Shell plc (SHEL) Earnings Call Transcript

Good morning all. If I can have your attention, please. Thank you very much. We will start with the safety briefing. And the safety briefing will be done by Joe from the New York Stock Exchange. Joe?

Good morning. My name is Joe Carey. I'm the Fire and Life Safety Director here at the exchange. In the event of an alarm, I'd ask you to stand by and listen for instructions from the fire command station while we do a quick investigation. If it is necessary to evacuate or if the floor were to become untenable, I call your attention to the exit doors in each of the rear corners of the room. This floor is served by 3 enclosed Fix it stairs labeled A, B and C. The C stair's out this way and the B stair's out here immediately outside the doors. Will take you down to street level. Fire staff is assigned to this floor and will be here to assist you. The preferred route is our fire tower stair A found in the elevated lobby from which you came in and to which you would be escorted by your warden. Know that we are seeing to your safety, and enjoy your event.

So welcome to Shell's Capital Markets Day. I'm Tjerk Huysinga, Executive Vice President, Investor Relations. I'm very happy to see you and so many familiar faces here in New York. I also want to welcome everyone who is following this presentation through the live stream. Today's meeting has several sessions. We will start with Wael Sawan, our Chief Executive Officer; and Sinead Gorman, our Chief Financial Officer. After a short break, Zoë Yujnovich, our Integrated Gas and Upstream Director; and Huibert Vigeveno, our Downstream and Renewables and Energy Solutions Director, will each provide an update on their businesses. You will get the opportunity to ask all the executives questions at the end of their presentations. After the Q&A, our live stream here will end. We will have lunch for everyone here, followed by an opportunity to ask further questions in 1 of the 3 breakout sessions with Zoë, Sinead and Huibert. By the time we finish, I know we will all welcome some refreshments, and I hope many of you here will join us there. The cautionary note, which you see here, might not look very exciting, but it contains a few crucial messages. So please familiarize yourself with it. You'll find it also online. And with that, I would like to give the floor to Wael Sawan. Wael.

Thank you, Tjerk, and welcome, everyone, to our Capital Markets Day 2023. It's great to see so many of you in person, and welcome to those of you joining online as well. Today, we announced how we will deliver more value with less emissions. We do that on the back of a differentiated strategy for a balanced energy transition. This is underpinned by a commitment to our world-leading Integrated Gas and Upstream businesses and by leveraging adjacencies and strengths in our differentiated Downstream businesses to develop profitable low-carbon opportunities that enable the energy transition. We target a 10% per annum free cash flow per share growth through to 2025, with a ruthless focus on performance, discipline and simplification, enabled by a structural cost reduction of $2 billion to $3 billion by the end of 2025 and the lowering of our capital spend to $22 billion to $25 billion per annum over 2024 and 2025. This allows us to enhance our shareholder distributions to the 30% to 40% of CFFO level. Our confidence in a sustainable increase to our free cash flow also leads us today to announce a dividend per share increase of 15% at Q2, subject to Board approval; and a minimum buyback program of $5 billion for the second half of the year as we preferentially aim to allocate capital to share buybacks. In short, today, we will outline our plan to become the investment case through the energy transition. But before we dive into all of that, let me start off by introducing my management team. First, Sinead. Known to many of you, Sinead has been with Shell for 24 years. She has excelled in roles across the company, from upstream to projects and technology, and from integrated gas to trading. Next is Zoë Yujnovich. Zoë had, had a very successful career outside of Shell. And since joining, she has continued her excellent track record of delivery across upstream and integrated gas while bringing an external perspective to our executive committee. Finally, we have Huibert Vigeveno, who has had a distinguished career at Shell in numerous roles across the world. Huibert is a specialist in downstream, and I don't know anyone with more knowledge of our customers. Together, we have a lot of ground to cover, touching on what will stay the same and what will change. But let me start with what isn't changing: Our strategy. Powering Progress sets out our strategy to create value, first and foremost, for our shareholders, as well as for our customers and wider society. We do this by focusing on generating sustained shareholder value, reducing carbon emissions, powering lives and respecting nature. Our purpose remains the same and continues to be as relevant today as it was in 2021: To provide more and cleaner energy solutions. We will profitably transition Shell to become a net zero emissions energy business by 2050. Powering Progress has withstood significant external volatility and discontinuities and showed it continues to be the right strategy. The last 3 years have not only been a huge challenge for the world, they have significantly challenged the energy system. As a consequence of the Russian invasion of Ukraine, governments grappled with the importance of energy security. A mere 1% reduction in global energy supply had significant consequences for trade flows and commodity price volatility. Despite these challenges, the company performed well, and its response only strengthened our convictions and our fundamental beliefs. And we have not been standing still, as you will have seen in our latest energy transition progress report. We will provide an update on our energy transition strategy in early 2024. Let's now take a look at the energy system. Now how the energy system will look in 5, 10 or 20 years from now is impossible to say. But in the midst of this uncertainty, there will be developments we can be fairly sure of. The global energy mix is changing, however, demand for energy services will continue to grow and will have to be met by a combination of different types of energy. There is no one solution. It is critical that the world avoids dismantling the current energy system faster than we are able to build the clean energy system of the future. Oil and gas will continue to play a crucial role in the energy system for a long time to come, with demand reducing only gradually over time. Continued investment in oil and gas is critical to ensure a balanced energy transition because of the growing energy demand I just mentioned, as well as the natural decline rates and severe underinvestment in recent years. We also believe that liquefied natural gas, or LNG, will play an even bigger role in the energy system of the future than it plays today. The reasons are clear. LNG can be easily transported to places where it is needed most. And what's more, on average, natural gas emits about 50% less carbon emissions than coal when used to produce electricity, making it the natural lower-carbon substitute in the near term. The pace of the transition from fossil fuels to low-carbon energy depends on many things, including: Government policy and regulations; the affordability of energy; development of new technologies; and importantly, changing customer demand. Low carbon energy is expected to represent a growing proportion of worldwide energy demand in the future in the form of both molecules and electrons. I believe Shell has the customer access and the relationships that will allow us to thrive in this context, which brings me to the next slide. There are only a few energy companies that can successfully build new business models in more complex and hard-to-abate sectors, such as transport and industry. We are amongst the leading global players today in both sectors, satisfying more than 3% of energy demand. These sectors matter. They currently make up around 70% of total energy demand, representing more than 55% of emissions. And the combined addressable market is expected to conservatively double to around $10 to $12 trillion by 2050. They are both sectors where we have incumbency, system understanding and control points, and will therefore be our focus areas. We will address our customers' needs with a focus on molecules given our natural strengths in that area. We will selectively invest in renewable generation and mostly supplement with electrons from others. We recognize our distinct advantages are less in generation and much more in trading and optimization, in B2B customer intimacy and eventually in low carbon molecules which are enabled by green electrons. In short, we want to play to our strengths, where we can uniquely add value. While the destination of a net zero emissions energy system remains clear, this will not be a linear journey as different places transition at different paces. Let's be honest, no one knows the exact pace at which this will evolve in every country, and therefore, we will be pragmatic in our approach. We will also be dynamic in our response. We are absolutely committed to our world-class Upstream and Integrated Gas businesses, which will increasingly have lower emissions, and through which, we will continue to provide secure energy. We will profitably enable the energy transition by leaning into low-carbon opportunities, not everywhere, but where we have adjacencies, a track record and where we see the right environment to invest. We will focus, as the market evolves, on low-carbon molecules serving the transport and industry sectors. And we will do this with a relentless focus on performance, discipline and simplification across the organization. This will allow us to reward our shareholders today and well into the future. With the portfolio we have and the direction we have set out, I firmly believe that Shell, in addition to being recognized as a great company, will be the investment case through the energy transition. So how do we accomplish that? I've previously talked about operationalizing Powering progress. That means focusing on delivery during the here and now. Having the right strategy is critical, but it's not enough to ensure that we deliver to our full potential. We have to take our strategy and translate it into everyday actions. And those actions need to be guided by certain principles if we are to be successful. Those principles are performance, discipline and simplification. With these principles in mind, we embark on our first sprint. We use the concept of a sprint through to 2025 to establish a track record under this management team, with a focus on delivering the targets we have promised over this period, while investing to take advantage of opportunities for our future. Getting the most out of the great assets we have means delivering on a consistent basis, quarter after quarter, year after year. Take deepwater. In the first quarter, we saw the highest controllable availability in a decade at our Gulf of Mexico assets, and the business has been performing close to its potential for a prolonged period. This is what performance looks like, delivering world-class results day in and day out. But results are not just absolute. It is our commitment to ensure that we make the most out of our portfolio on a relative basis versus our peers, and this is what I want to drive across the company. We are embedding accountability for delivery through the business lines and deeper into the organization. To deliver excellent performance, you need a company that is focused on creating value and that diligently delivers what it promises. That takes discipline, discipline in how we invest and allocate capital, discipline in how we spend and discipline in how we execute. Every dollar of our shareholders' money needs to be stewarded with care. You will -- you'll hear more about that from Sinead shortly. We have not always been known for our speed and simplicity. That is changing. You will have seen that we began the year by streamlining our executive committee to enable faster and more nimble decision-making. Shortly after, we took the decision not to proceed with the biofuels unit and base oils plant investments at our Singapore Energy and Chemicals Park. Last week, we announced the divestment of the European Shell Energy Retail business. And today, we are announcing not only the plan to market our interest in Shell Pakistan, but also the strategic review of the Singapore Energy and Chemicals Park. This is more than just disciplined capital allocation. This is about decisively simplifying and high-grading our portfolio. And it's not just the organization and portfolio that we are looking to simplify. We are also moving from over 40 business and financial commitments to 4 very focused group-level financial targets that you will see later in the slide pack. So we are making choices, questioning projects and assets with one goal in mind. Every single part of our business needs to help us deliver more shareholder value while lowering emissions. Having just covered the how, let's now discuss the what. We are blessed with an incredibly well-positioned portfolio, which we must get the most out of and develop further. You will hear more about the specifics of each of the businesses from Zoë and Huibert shortly. However, let me give you a sense of what we will be focusing on. We have a leading Integrated Gas business which we intend to grow while addressing the key challenges that we have experienced in our operations. We see considerable potential to create further value here with new production coming on stream and having signed a number of attractive third-party contracts for LNG. Earlier, I outlined our conviction that oil and gas will be required for the foreseeable future, and it is our advantaged Upstream portfolio, along with Integrated Gas, that will contribute to enabling us to deliver the secure energy that the world needs today and for a long time to come. We will continue to do so with a focus on value over volume and an expectation that liquids production will remain stable through to 2030, having met our high-grading target in 2022. On to our differentiated Downstream, Renewables and Energy Solutions business, which is our primary customer-facing vehicle. First, we will focus on value over volume in our marketing business by reducing our mobility footprint and getting the most out of the portfolio. We will also high-grade our Chemicals and Products business, improved delivery from our energy and chemicals parks, while repurposing them to provide the cleaner molecules that our customers demand. We will achieve all of this by leveraging our world-class trading and optimization capabilities, which have served us well, and which we expect will deliver some 2% to 4% of ROACE uplift, depending on market conditions. Simply put, all of this gives us the confidence to announce enhanced distributions of 30% to 40% of CFFO through the cycle, which will be underpinned by a greater than 10% per annum free cash flow per share growth through to 2025. And we will invest $10 billion to $15 billion between 2023 and 2025 in low-carbon energy solutions, positioning us to capture the significant value opportunities we expect will emerge through the energy transition in our focused markets. In short, we will deliver more value with less emissions. With that, it's time for me to hand over to Sinead to talk us through how we are going to achieve this.

