Royal Dutch Shell Plc (LON:RDSB) told investors its oil business is past its peak, as it added detail to a strategy that aims to accelerate the fuel major’s ‘drive to net-zero emissions’.
Shell’s oil production volumes are expected to have reached a peak in 2019, the company said, meanwhile, it added total carbon emissions peaked in 2018.
The company, among the largest and most famous oil businesses in the world, said it expects a gradual reduction in crude production.
It comes as Shell plans its transition with investments into power generation, nature-based solutions and hydrogen-based fuels.
Shell’s oil production will decline by 1-2% per year each year, the company added. It highlighted that its upstream division will focus on value over volume, and, the reduction in production will be delivered by divestment and natural decline.
“We must give our customers the products and services they want and need – products that have the lowest environmental impact,” said Ben van Beurden, Shell chief executive.
“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.
“Whether our customers are motorists, households or businesses, we will use our global scale and trusted brand to grow in markets where demand for cleaner products and services is strongest, delivering more predictable cash flows and generating higher returns.”
Whilst in transition, the company reiterated its cash priorities to shareholders.
The company said it is maintaining a progressive dividend policy, increasing the per share payout by around 4% per year. Shell added that it intends to target total shareholder returns of 20-30% of cash flow from operations, with the dividend policy supplemented by share buy-backs.
It intends to retain annual cash capital expenditure in a range between US$19bn and US$22bn.
A commitment to reduce net debt to US$65bn was repeated. The company expects to maintain operating expenses below US$35bn per year.
Shell anticipates to average US$4bn of divestments per year, meanwhile, as it rebalances its portfolio the company plans to invest around US$22bn a year including US$2-3bn into Renewables and Energy Solutions, US$4bn into integrated gas, and US$4-5bn in its Chemicals and Products business.
The company’s fuel marketing and retail business, which includes retail sites and an electric vehicle charging network, will see US$3bn of investment per year as the company aims to add 9,000 sites to reach 10mln more customers (presently 30mln customers across 46,000 sites).
Growing EV charging services is evidently a significant part of the strategy, as the company said it aims to increase its network to 500,000 charge points by 2025 from around 60,000 presently.
It also intends to grow its low-carbon fuels business, which includes a joint venture that produces fuel from sugar cane grown in Brazil.
Shell plans to double renewable power sales, to 560 terawatts hours per year by 2020, with a integrated power solutions targeting retail and business customers.
The development of hydrogen ‘hubs’ to serve industrial and heavy-duty transport customers is also part of the plan, where Shell aims to achieve “a double-digit share of global clean hydrogen sales.”
Shell’s chemicals and products business plans a major reconfiguration, transforming and consolidating its refinery footprint – establishing six ‘high-value’ chemical and energy parks, from its current portfolio of 13 sites.
Significantly, it plans to cut production from “traditional fuels” by 55% in this decade whilst at the same time growing volumes and increasing cash generation.
Shell said it will produce what are termed ‘circular chemicals’ by producing chemicals from recycled waste.
By 2025, Shell plans to process 1mln tonnes of plastic waste per year.