy. Our balance sheet remains strong with net debt reducing by $1.3 billion year-on-year. And looking forward in 2024, we will continue to target shareholder distributions of 30% to 40% of our cash flow from operations through the cycle, while maintaining our focus on delivering more value with less emissions. Now I will hand back to Wael for more on what’s coming next.

Wael Sawan : Thank you, Sinead. So, this was another year of strong results for Shell, marked by one of our highest ever annual adjusted earnings and cash flow from operations. We achieved this and much more despite volatility in the energy markets. In 2024, we will focus on delivery of our first sprint through performance, discipline and simplification building on what we have achieved in 2023 by focusing on areas where we have differentiated capabilities and core competencies, we aim to be the investment case through the energy transition. In the coming weeks, we hope you can join us for our LNG outlook and our annual ESG event, which will also cover the energy transition strategy 2024 publication. Thank you.

Operator: [Operator Instructions].

Wael Sawan : 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 our guiding principles. Today, Sinead and I will be answering your questions. And now please, could we have just one or two questions each so that everyone has the opportunity? And with that, can we have the first question, please, Luke?

Operator: Our first caller is Michele Della Vigna from Goldman Sachs.

Michele Della Vigna : I wanted to ask two questions, if I may. The first one, is about your lineup of new projects. You’ve got one of the strongest pipelines in the industry in Brazil Gulf for Mexico, LNG, Canada, but also with the full restart of Monarch and Prelude. I was wondering if there is a way to guide us on what you think could be the incremental cash flow from these assets by the time they fully ramp up, let’s say, by 2025, 2026? And then my second question is related to the European and the global gas market. We’re mostly focused on price upside in the last few years and how to capture it, and Shell has certainly built a very good portfolio for it. But what I was wondering is, in environment where, especially for the second half of this decade, we could see an oversupplied LNG market that challenges a bit arbitrage between the two sides of the Atlantic.

Does that change your contracting strategy and how well set up is Shell to effectively successfully navigate what could be a tougher gas market for the coming years?

Wael Sawan : I’ll start by asking Sinead to address the first one, and I can take the second one.

Sinead Gorman : Sure. No, thank you, Michele. And indeed, thank you for the recognition of what is an incredibly strong funnel. Going forward, you listed many of the different projects. So, as you say, Gulf of Mexico, LNG Canada, Monaco up and running, Prelude, but let’s not forget, as you go past 2025, we have up until ’25. We said greater than 500 kboe a day in terms of new projects coming in. And let’s remember that we had more than 200 kboe day at the peak, as well mentioned earlier, coming through as well. But beyond that as well, we also have things like Crux coming in, we will have the Qatari volumes, et cetera, coming in. So, there’s a great wealth coming through. Rather than guide some specific CFFO dependent on price, et cetera, what I suggest as we look at, you saw a promise of 6% growth on free cash flow through and decades, so that’s the sort of number to look at, and you can see we’re easily meeting that in terms of our promises so far.

And remember, in terms of Sprint 1, very much we’re talking about a 10% growth per share. So, you can see, of course, that’s been easily met at the moment when we’re doing things like 6.5% of the company being bought back last year in 2023. So great momentum going forward, Michele, and you’re absolutely right. We have a wealth of projects to be delivered.