Thank you, Wael. We take our responsibility as custodians of our shareholders' capital extremely seriously. At the heart of everything that we do will be a ruthless approach to capital allocation and a singular focus on creating long-term value. We will make every dollar account, be unemotional with our spend and deliver performance, not promises. And so this is not just about distributions, but also about how we drive discipline across the entire organization, enabling us to reduce both OpEx and CapEx. Despite inflationary pressures and a volatile external context, today, we are lowering our cash CapEx range from $23 billion to $27 billion, to $22 billion to $25 billion for both 2024 and 2025. I will say more on this shortly, but first, let me outline our plans for cost. We aim to achieve $2 billion to $3 billion of structural cost reductions by the end of 2025. This is about streamlining the way we work, simplifying our processes and being laser-focused. We will seek to achieve structural savings across all parts of Shell. This will require focusing the portfolio by exiting high-cost and lower-return businesses and simplifying the remaining core. To give you a sense of how focusing the company can contribute, the exit from Shell Energy Retail alone will remove some $300 million per annum of operating expenses, both directly and in terms of overheads and management's time. And in terms of our approach to businesses that remain. During my time in Upstream over a period of 3 years, we reduced cost by some 10% in our lean assets with our conventional oil and gas portfolio. We achieved this through simplifying the operating model, removing layers, increasing accountabilities and taking a risk-based approach to all activities. We intend to replicate this across the company and expect significant savings. Focusing the company isn't just by the portfolio. It extends to the sectors we serve, as Wael said earlier. We will prioritize hard-to-abate sectors, mainly transport and industry, to help grow and decarbonize our customer base. This will lead to opportunities to further simplify and take cost start. We will identify and go after opportunities quarter after quarter, year after year. All of this will enable us to enhance shareholder distributions. We remain confident in the performance of the business, which is why today we are announcing our plan to increase the dividend per share by an expected 15% at Q2, subject to Board approval. We continue to believe that we are undervalued. And as a result, we will preferentially allocate capital to share buybacks. That is why we are announcing buybacks for the second half of this year of a minimum of $5 billion to be completed by the Q4 results announcement, subject to Board approval. In short, being more disciplined in cost and capital generates more cash to support our growing dividend and continuing with buybacks. Now let me cover CapEx. In the recent past, our spend has been at the higher end of our peer group. And we believe that constraining capital will force us to make tougher choices, ensuring that only the most attractive projects will receive funding. This will reinforce our focus on delivery across the company during the first sprint through to the end. As stated earlier, we will be lowering our cash CapEx range to $22 billion to $25 billion for both 2024 and 2025. We expect to spend some $13 billion per annum in Integrated Gas and Upstream going forward, with both continuing to contribute significantly to cash flows for the foreseeable future, allowing us to sustain our liquids production and grow LNG sales. Having made a number of organic and inorganic investments in marketing, such as Nature Energy in Denmark and of course Landmark in the U.S, we will now reduce capital expenditure in the short term and focus on getting the most out of the investments we have already made. In Chemicals and Products, we will largely focus on spend that sustains our current business with an expectation that capital employed will be flat in 2030 versus today. And finally, in Renewables and Energy Solutions, we will take a measured approach. We will selectively take development risk in renewable generation projects, diluting as they mature and retaining access to the green electrons. In hydrogen and CCS, we will invest to decarbonize our own assets first and help to decarbonize our customers over time. Our annual cash CapEx after power dilutions will be some $21 billion to $23 billion for both 2024 and 2025. Capital and carbon will be managed centrally. We will allocate carbon in a similar way to how we allocate capital, pragmatic in our approach and dynamic in our response. We expect to grow free cash flow on an absolute basis by a rate of more than 6% through to 2030. This is compared to a normalized 2022, which was an exceptional year, as based on a $65 per barrel real term oil place. Now let's cover how we're going to allocate the cash that we deliver beyond CapEx. The cash-generating ability of the business and the actions we are taking allows us to both continue to pay our dividend and allocate capital to buybacks in line with our new 30% to 40% of CFFO guidance in both a $50 and the $65 per barrel world. The additional cash flows in the $65 world will go to a mix of both buybacks and deleveraging. We continue to believe share repurchases are a good use of our cash, and hence, you will see us allocate capital towards buybacks even at $50 per barrel. Continued share count reduction and growing free cash flow means that we expect an annual free cash flow per share growth rate of greater than 10% through 2025. The dividend remains our #1 financial priority, and our confidence in our ability to sustain the increase that we have announced today, together with a progressive approach, is well supported, given that our dividend breakeven stands at some $40 per barrel. Everything that I've covered so far feeds into our financial framework. It is clear that we believe in pragmatism and balance. This means allocating capital based on value. We place importance on the strength of our balance sheet, and our ambition to have AA credit metrics through the cycle remains. We will continue to look for opportunities to reduce net debt while staying true to our preference for share buybacks. The improvements that we are making will continue to be allocated to shareholders. We will reduce OpEx, reduce CapEx, instill more discipline and increase our distributions. Simply put, more for our money, meaning more for our shareholders. Thank you. And now back to Wael.

