Shell advances net-zero transformation, says its oil production peaked in 2019

Shell announced a new strategy designed to accelerate its transformation into a provider of net-zero emissions energy products and services. The company also confirmed its expectation that total carbon emissions for the company peaked in 2018, and oil production peaked in 2019.

“Our accelerated strategy will drive down carbon emissions and will deliver value for our shareholders, our customers and wider society,” said Ben van Beurden, Shell CEO. “We must give our customers the products and services they want and need – products that have the lowest environmental impact. At the same time, we will use our established strengths to build on our competitive portfolio as we make the transition to be a net-zero emissions business in step with society.”

Shell will integrate its strategy, portfolio, environmental and social ambitions under the goals of Powering Progress: generating shareholder value, achieving net-zero emissions, powering lives and respecting nature. The company said its organization will deliver on these goals through the three business pillars of growth, transition and upstream.

Growth

Shell reiterated its cash priorities to deliver value for shareholders today while growing value for tomorrow, including:

• Maintain the progressive dividend policy, increasing dividend per share by around 4% per year, subject to Board approval.
• Retain near-term annual Cash capital expenditure of $19-22 billion.
• Reduce net debt to $65 billion.
• On reducing net debt to $65 billion, target total shareholder distributions of 20-30% of cash flow from operations; increased shareholder distributions achieved through a combination of Shell’s progressive dividends and share buybacks.
• Disciplined and measured capital expenditure growth balanced with additional shareholder distributions and further strengthening of its balance sheet.

In the near term, the company said it expects to maintain underlying operating expenses of no higher than $35 billion, and pursue divestments averaging $4 billion a year. Over time the balance of capital spending will shift towards the businesses in the growth pillar, attracting around half of the additional capital spend. Cash flow will follow the same trend and in the long term will become less exposed to oil and gas prices, with a stronger link to broader economic growth.

Transition

Shell set out details of how it will achieve its target to be a net-zero emissions energy business by 2050, in step with society’s progress towards achieving net zero. This target covers the emissions from the company’s operations and the emissions from the use of all the energy products we sell. And crucially, it includes emissions from the oil and gas that others produce and Shell then sells as products to customers, making the target comprehensive.

Powering Progress supports the most ambitious goal of the Paris Agreement on climate change to limit the global temperature rise to 1.5° C. To achieve net zero, Shell:

• will continue with short-term targets that will drive down carbon emissions as it makes progress towards its 2050 target, linked to the remuneration of more than 16,500 staff. This includes a new set of targets to reduce the company’s net carbon intensity: 6-8% by 2023, 20% by 2030, 45% by 2035 and 100% by 2050, using a baseline of 2016;
• expects that its total carbon emissions peaked in 2018 at 1.7 gigatonnes/yr;
• confirms that its total oil production peaked in 2019;
• will seek to have access to an additional 25 million tonnes a year of carbon, capture and storage (CCS) capacity by 2035. Currently, three key CCS projects of which Shell is a part, Quest in Canada (in operation), Northern Lights in Norway (sanctioned) and Porthos in The Netherlands (planned), will total around 4.5 million tonnes of capacity;
• aims to use nature-based solutions (NBS), in line with the philosophy of avoid, reduce and only then mitigate, to offset emissions of around 120 million tonnes a year by 2030, with those we use being of the highest independently verified quality;
• will work with the Science Based Targets Initiative, Transition Pathway Initiative and others to develop standards for the industry and align with those standards; and
• starting at the 2021 AGM, submit an Energy Transition Plan for an advisory vote to shareholders, the first in the sector to do so. The company said will update that plan every three years and seek an advisory vote on the progress made each year.

Upstream

Shell said it will focus on value over volume, being simpler and more resilient, continuing to provide material cash flow into the 2030s. An expected gradual reduction in oil production of around 1-2% each year, including divestments and natural decline.