殼牌 (SHEL) 2022 Q1 法說會逐字稿

Welcome to Shell plc First Quarter 2022 Results Announcement. Today's session will be recorded. (Operator Instructions) We will now start with the presentation.

Welcome to our first quarter 2022 results presentation. Before I look at our performance, I would like to thank Jessica Uhl, who is leaving Shell after 17 years. Her distinguished Shell career culminated in 5 years as Chief Financial Officer, and she leaves an impressive legacy. She has been key in strengthening Shell's financial position whilst delivering some of the industry's best cash flows year after year, and I am honored and excited to follow in her footsteps.

Today, I will talk about our key developments, strategy delivery and our Q1 performance.

As the war continues in Ukraine, Shell is working hard to ensure the safety of our staff and contractors there and to support relief efforts. We are doing our utmost to keep retail sites operating in the country and supplies moving. We are supporting our staff in Ukraine and taking care of our staff fleeing the war by offering assistance and means for relocation.

We have announced our intention to withdraw from all Russian hydrocarbons in a phased manner. So we have stopped buying Russian crude oil and liquefied natural gas, or LNG, on the spot market. And we will not renew any long-term contracts. We have also stopped spot purchases of cargoes of refined products directly exported from Russia.

For the first quarter 2022, we have taken post-tax charges of around $3.9 billion in relation to Russian oil and gas activities. As well as causing human tragedy, the war has led to deep uncertainty about supplies and rising prices.

The disruption in global energy market shows that secure, reliable and affordable energy must be managed through engagement with government, customers and suppliers. We are continuing to deliver a secure supply of energy across the world. And as the world's largest supplier of LNG, we continue shipping natural gas to where it is needed most. One example is the agreement we have just signed to ship LNG through the terminal that will be built in Germany.

In Q1 2022, we have safely, on time and on budget completed the largest turnaround in Shell's history at Pearl in Qatar. Additionally, we have successfully started up the PowerNap, Colibri and Mero-1 oil and gas projects. Prelude floating LNG is also back online and supplying additional volumes since mid-April. At the same time, we are accelerating our transition to low-carbon energy. This includes our successful bids together with our partners to develop large-scale offshore wind farms in the U.S.A. and U.K. Together, they represent 6.5 gigawatts of total generation capacity.

And just last week, we announced the acquisition of Sprng Energy group, one of India's leading renewable power platforms. This deal positions Shell as one of the first movers in building a truly integrated energy transition business in India.

While we deliver a secure supply of energy, we are also meeting the climate targets that form part of our Powering Progress strategy, to be a net-zero emissions energy business by 2050. So by the end of 2021, we achieved our short-term target to reduce the net carbon intensity of the energy products we sell by 2.5% compared with 2016. As an energy user and producer, Shell has set a bold target to reduce net absolute emissions from its operations, including the energy it buys and uses, by 50% by 2030 compared to 2016 levels.

We are making good progress towards this target with an 18% reduction at the end of 2021 compared with 2016. The recently published Shell Energy Transition Progress Report outlines our strong progress against our strategy and will be put to an advisory vote at our Annual General Meeting this month.

Turning to our Q1 2022 performance. This was a strong quarter for Shell amid volatile geopolitical and macro conditions. Our adjusted earnings were $9.1 billion, and our adjusted EBITDA was $19 billion. We delivered $14.8 billion of cash flow from operations, which included $7.4 billion of working capital outflow due to rising commodity prices. These results reflect the benefits of the strong integration of trading and optimization activities across all of our businesses, including Renewables and Energy Solutions, or R&ES.

In R&ES, which we are reporting as a separate segment for the first time, we delivered adjusted earnings of more than $300 million and adjusted EBITDA of some $500 million, primarily driven by the exceptional market environment as well as seasonality. Starting this quarter, we have enhanced our disclosures to offer more transparency about our growth pillar. You can find insights into the new group segmentation and additional disclosures in the informative video and in the quarterly data book, all available on shell.com.

This quarter, we are increasing our dividend by some 4% as previously announced. Also, we have made substantial progress in buying back shares. We have now completed $4 billion of our planned total of $8.5 billion share buyback program for the first half of 2022. The remaining $4.5 billion is expected to be completed before the Q2 results announcement.

This quarter, we have further strengthened our balance sheet by reducing net debt to $48.5 billion. We will stay disciplined with our investments and any incremental CapEx will be to provide energy security and accelerate the energy transition. Including our investment in Sprng Energy, our cash CapEx will remain within the $23 billion to $27 billion range for 2022.

Strong cash flows, a healthy balance sheet and continued disciplined delivery of our strategy gives us a solid foundation to invest in the energy transition whilst also safeguarding the company. With the current macroeconomic outlook, we expect to be distributing more than 30% of our CFFO in the second half of the year, subject to Board approval. We will provide more details on our capital allocation framework at our Q2 results announcement.

Our delivery this quarter demonstrates the leading role we intend to play in the world's energy security and transition to a low-carbon energy system. Thank you.