Thank you, Sinead. As we delivered the oil and gas the world needs today, we reduced carbon emissions from our operations by 30% by the end of 2022 as compared with 2016 on a net basis. This is more than halfway towards our target of a 50% reduction by 2030. We achieved this, while globally, energy-related emissions increased by around 4% over the same period. We continue to bring down emissions at pace and have made excellent progress, and we are going further. As an industry, it is imperative that we do our utmost to reduce and ultimately eliminate methane emissions. At Shell, we will aim to achieve near-0 methane emissions by 2030. In the shorter term, we aim to eliminate routine flaring from our upstream operations by 2025, challenging ourselves to move faster than the World Bank's Zero Routine Flaring 2030 initiative. As we transition this company, we will approach both capital and carbon allocation with the same discipline and value focus. What this means in terms of carbon is that we will preferentially allocate our budget to businesses, such as Integrated Gas, in which we have a strategic advantage and that lower the overall carbon footprint of the energy system. Furthermore, we will invest in carbon-abatement projects in these businesses to minimize their impact. As a consequence, this will require us to achieve reductions disproportionately from parts of the company that we are less advantaged in, such as Chemicals and Products. The world needs companies like Shell to reduce carbon in the energy system while exercising pragmatism. For example, we will work together with our customers to displace high-carbon energy sources, such as coal, with cleaner alternatives, such as gas. Beyond working to cut carbon emissions from our own operations, we are committed to supporting our customers in their decarbonization journey. For this to happen, we need a fundamental change in demand along with the supply, from fossil fuels to low-carbon energy solutions. This will need to be supported by regulations as well as the development of new technologies. We at Shell will play our part. We plan to invest some $10 billion to $15 billion across 2023 to 2025 to support the development of low-carbon energy solutions, including biofuels, hydrogen, electric vehicles charging and carbon capture and storage. Take Holland Hydrogen I. We will produce hydrogen from renewable power to cut emissions from our operations and help decarbonize our customers. In short, we will develop enabling infrastructure in areas where we see adjacencies with our integrated businesses and pathways to attractive returns in the medium term while we also see longer-term opportunities. We are leveraging our strengths in hard-to-abate sectors, such as transport and industry, supplying products and services that we believe will be commercially viable and truly move the needle. These sectors and others will need bold government policies and regulations that stimulate the demand for low-carbon energy, which in turn, allow businesses like ours to continue to invest. We will continue to transparently advocate in favor of these enabling policies. We will also embrace innovation in support of the transition. At our technology hubs, we take ideas from concept to customer, enabling them to transition faster. In 2022, 40% of our total R&D spend went to proving and scaling low-carbon products and services. That nicely leads me to 2 critical enablers I believe we have to deliver more value with less emissions. Technology and people are the backbone of our success today and will be critical for our success in the future. Our technology hubs are providing innovations, leveraging capabilities, such as high-performance cloud computing and digital solutions, in our oil and gas business, doubling the speed of seismic data processing. And artificial intelligence has allowed us to increase LNG production by 1% to 2% with no extra capital spend. In other words, adding significant and tangible value today. And we are also developing the technologies for our lower-carbon future, such as our CANSOLV technology to capture CO2, which won 8 consecutive bids we competed for in 2022. But the heart of Shell is in our 93,000 strong people. Our employee survey results last year reflected some of the highest scores we have seen in a decade, confirming our people are as engaged as ever and that we have a great workplace culture. And we work hard on improving this further. For example, through our drive to become one of the most diverse and inclusive companies in the world, today, 30% of our senior leaders are women. This management team's opportunity is to fully mobilize the tremendous energy amongst our people to deliver the targets and ambitions that we have set for ourselves. So let me summarize what I hope you will take away today. We will provide the secure energy that the world needs by investing around $40 billion in our integrated gas and Upstream businesses while investing $10 billion to $15 billion in low-carbon energy solutions between 2023 and 2025, positioning us for the transition. Performance, discipline and simplification will be our guiding principles. The additional free cash flow that we will deliver will accrue to our shareholders, resulting in distributions of 30% to 40% of CFFO. We continue to believe our shares represent significant value, and so we will preferentially allocate capital to buybacks. For this reason, in addition to increasing the dividend per share by 15%, we are also announcing buybacks for the second half of the year of a minimum of $5 billion. All of this means we will deliver a free cash flow per share growth of greater than 10% through to 2025. In short, we aim to be the investment case through the transition. With that, I thank you for your attendance, both in person and online. And now Sinead and I will take your questions. Sinead. Tjerk.

We're going to go via tables. And remember, we will later have a session with Zoë and with Huibert, so I think focus a bit your questions on what you've heard so far. This is always nice to try with you guys, but I'm still trying. So let's see where we go. Go here first with Oswald, then go around. Get the mic.

Sorry, 1 question or 2?

Two. You're allowed 2. Everyone is allowed 2. But short ones.

Short ones. I'm Oswald Clint at Bernstein. The first question, really on the first sprint and trying to get all of this performance discipline, the simplifying through the 93,000 people. I mean BP, for example, just to name your peer, has given everyone equity in BP for the first time to have skin in the game and actually deliver the numbers. So I'd love to get a bit of sense of the methods to distill this philosophy well down through the organization just to make sure all of these numbers to 2025 are actually delivered. And then the second question, it's great to see the CapEx coming down. Sinead, you mentioned despite inflation, you can able to do that. So rig rates, you're talking about upstream longevity, cash flow longevity, rig rates are getting back up to $500,000 a day. So how is this going to be possible through this period?

All right. Great. Thanks, Oswald. I'll take the first one. And then Sinead, if you want to take the second one. Oswald, indeed, that concept of the first sprint is all about a cultural sprint, right? It's -- what we're trying to do is to be able to embed a culture through the organization that is going to be able to withstand the test of time. We have a great set of values as a company, but what we haven't done consistently is deliver our promises. And so how do we do that day in and day out? Firstly, I touched on how we're going to drive accountability through the business lines deeper into the organization. That's everything from how we work, manuals of authority, to expectations at various leadership levels. How we're going to be very clear on the outcomes that we are seeking from the businesses and how the functions will support those business outcomes day in and day out. It's going to be a step-up in the performance cadences that we have. For example, Sinead and I will meet with our business directors on a very regular basis now, once every couple of weeks, where we can get into the detail and expedite the decision-making and really get the interventions that are needed earlier. And we will look to cascade down that entire sort of philosophy deeper into the organization. So a lot more of that, how we set up that ecosystem, will play through over the coming months. Sinead?

Thanks, Oswald. And indeed, as you say, we're moving from $23 billion to $27 billion range to a $22 billion to $25 billion, so there's a couple of things in there, look at where are we taking it from as well. So what you see us doing is, in fact, moving in 2 ways, slightly -- partly from our Chemicals and Products business, which is much more capital-intensive, so we're taking some away from there, where we would have been looking to sustain that business, as we talked about earlier. And also some from our marketing business as well. We still have a lot of growth in our marketing business. But why we're taking a couple of billion away from there is, simply put, because this year, in 2023, it is a huge year for actually investment externally. So we talked about Nature Energy earlier, which is some $2 billion; and of course, Volta as well. So we've already done a lot of the investments, actually green investments, this year around it. Where the money is going to is actually a little bit of an uplift in terms of our Upstream and Integrated Gas business. Now you rightly say, well, rigs are going up. What's happening there? This is a part of the business where actually we've contracted longer term. We've already got advantaged positions in their rigs, positioning -- and you'll hear Zoë talk about that later as well, including right in Namibia. So we're very confident and have great conviction that we can deliver within this despite the inflation. So very comfortable.

