Shell can pull on several levers to maintain shareholder returns in a sub-$50/bl oil price environment, including adjusting capital expenditure (capex), chief financial officer Sinead Gorman said today.
Shell is facing questions about contingency plans for lower oil prices after Ice Brent crude futures briefly dipped below $60/bl in intraday trading earlier this week for only the second time in more than four years. Oil prices are not only under pressure from weakening global economic growth prospects due to US import tariffs, but also from the Opec+ group's decision to bring back production faster than previously flagged.
At $50/bl, Shell's commitment to return 40-50pc of its cash flows to shareholders would mean $8bn/yr of dividends and $6bn-7bn/yr of share buybacks, while only having to pull back "a little bit" on capex, Gorman said. In a $40/bl oil price environment, Gorman expects Shell's operating cash flow to still cover the $8bn/yr in dividends. "But of course, for us, the important thing is to be able to try and maintain the buyback for as long as we can," she said.
At these lower oil prices, Shell can make use of its comparatively strong balance sheet to support share buybacks. Shell's debt gearing remained below 19pc at the end of the first quarter despite the company increasing its net debt during the period.
"Are we comfortable leaning on the balance sheet? Yes," chief executive Wael Sawan said. The balance sheet has been positioned so it can be used to generate shareholder value, "whether that shareholder value is best created through more buybacks, or whether that shareholder value is created through an inorganic [investment] or the like", he said.
For now, Shell is sticking to its $20bn-$22bn capex budget for 2025 and expects to carry on with planned investments in projects and other commitments. But the company has demonstrated in the recent past "a strong ability to be able to pull many levers" should oil prices fall futher, Gordon said, referencing the reduction in capex to below $18bn during the Covid pandemic.
"So, the flex is there, but that's not the position we're in at the moment. We don't need to do that and we see great opportunities for value," she said, pointing to the company's announcement earlier this year that it is raising its stake in the Ursa oil project in the US Gulf of Mexico.
Earlier today, Shell said it is maintaining its quarterly dividend at 35.8¢/share and will continue to buy back its shares at a rate of $3.5bn/quarter, despite a 35pc drop in its first-quarter profit to $4.8bn.
