Shell Boosts Shareholder Returns While Lowering Investment Plans

LONDON, March 25 (Reuters) – Shell announced plans Tuesday to enhance shareholder returns and reduce its investment budget through 2028, as part of a strategic pivot focusing on liquefied natural gas (LNG) growth.

The oil and gas giant raised its shareholder distribution target from 30-40% to between 40% and 50% of cash flow from operations. This marks the company’s commitment to prioritize shareholder returns amid ongoing market pressures.

Shell also projected a 4-5% annual increase in LNG sales over the next five years, alongside a target for a 1% annual production growth, while maintaining stable oil output at 1.4 million barrels per day.

Based on estimates, global demand for LNG is expected to surge by approximately 60% by 2040, attributed to economic growth in Asia, the influence of artificial intelligence, and global initiatives aimed at reducing emissions in heavy industries and transportation.

In a recent capital markets day release, Shell revealed it sold 65.8 million tons of LNG last year and produced 29 million metric tons.

To streamline its operations, Shell is exploring “strategic and partnership opportunities” for its chemicals assets in the United States and may consider closing certain businesses in Europe.

The company also revised its annual investment budget, reducing it to a range of $20 billion to $22 billion through 2028, down from the previous estimate of $22 billion to $25 billion. Last year, Shell had reported an investment spending of $21.1 billion.

By the end of last year, Shell allocated around $8 billion out of a $10-15 billion budget for low-carbon solutions planned for 2023 to 2025. Looking ahead, the company anticipates that up to 10% of its capital will be deployed in lower carbon platforms by 2030.

A Shell spokesperson did not provide specific investment figures for its low-carbon initiatives beyond 2025.

Following the announcement, Shell’s shares rose approximately 1.8% in early trading, outperforming a broader index of energy companies, which increased by 1.1%.

RBC analyst Biraj Borkhataria commented on the announcement, stating, “The guidance looks better than expected, with higher cost reductions and lower capital expenditure projections compared to consensus, as well as increased shareholder returns. It was a boring but good update.”

Shell has implemented a $3.5 billion share buyback plan for the current quarter, marking the 13th consecutive quarter in which it has committed to repurchasing at least $3 billion in shares. The company’s dividend was increased to about $0.36 in January, aligning with its policy of 4% annual growth.

Shell aims for an annual free cash flow increase of over 10% per share through 2030, while committing to a cumulative $5 billion to $7 billion in cost reductions by the end of 2028. These efforts reflect the company’s strategy to enhance value for shareholders while maintaining a competitive edge in the energy market.