Okay, we'll go for next question. Remind to introduce yourself and then 1 or 2 questions. Lucas, we get the phone -- the microphone. You have it? Okay.

Lucas is here.

Tjerk, in line with your request, Lucas Herrmann at BNP Paribas Exane. I think 2 directed at you probably, Sinead. I mean, the first is trying to understand balance sheet debt, what AA actually means. I'm not a credit analyst, but if you could give me some indication of what level of debt do you feel -- that means you'd be happy living with or where you can go down to, that would be helpful. You tend to disadvantage yourself, I think, when you present it because you include operating leases, which the majority -- well, all of your peers, don't. And the second question was just to better understand the CapEx numbers that you put forward and the net-of from divestment -- well, from selling down part of the power business. So when I think about -- well, how do I think about CapEx in terms of inclusion of organic, inorganic divestment? And you've made no comment on proceeds from divestment outside power. If you could expand on that Sorry, it's a bit long winded.

No, no, and those were all good questions. Thanks. So in terms of the AA, so we haven't really talked about debt, as you say, particularly here. And that's largely because of we've taken tens of billions down our debt profile in terms of the last couple of years. So if you remember, we're sitting at some $44 billion at year-end in terms of debt. What I've said before, and I stand behind now as well, is that I'm quite comfortable with the level of debt we're at the moment. We will continue to bring it down from time to time, but I will preferentially allocate capital in terms of value, which is why you see the preferential allocation to the buyback specifically. So you'll see the debt move. You may see it go up as well. If there's volatility and I have room to make more money, you'll see it come back up as well. The AA is really a it gives you the concept of I'm comfortable in terms of holding my debt around this level to be able to sustain the company in all scenarios. And that's really what it's applied more than anything else. I hear your comment in terms of operating leases, et cetera. We do. We present it very clean. I won't comment on our peers there. Don't have any hybrids, et cetera, in there as well. But it is our way of presenting it. In terms of CaPex, you drive the fact that, particularly on power, that it's net of dilutions. But just really simply put, we've talked before about the fact that, and Wael's mentioned it, that we want to use electrons to enable our business going forward. But what we also know is that we want to be able to make sure that, that is within certain boundaries. So what we are doing here is simply saying is that we will spend money, but it will be dependent on our ability to also dilute. So what you see is the dilution is coming down of $2 billion in there, $1 billion or $2 billion. We'll see how that plays out. We don't talk about other divestments because we will divest our business as we move forward. This is specifically around about the discipline that we will have around power in particular, and that's why we signal it or bring it out as well. In terms of your final point with the third bit of your question, which was organic versus inorganic, very shortly includes inorganic in there as well. You see us do the bolt-ons that we've done. So you see us, over the sprint period, do Nature Energy, Volta, et cetera. That is absorbed within our numbers.

With no large inorganic plan for the first sprint.

Exactly.

Go here.

Sam Margolin from Wolfe Search. Two questions on low carbon. First one, sort of a follow-up on organic versus inorganic. You have a pipeline of projects that you could do for low-carbon molecules, but margins are very high in that category today and there's some uncertainty about where they'll be in the future, so there's sort of an impulse to acquire operating assets. So the question would just be how do you square sort of the outlook for low-carbon molecule saturation and supply and demand versus the near-term impulse to maybe beef up your asset base today? And then Secondly, you had -- a peer of yours did an event here last year and actually increased their CapEx in power. And the reason was that they just asserted that power prices would be structurally higher forever. And so I'm wondering where you stand on that topic and whether that informs any of your capital allocation?

Yes. Let me take the first one, if you want to take the second one there, Sinead. I think on the low-carbon molecular base, I mean, our view is that low-carbon fuels, in particular, biofuels and biogas, will indeed continue to have a prominent role over the coming years, enabled particularly by regulatory support. Without that, it becomes more tenuous. We are already one of the largest players in that space. So last year, for example, we sold 14x what we actually produced. We have a very strong trading network. And later, what you'll hear is some of the numbers, where it's a business that is already value-accretive. We generated $300 million just last year from that business -- or over the last couple of years. And so what you will see is this is a business we will want to continue to grow. I'm going to leave Huibert to talk a bit more to the business. But the critical thing I would leave you with is we already have many of the assets that we want organically. So having Raizen which is really going after first and second generation, and more and more second-generation biofuels. Of course, we've just completed Nature Energy. That gives us a world-class platform, the leading platform in Europe for biogas. And we're investing in a large facility in Rotterdam there as well. So we have the big hubs that we need. And now it's about leveraging those hubs to unlock value from our customer base and our trading organization.

Yes. And thanks, Sam. On the second one, so rather than commenting on what our peers have done, what I would say is the underlying thinking is always around value over volume. So we allocate our capital with discipline, but it will be under the lens of value. So if you were to see low-carbon fuels ramp up in an amazing way, you would see us change our allocation according to that. So we are quite pragmatic in our approach, dynamic in our response, and you'll see that play out throughout. So in terms of our power side of things, I think it's very dangerous for anyone to comment on power prices across the globe. As we all know, it's very, very regional. And you'll hear Huibert talk later on actually very much around where we will play in power. So rather than taking an approach across the globe, you'll see us focus into certain areas, whether that's the U.S., Australia, and I'll leave it to him to talk that through a bit more. But that's really where the thinking is. If things change, could we ramp up? Absolutely, we could build. But it will depend on the return and the value we can generate from that.

Good. Let's keep going. Yes, there.

Paul Cheng with ScotiaBank. Two questions, please. First one, I think just going back into your cost restructuring, $2 billion to $3 billion. Wondering if you can elaborate on it a bit more in terms of whether that any divestment of business is included in that number? And if you can put it maybe in different categories, what percentage will be coming from personnel-related and what percentage from other structural benefit? And the second one, I think, is for Wael. You're talking about faster decision and capital discipline. So how that your FID projects criteria and process have changed subsequently. I mean, is there any major change? Or it's just saying putting -- asking people that to, a, taking more conservative assumption? I mean, how exactly that we should feel confident that, yes, indeed, it's going to lead to better and faster result?

Thanks, Paul. Do you want to take the first question?

Yes, happy to start. So we give $2 billion to $3 billion, Paul, as well, just in terms of trying to give a view for what you would expect to see happen. And that's structurally, you're correct. I gave the example in my -- in the speech, actually, about the fact that, that will include some divestments. And as we talked about SERL, or Shell Energy Retail in Europe as well. So that will include those as well. The reason I'm not more specific on the splits between them is because, really simply put, whether it's capital or whether it's OpEx, we'll allocate it according to what makes sense at the time. So actually, a lot of the businesses, that hybrid runs actually in terms of OpEx. We can get a good use of that OpEx as well. So you'll see that play out. So over the next 3 years, we will take out $2 billion to $3 billion. Some of it will be through divestments, some of it will be through actually just changing the way we operate and where we put that OpEx at the same time. But I don't have a good split for you, in a sense, because actually I don't want to have a good split for it. I want to be able to move the money to where I see the value at that point in time.

Thanks, Sinead. And then Paul, the question around decision-making. Look, this is not just about FIDs, this is much more holistic. So when we talk about performance, discipline, simplification, there's decision-making across it all. In performance. I mentioned earlier to the question that Oswald asked, the focus on getting to a much faster cadence and really being clear on what are all the levers to be able to achieve outcomes and how we think about downside mitigation. Really being clear, how do we make sure we deliver what we promise. When it comes to discipline, just choosing. Because if you leave 20 different projects open, you're paying a lot of money to keep all those options open. We're just going to be more disciplined in what are the highest-likelihood projects that are going to move forward. And those are decisions that will need to be made by the business directors as they manage the pool of OpEx and capital that they have. And then there's simplification. We have multiple sectors that we are serving today. That's why we talk about focusing on transport and industry so that we can be very decisive around where are we going to actually lean forward rather than try to dilute our efforts. Similarly, when we talk about low-carbon molecular focus. We know that's where our strength. There's no company in the world, in our view, that can win in the molecular space going forward. We're winning in that space in today's conventional energy. And in future, we have the opportunities to do the same with green molecules. And so we want to focus on the areas where we know we can differentiate ourselves and we know we can win.

Okay. We go over there. Christyan.

Congratulations on this presentation. Two questions, please. Christyan Malek from JPMorgan. First of all, what happens after 2025? You talk about a time frame around CapEx and savings, which is admirable given you have a line of sight to 2025. But the reason I ask that question is it's clearly there's a huge range of outcomes beyond that. The EIA today talking about demand peaking in this decade, et cetera, et cetera. So how do you think about your CapEx and your investments beyond 2025? Should we expect an increase? And within that, and this is still the first question, your oil price outlook. I mean, $65 is a safe place to be. At some point, you have to make a decision, arguably, whether you think it's going to be higher or lower in the context of those investments. So I just want to understand the relationship between oil price, CapEx beyond 2025. And why haven't you provided the outlook in this CMD? And then the second question pertains to your cash return outlook and your dividend. We're here in New York, you're presenting. And when I think about where you sit versus your peer group on cash and cash return. How do you justify the 15% increase in dividend in the context of your absolute cash return to shareholders relative to the U.S. peers? If you're trying to generate higher value on the stock, surely, the first thing you do is be comparable, absolute cash return. So where is that quantum? And how do you think about raising it in the future?

Super thanks, Christyan. I'll take the first one, and then I'll ask Sinead, if you take the second one. What happens after 2025? What I want to emphasize is we have provided guidance of 6% per annum free cash flow growth all the way to 2030. So we see a very robust pathway to be able to achieve that, and that's greater than 6%. At the same time, the whole concept of the Sprint is multifold. One I talked about earlier, which is to be able to demonstrate the credentials and the delivery of this management team. But as importantly, I would be lying to you if I pretended to know where various markets that we're looking at are going to go in the 2026, 2027, 2028 period. We're seeing right now, for example, in something like power. Take power as an example. Offshore wind has been significantly beaten up over the last few months and solar is doing a bit better. We're seeing green shoots in biofuels. We're getting excited about EV charging. I want to be able to make sure we have the flexibility to allocate shareholder capital in a responsible way. So what happens after 2025? It's -- we're not at the point in time right now where we want to provide capital guidance. What we want to give you a sense of is the growth trajectory of our free cash flow, that's 6%. And hopefully, once we've earned that right to be able to continue to steward your capital in the most effective way as shareholders, we will be able to then, in 2024, 2025, give you the next phase of the sprint as we look at where we want to go through to 2030. So I think most important right now is the performance, discipline simplification, embed that culture. And then we look forward. Sinead?

Yes, indeed, and thanks Wael, actually, it's a great base to build on for the response. I mean, Christyan, what we are looking at, of course, is about the sprint, it's about providing the information for now. So what are we looking at? 30% to 40%. We've increased it from 20% to 30%, to 30% to 40%. What you know and see from our actions is that we've always been very pragmatic about this. We look where are we in the quarter at the time. We look up what is the environment we're in. In the past, you've seen us move up and down on that, and you will see exactly the same in this case. So it's 30% to 40% through the cycle. That's what we're giving you. In terms of that, in terms of the 15% of dividend, you know where I'm going to respond on this, probably. You know in the sense of my view is, and I think as a management team, our view is that our stock is undervalued. Therefore, we're going very clearly towards allocating capital to where we can create value for shareholders, very, very clearly, which is around the buybacks. So that's how it plays out in this entirety on this. Thank you.

Okay. We go to Michele here, and we'll go back there.

Michele Della Vigna from Goldman Sachs. Thank you very much for the presentation, and congratulations on resisting the industry trend towards higher CapEx. I wanted to ask 2 questions. The first one on the cost cutting of $2 billion to $3 billion per annum by 2025. For us to track it, will it be as simple as simply looking at the OpEx in 2025, they will be $2 billion to $3 billion lower? Or does it get a bit more complex because the cost cutting is before inflation and other changes in the portfolio? And then my second question is for the long-term DPS increase outlook. Should we just think it's in a simple way of saying the free cash flow per share will grow over 10%, so that could be a good indication of where we could see DPS growing in the coming years through underlying growth in the business and retirement of share count?

Thanks, Michele. Do you want to take those 2?

Yes. Certainly. Indeed, Michele, indeed, good spot. You see we talk about very much the $2 billion to $3 billion on structural. So what we're -- what we want to do is make sure that we improve the underlying health of the business, and hence, the structure coming out. Yes, inflation will hit us. Yes, there will be different things of that. So we will have to come back to you to show how we map that out, but we will take $2 billion to $3 billion from the underlying business. That's there, and continue to focus on that. Your second point was around in terms of the free cash flow per share. Indeed, we're looking at that as the right metric because, as you say, underlying business improving, therefore, the free cash flow there. And you can back into indeed as to where we see. So you will see us continue to allocate preferentially towards buybacks, which is why we think that is the right metric that we had through that. We'll continue to do that. We've only given guidance, as you've seen, in terms of buybacks for the next 2 quarters. And that's in effect because we're very, very conscious that a lot of what we're talking about will be delivered in '24 and '25, and we want to give you some certainty now on what you can see, so you get that in the shorter term.

And just I think part of the question was also the DPS, is it going to sort of trend towards the 10%? I don't want Michele to walk away with a 10% growth in DPS going forward. Do you want to touch on that?

No, indeed. So you see our dividend per share. Apologies, no, I want to clarify on that. Indeed, we have the 4% progressive dividend. We'll continue. That will be definitely maintained. And in terms of the dividend increase, it's the 15% now as well. So we will use that all to increase. In terms of the free cash flow per share, you'll see that play out in the 10% that we've given and through to '25.

Great. We go in there. Yes, go to the right. Yes. Sorry, Ian.

Roger Read, Wells Fargo. Thanks for the presentation. One specific question on the CapEx for the renewable side, the $10 billion to $15 billion. Given that we're kind of looking at a 2-year period, what makes up the range? Like that's a pretty wide area of, I don't know, call it uncertainty or wiggle room, relatively speaking. The other question I had was trying to kind of put all this together and thinking about what you're delivering is the message, most importantly, internally. Is it to get the ROACE up a couple of percentage points, as was highlighted? Is it to get OpEx down? Is it the 30% to 40% of cash flow from operations? Is what you're telling us, but what are you -- what's the message internally, and how are people thinking about being measured?

Great, Roger. Do you want to take the first one, I'll take the second?.

Yes, sure. Indeed. So the -- there's actually a breakdown in the slides that you'll find actually on, I think it's Slide 43, which is useful one in terms of the CapEx to look at. But in terms of the $10 billion to $15 billion, not an intent to give wiggle room at all. It's just purely about the fact that what you will naturally see us do is to ensure that we allocate to value. So if you remember, in terms of the low-carbon aspects this year, I mean, I think it's fair to say that Nature Energy is already $2 billion of that already in there, and you see us do Volta and you see us continue. And you'll see us, actually in the back of the pack, say $4 billion to $5 billion, is on renewables as well. So no intent to have wiggle room. It's just really to give you a bit of a feel for the fact that we all know that, when we enter into something, the timing of it can be plus or minus a month. That's it.

Thanks. and maybe just to correct, Roger, you talked about it being 2 years, it's 3 years. So the $10 billion to $15 billion is over a 3-year period, which includes 2023, and that's how we framed it. On what are we using internally. So every single one of our businesses is at a different point in its evolution. So if I look at an Upstream business, there is a lot of sunk capital, and we are being very careful in how we deploy the new capital. And therefore, ROACE will spend more time looking backwards at the capital we deployed rather than just making sure that we are delivering the right returns today. Whereas the marketing business, we are looking at ROACE much more closely. And so we're looking business by business to make sure that we are pointing to the right outcomes to be able to unlock the full potential of that individual business. And that's, again, part of this performance cadence I talked about earlier, getting really clear, what are we trying to achieve in the next 2 to 3 years? If I use the example of Chemicals and Products, some of the announcements we have made today around strategic review of Singapore, high-grading of our European footprint, is very much looking at the returns of those businesses. Can we see a pathway towards double-digit returns? Very difficult. So we've had to take action. Whereas other businesses in the portfolio in Chemicals and Products, we can see that pathway. And so we're literally looking at it at a granular level, business by business.

Lydia? That will be the one with the mic.

Thanks. I can speak loudly as well. But it's Lydia Rainforth from Barclays. And while, Sinead, you presented some actually quite compelling numbers around growth and the free cash flow per share and what you want to achieve. And yes, obviously, you talked about performance over promises as well. So I guess what I'm getting to is are these ambitious numbers that you've set? Or are they ones that you think you can easily achieve and in terms of driving the organization? And then linked to that, what's actually the most -- what's the biggest challenge for you at this point?

Yes. Let me -- I'll address those. So I think are these ambitious? So we have staked the credibility of this management team on making sure that we deliver these targets. So I think they are not soft targets by any stretch of the imagination. We have very clear pathways to be able to achieve it. And most importantly, we are focusing on what are the levers in case things start to go against us for whatever reason. So this is not a hopeful set of targets, it's targets grounded in reality and what we believe are achievable outcomes. I'm really excited by the fact we can mobilize an organization around these ultimately 4 big financial business targets because I do think it's challenging when you have 30, 40 different targets to be able to really align an organization around outcomes. And I think that will help us go forward, Lydia. What's the biggest challenge? I think the biggest challenge is this is not a journey of sell a few assets, invest capital here or there. This is a fundamental culture journey. We have so much to be proud of as an organization. And we are now at a point in time at an inflection point as we are taking that next step in our evolution. Taking 93,000 people through a journey can be both exciting and daunting, in particular the number of countries we cover, in particular given the businesses we cover. So to me, that is what I mentioned earlier. This management team's opportunity, I think, is to unlock that latent potential that sits in that 93,000-strong staff base. Which I think if we can unlock it, I think the trajectory of the company is an incredibly exciting one.

Okay. Cool. Chris. Yes. Here's Chris.

Chris Kuplent from Bank of America. Two hopefully quick ones. Sinead, on Slide 15, can you be a bit more specific? You're showing a $50 nominal and the $70 nominal case? And I'm sorry, my ruler doesn't work very well on my screen. Your $5 billion buyback comment for the second half, how does that fit into that buyback range you're showing on that slide, please? And then one or you, Wael. Again, forgive me if I've missed it, but I'm flipping through those slides. And can you maybe give us a reason why a number of the previous volumetric targets have disappeared, including, I think, a de-emphasis of Scope 3 targets. But I'm also keen on hearing your view on what happened to hydrogen, CCS volumetric targets? Terawatt hours, et cetera, [ to your ] philosophy behind...

Thanks, Chris. You want to take the first one, Sinead?

Sure. There's always a risk, isn't there? Somebody's got to get a ruler right on me and do exactly this. No, Chris, you're right. So indeed, it's -- so that slide, I hope, is actually what we're trying to do is to help people understand our thinking behind it and give us the scenarios for where we work them through. Those are illustrative. It's not any specific year that I put in there. It is to give you some form of scenario more than anything else. What you see on that is the intent, of course, is that from a dividend point of view, you see breakeven down to $40. And you also see, of course, the buybacks even at $50. So what you see on those 2 is on the $50 the left-hand side. You see buybacks still occurring. It's some [ 4 ] in there. That's the number that we've put in for there. And you see on the other side in terms of the $65, you see some -- an [ 8 ] in there. So that gives you a bit of a feel for what it is. Now of course, subject to Board approval, and we will move between where we see value. But that gives you a feel specifically to that.

And Chris, your second question around the philosophy. I have grown up in the upstream business. And I think the curse of what we have done in the earlier part of the century was focus so much on production. It drove the right -- it drove the wrong outcomes. I bring that same philosophy into Shell at the moment, which is I can have CCS targets of x million tonnes by 2030, and we can have hydrogen targets left, right and center. But that speaks nothing to the value that comes as a result of that. And what I have seen, also in my time looking after Integrated Gas and Renewables, is the organization wants to do the right thing to deliver the targets we are promising, even if sometimes the value pools are simply not there. So by giving the organization the space to be able to say, "No, this is a value-based decision. If you can actually demonstrate value, we will allocate capital." Simplifying it, making it much clearer that we are a value-driven company, that is what we're trying to do. Does that mean that we don't talk any volumes? No. When we talk about production target, for example, it's not a target. It's 1.4 million barrels, as what we will discuss later, is where we expect to be by 2030, plus or minus, right? And if we end up at 1.3 or 1.5, so be it. But it has to be value-driven. And Scope 3, you'll just hear more about it in the energy transition strategy, more because of the fact that, that can -- that requires, I think, a real sort of dialogue on its own. And what we have said is we continue to be committed to the targets we already have. And we will update, if anything, by March of 2024.

All right. And we're going to now take a short break and don't worry because there will be plenty of other moments to ask questions because Zoë will come back later with the presentation. Question time afterwards. Then Huibert, question time afterwards. And then the whole EC will come back later, where you can ask questions. So we'll take a 15-minute break, and then we'll come back at 9:45. Thank you very much. [Break]

We will continue with the Upstream and Integrated Gas portfolio.

Thank you, Tjerk. A pleasure to be here. Wael spoke earlier about our focus on performance, discipline and simplification. And I'm going to talk about how we're applying this to the Integrated Gas and Upstream businesses that are key to our success. Specifically, Integrated Gas and Upstream feature 4 outstanding businesses. Conventional oil and gas, gas to liquids, liquefied natural gas or LNG and deepwater. Today, I'm going to focus my comments on the distinctive world-class capabilities of our LNG and deepwater business. We are the world leader in LNG, supplying our customers with secure, reliable energy today and in the future. LNG is deeply integrated with our trading and optimization activities, which enable us to capture additional value from the scale and breadth of our global LNG portfolio. And we're growing that portfolio even more with around 11 million tonnes per year of new LNG capacity under construction, which will come on stream in the second half of the decade. This is almost 1/3 of our current LNG portfolio. In our Upstream business, Deepwater has a proven track record of sustained cash flows from high-margin, lower carbon barrels. And thanks to a strong portfolio of projects, which includes our resilient Conventional Oil & Gas business. We have a breakeven price of $30 per barrel on projects coming on stream between 2023 and 2025. Continued investments in oil and gas will be needed to make sure that the energy transition happens in a balanced way with a secure supply of affordable and increasingly lower carbon energy. We will contribute to this balanced transition by focusing our investments on the most profitable and carbon competitive projects spending about 13 billion a year of CapEx in our Integrated Gas and Upstream business through the decade. Total production will grow from 2025, given our confidence in our portfolio and our capabilities. Now let's see in more detail how these businesses will continue to extend their market leadership. Our focus on value over volume, performance and discipline has driven sector-leading unit cash flows with our integrated gas and upstream portfolios generating more cash flow per barrel than any other integrated oil and gas company over the past 4 years. LNG will play a key role in a balanced energy transition as it produces fewer greenhouse gas emissions than coal when used to generate electricity and fewer emissions than petrol or diesel when used to transport fuel. We see continued strong demand for LNG in the medium term and expect to grow our LNG term sales by 20% to 30% by 2030. When we launched our powering progress strategy, we said that we expected a gradual decline in our oil production of around 1% to 2% a year to the end of 2030. We have achieved that reduction earlier than expected through targeted divestments and now expect to maintain our liquids production at approximately 1.4 million barrels of oil equivalent a day by the end of the decade. This takes into account the decline we will see from portfolio simplification in areas like onshore Nigeria, where we intend to reduce our involvement in onshore oil production while remaining in deepwater and gas positions. As our oil production then stabilizes over the next years, we will keep our focus on value over volume. As Sinead mentioned earlier, we'll achieve operating cost reductions through further portfolio simplification and through testing new business models and ways of working. For example, our upstream position in the Netherlands has reduced base operating expenses, excluding utilities by 30% since 2019 through the implementation of a lean operating model. We will continue to high grade the portfolio, focusing our spending and expertise on opportunities with higher margins and lower carbon emissions. As I just highlighted, our portfolio positions us well to generate significant cash flows into the next decade. Integrated Gas and Upstream combined have commercial resources with a life of more than 20 years. And if you look at total resources alone, we are right in the middle of our peer group, the sweet spot, you could argue for a company pursuing a balanced energy transition. But what really differentiates our portfolio is the high-margin activities with the largest percentage of our commercial resources in LNG and deepwater, both areas where we are world leading. From the beginning of 2023 through 2025, we will have brought online projects with a total peak production of more than 500,000 barrels of oil equivalent a day. This includes 2 new platforms in the Gulf of Mexico; three floating, production, storage and offloading vessels in Brazil as well as Pierce and Penguins oil and gas fields in the U.K. We're also developing many smaller projects, as shown in the chart on the bottom right. We will invest in areas where we have proven ourselves to have deep experience with the geology. Our hurdle rates for Integrated Gas will adjust to an 11% IRR for upstream to a 15% IRR and only where we see a risk profile that is consistent with that return. Although we believe that hydrocarbons will be needed for a long time to come, we are also acutely aware that these barrels will need to be increasingly lower carbon. With this in mind, I hope it's clear that hurdle rates alone will not solely dictate our capital allocation, but they do remain an important factor. As stated before, Shell doesn't anticipate new frontier exploration entries after 2025. We'll focus our exploration efforts on extending the life of heartland positions and on the Atlantic margin where we have unique expertise and deep understanding of geological features of this basin. Before I move on to LNG, let me briefly comment on our opportunity in Namibia, which is evolving quickly. Since 2022, we have drilled 3 exploration wells and 1 appraisal well in Namibia. We also recently conducted a successful flow test, the first ever test of this kind in the country. We're in the process of reviewing the encouraging results and are focused on determining commercial potential, moving efficiently and at pace. In LNG, our integrated model is at the heart of value creation as we are the leading global marketer with a business spanning upstream, liquefaction, shipping, marketing, optimizing for customers and trading. To give you an idea of what I mean by value creation, we estimate that LNG marketing, trading and optimization contributes a 2% to 4% increase in return on average capital employed in Integrated Gas. And despite some quarterly volatility and partly because of our decision to position our portfolio toward the northern hemisphere winter, earnings over a 12-month period are stable and largely follow oil and gas price benchmarks. The marketing side of our LNG business uses our supply portfolio to serve our extensive network of customers and generates stable margins from the spread between our portfolio of supply and sales contracts. In some cases, by purchasing gas against prices linked to Henry Hub and selling gas against prices linked to oil. With our global market presence, unrivaled access to customers and knowledge, our trading and optimization organization can create further upside and take positions that add value, especially during times of high price volatility. We invest in LNG capacity where we have a competitive advantage. For example, we're adding 11 million tonnes per year of LNG capacity through new projects in Qatar, along with additional processing unit in Nigeria and, of course, our project in Canada where the plant is now more than 80% complete and on track, the first cargo by the middle of the decade. Critically, this world-leading project is designed to achieve a lower carbon intensity than any other LNG plant in operation in the world today. Beyond our own production, we also scale and -- we also have the scale and flexibility to our LNG portfolio by buying LNG from others. Most of our new contracted volumes will come from North America, for example, from LNG projects like Venture Global Plaquemines and Mexico Pacific. We can also use and scale our balance sheet to enter contracts in the early stages of projects and to obtain attractive terms. Increasing utilization of existing LNG plants is the most important way we can increase short-term value as these are our lowest cost additional LNG volumes available. That's why I've made it my top priority to address the supply and operational issues that have caused the underutilization of our LNG assets. And it's why, over the next 3 years, we'll invest around $2 billion every year in projects that increase the supply of natural gas to our LNG facilities. I'm pleased to say, in the first half of 2023, we've already made progress. In Trinidad and Tobago, for example, we've increased gas production through the delivery of Colibri and Barracuda projects. And we have further gas supply options, including the Manatee gas project. In Nigeria, we've increased our capacity to produce gas in our upstream business. But we are facing severe challenges in our network to increase the supply due to continued vandalism of the pipelines. Our teams continue to collaborate with the Nigerian government and other stakeholders with the aim of addressing the crude theft from our facilities and the resulting impact that this has on gas production. These efforts have already led to improved security. Another area where we're focusing on performance is Prelude, our floating LNG facility in Australia, which is a complex design with many first-time applications in a remote location. Our operational record at Prelude has been challenging. But we're seeing steady improvement and recently exceeded 100 days of continuous operation for the first time. We're also seeing faster recovery from operational trips with record production in March and April and continued strong performance in May. We have a multiyear plan to improve Prelude's operational performance, including a planned turnaround later in the year, which will help reduce the vulnerabilities. We've demonstrated before, for example, when we commissioned our Pearl gas to liquids plant in Qatar that we can use the breadth of the Shell's organizational capabilities to move from a challenge start to a high-performing world-class asset. Turning our attention to another high-margin business where we have unique capabilities. Let's look at deepwater. This is a business with higher barriers to entry. And not only have we been the first movers in deepwater from the start, but we continue to reach even higher levels of performance through our near-field opportunities, our technical expertise, our strong partnerships and our model of simplification and replication as we develop deepwater fields in the next decade. We're the largest operator in the Gulf of Mexico, and we're making the most of our portfolio creating the most value by focusing on opportunities close to our existing assets, which are in the best corridors of the Gulf of Mexico. This allows us to access the critical infrastructure to develop shorter cycle, high-value tieback opportunities. We are top quartile in well optimization according to industry benchmarks, which enables us to protect and grow our existing production, bringing us some of the lowest cost barrels available. We also continue to innovate and add new volumes, projects like Vito, our newest platform in the Gulf of Mexico with a peak production of 100,000 barrels of oil equivalent a day. Improvements to the original design of Vito reduced costs by more than 70% from the original concept and will reduce carbon emissions by about 80% over the lifetime of the facility. Vito will serve as a blueprint for other projects such as Whale. In Brazil, we're the largest foreign producer. We're adding 3 additional Mero floating, production, storage and offloading vessels in the Santos Basin. And we're adding barrels where we have opportunity to leverage our world-class partnerships and technical understanding for greater value. For example, by increasing our stake in the Atapu field. Let me summarize before going to your questions. We believe oil and gas will play a significant role as the world transitions to a low-carbon energy system. Our leading Integrated Gas and advantaged Upstream business will continue to drive cash generation for Shell into the next decade. Our performance is underpinned by our value over volume approach and a strong resource base. We will be disciplined with our capital, allocating around $13 billion in annual cash CapEx towards higher margin and carbon competitive opportunities. I'm really excited about even more value from this simplified structure of a combined Integrated Gas and Upstream business. So now over to your questions.

We' have about 15 minutes of questions. So let's go here.

James Hubbard from Deutsche Bank. Two quick questions. Tying back to some of the earlier questions, actually, the stable liquids target now from Upstream of out to 2030, the prior target to me seemed to imply a liquids decline of at least 2% per annum and maybe closer to 4% per annum. And for scale of portfolio that you have going from that to 0 is actually a huge leap. If I recall over the last many years, how hard it has been for large oil companies to maintain flat even without resorting to organic or investments into things which they subsequently disposed off because they destroyed value. So I'm just wondering, is this all about more aggressive efforts on underlying decline mitigation or should we expect a wave of new products that are going to make their way faster through the hopper or go through the hopper, which maybe 2 years ago, they wouldn't have done. And then secondly, Vito. I read this on the plane out here as well the 70% decline in costs you achieved. I mean is there any chance or any more detail on that? Because it just sounds staggering for an industry which has been installing deepwater platforms of various designs in the area for well over 15 years. How did that 70% come about? Because it kind of begs the question was the initial design gold plated in some way?

Yes. Thank you. Great questions. I think the first thing I'd say around our stable liquids production is, directionally, we're in that 1,400 million barrels, but we have flex to be slightly up, slightly down. The primary driver behind our forecast is really about making sure we continue with the value over volume thesis and, of course, making sure it's underpinned by generating the stable cash generation. You saw on the chart, we have about over 500,000 barrels being brought on stream in the next 2 years. And those projects, you see the breakdown, it's about 40% from deepwater, just under 40% from our Conventional Oil & Gas business. They are various decline rates. But on average, at shown, we have about a 3% decline rate that offsets for the natural decline with things like WRFM activities and other waterflood and opportunities for optimization. So when you think through the contingent resources that we've got and the commercial opportunities, I'm actually really confident about our ability to underpin that. I think the second question around Vito. In some respects, it picks up on the thread that I think Wael referenced earlier around the days where I think upstream was much more driven by spending capital and protecting for any scenarios of subsurface facilities. So the approach that has been taken with the support of our projects and technology team within Shell is to really go through minimum scoping, really understanding what's the minimum kit that's required, recognizing that the subsurface has a range of uncertain outcomes. And so we no longer manage our topside facilities on the basis of a P50. It's actually more on the basis of a P90 reservoir outcome. That allows you to be more fit for purpose around the engineering aspects.

Okay. Cool. People we have not had yet and there, Peter.

It's Peter Low from Redburn. Just a couple of clarifications. Can you give a bit more clarity on when you expect LNG Canada to start up. You mentioned in the middle of the decade, but it doesn't look like it's included in 2025, in the volume chart on Slide 26. And then kind of sticking on that slide. Again, it looks like LNG offtake volumes are falling slightly to 2025. What's driving that? Is that contracts expiring or underlying declines in production of some assets?

Yes. Thank you. So I think worth stepping back and reminding ourselves that we look at the integrated value that we get out of our LNG portfolio. Of course, that's a combination of our equity production as well as the third-party contracts. What you see in our forecast is indeed the combination of the 2, recognizing that our world-class trading and optimization provides the opportunity to glue that integrated system together. With respect to equity, that is around LNG Canada, which we have announced to be mid part of the decade, but it's also around the volumes that we're bringing in through Qatar and the other work that we're doing around feed gas supply and operational improvements to underpin the equity production that we have. I think as it comes to the third-party contracts, we have continued to find access to valuable third-party contracts through the course of time. We have many of those contracts, which I think have been relatively de-risked. Calcasieu, for example, is already, of course, in operation. The Plaquemines has actually taken FID. So we've got confidence in our capabilities to continue to access value accretive third-party contracts over the course of time. And of course, that 2% to 4% ROACE uplift is something that we have seen constant and fairly ratable over the course of time, which, of course, recently has seen quite different market context.

All right. We will keep going.

It's Henri Patricot from UBS. The first question is on the production outlook for liquid to 2030 to 1.4 mboe/d in Namibia. Is this something that you've included within the target or we should think about Namibia is potentially providing some upside to the 1.4 mboe/d? And then secondly, you mentioned the project as being carbon competitive. I was wondering if you can elaborate on how you look at carbon intensity as you look to select prioritized projects?

Yes. Thank you. Namibia is not included in the volumes that we have forecasted out to 2030. If we can further accelerate the derisking of Namibia, it's possible that some volumes could come in at the very back end of that time horizon. But for now, we've assumed that's largely outside the window of 2030. But we are, like I mentioned, I think what we're most pleased about in Namibia is that we have so far out of the 3 exploration wells and the 1 appraisal well that we have drilled, we have had top quartile well performance in every single 1 of our activities in Namibia. And so I think we are confident that we can derisk that at pace. I think Sinead mentioned earlier that we've got access to the deep sea bolster, which is the rig enabling us to actually do well performance across the seasons, so we can actually continue derisking activities across without taking seasonal breaks. I think in terms of carbon competitive, it's very much, as I mentioned before, when we look at capital allocation, we are looking at not only the returns, but we also look at things like the breakeven prices to determine resilience. And we also look at the carbon competitiveness of the project itself. And so that's fundamentally an integrated part of the way that we make our capital decisions.

Okay. Cool. We've had a few people already, but then we're going to go and we turned. Okay, Martijn. We haven't had you. You were a little bit late at the table though. So you're lucky. Okay, go ahead.

It's Martijn Rats from Morgan Stanley. I want to ask you 2 questions about LNG. And the first one is a bit of a market question because the LNG market has sort of turned -- well, surprisingly soft after the events of last year. And there is a bit of a window where the market could be tight. But from 2025 onwards, there's quite a lot of supply coming on. So if we're looking at 2 years, which are not so tight and then a lot of supply, it sort of could lead to a bit of a stretch of a bit of sort of softness. But I was wondering how you sort of see that play out? And the second question, perhaps if there are any sort of green shoots in Asian demand, that sort of thing called the gas switching. If you have any view on that, that would be much appreciated. And connected to that, I was wondering if you have any sort of comments about the likelihood of Tanzania LNG ever going ahead or not?

Is that the third question? Tanzania LNG. Okay. So -- well, the first one, I think when you have a look at our performance in Integrated Gas, you see that we have been able to deliver consistent earnings over the course of various macro conditions. And of course, that's the essence of our leading strategy. You see that the equity supply that we have typically sort of match to the absolute price context. The marketing and optimization activities that we have are more around the spread between our supply contract and our sales contracts. And then, of course, our trading activities enable us to make money when there's volatility. You rarely have, as the markets evolve, all 3 of those collapsing in 1 hit. And hence, we do see the 2% to 4% ROACE uplift from our trading activities being relatively consistent over the course of time. Additionally, you can also see, despite the sort of seasonal volatility where we do see various things shift and because of the way we've got both the length and our prices focusing towards the Northern Hemisphere winter, on average, our annual performance is still quite consistent and pretty ratable. So I think, for us, it's hard to predict how the market is going to evolve, but the strength of the underlying strategy that we have in our business model is that it's quite resilient, whether it be to absolute price to the spread or indeed to the volatility. I think to the question around Asian demand, and I think you may have heard Cederic and Steve, they're here, give the LNG outlook presentation a few months ago. We're still really quite positive about the LNG market and the opportunities that are likely to prevail. So I think I'm still very confident in the LNG outlook from our position. At Tanzania LNG, I think we have been doing a lot of work and pleasing to see some strong engagement by the government in the sort of commercial terms that could create the foundation of a decision in Tanzania, but we're not yet at the position where we're, of course, making any firm decisions, but 1 to watch as we seek to derisk.

I think a very short question, Paul, yes, a short question. Otherwise, it's not allowed because we're running out of time.

Hi, it's Paul from Sankey Research. I'll just -- I'll -- could you just clarify again on LNG Canada. When do you plan to start it up? And what are the risks?

Yes. So we are 80% complete. We've derisked a significant part. We're not giving any more clarity than the mid-part of the decade. So we're feeling confident about mid part of the decade that, that will come online.

All right. That was a short question. Okay. We will now continue. Thank you, Zoe, and then we'll have Huibert continuing here. And then we'll have, after that, another Q&A. First with Huibert and then we have the rest of you.