(Operator Instructions)

Thank you for joining us today. We hope the presentation showed how we continue to invest in the energy transition and energy security whilst navigating in a complex geopolitical and macro environment.

Today, Ben, Wael and I will be answering your questions. Wael will not address Russian-related questions due to sanctions restrictions. (Operator Instructions) And with that, could we have the first question, please, Cecilia?

We will now take the first question from Oswald Clint from Bernstein.

Two questions, perhaps the first one on gas and the second one on the power portfolio. Just in terms of natural gas, the video talks about how you're engaging with governments. And of course, you've been nimble to sign up this MOU with Germany.

But I wanted to ask you a question and see -- could we see a European corporate or European government really hand Shell a 15- to 20-year long-term LNG contract? I just think that, that's something that may not have been possible a few years ago but could actually be possible going forward and obviously has big implications.

And I see you've brought forward some QGC gas from pre-FID into under construction. It looks like you're moving a little bit faster here on the LNG options. Perhaps you or Wael could actually talk about that, please.

And my second question was just on Sprng Energy in India. You didn't have a lot of detail with that one. So curious about if you could explain the criteria you're looking at to select candidates like this. I'm sure you look at hundreds, but -- and apart from the financial aspects, what makes it truly integrated, as Sinead just mentioned in her comments?

Thanks, Oswald. Two-stroke, 3 questions in there. But I think I'll pass both of them, if you don't mind. Wael, over to you.

Of course. Thanks, Sinead. Oswald, thank you for the question. Maybe starting with the first one around natural gas. Indeed, we've now moved to sign an agreement on the Brunsbuettel terminal in Germany. And it's important to recognize right now, it's not that Europe is necessarily short of import terminals in general, but they're concentrated potentially in some of the places where you don't necessarily have the interconnectors to Northwest Europe, where we simply have shortages and, of course, into some of the Eastern European countries as well. And so it's how do we create all the right arteries to be able to do that.

We -- it's difficult at the moment given the infrastructure of the importation into Europe to see anyone looking at term contracts here. But I do think it's going to be a critical part of the overall puzzle if you are to have truly the sort of energy security that you need in Europe.

Who knows how it's going to go? So I'm not going to speculate as to whether from a government perspective or private entities step into that void. But I do think if you're going to attract longer-term volumes, you're going to have to see some of that.

You touched as part of that first question on LNG and where we're going with that. I do want to sort of flag the 2 million tonnes per annum that we signed up with Venture Global from Plaquemines LNG export facility that adds to the 2 million we had already taken from Venture Global on -- from Calcasieu.

I think these are great opportunities for us to continue to add to our build portfolio, the likes of NLNG Train 7, the likes of LNG Canada, first 2 trains, with some buy volumes. And that gives us the global reach that, I think, makes this portfolio incredibly unique and, I think, the leading integrated gas portfolio in the world.

If I touch on Sprng Energy, so what are the criteria we use -- and maybe just to provide some context on Sprng. I think firstly, incredibly excited to have the opportunity to play in the third-largest energy market in the world and in a country that welcomes foreign investment and in a country that is moving ambitiously on the renewables targets.

Why did we like this one? We start from the perspective of creating value customer back. We have a number of customers, in particular, C&I customers in India that want to be able to have 24-hour power. They want to be able to have sleeving of gas with power and maybe in future, green hydrogen. So we need the foundational platform to be able to give us that, that we have line of sight towards the north of 10% returns on and that allows us to be able to build these integrated value chains.

With this platform, we achieved that. We bring in a team of over 100 people that have real expertise, demonstrated capability. We bring in a demonstrated capability also in terms of serving utility markets, which we will hone into more and more C&I supplier. And I think we also add, of course, immediately some 3 gigawatts of operated and contracted capacity and another 7.5 gigawatt funnel beyond that.

So I'd say the key elements are, is it in the right zip code? Does it show a pathway towards achieving what our customers want? And does it give us the sort of returns we would expect? And finally, of course, can we buy it at the price that's going to make this overall an attractive value proposition? On all those fronts, the answer was yes, and that's why we went forward with it.

The next question comes from Lydia Rainforth from Barclays.

We should move on to the next question from Biraj Borkhataria from RBC.

Two questions. First one, actually, I wanted to start with the observation. Looking at your underlying cash flow of $22 billion, you're generating more free cash flow this quarter than your 2 U.S. competitors combined. And this has actually happened before. And the 2 times it happened before was this quarter and then second quarter of 2020, where you had significant volatility in both periods and you seemed to be able to benefit a lot more than your peers from that volatility.

So my question is on trading. One of your peers has talked about a 1% to 2% improvement in ROCE from trading on a [rate] basis as a rough guide. For Shell, intuitively, across oil, gas and now electricity, it feels like it should be higher than that, but it's very difficult to quantify. Is there any guide or comment you can provide and help quantify on what trading typically adds to ROCE there over the medium term?

And then the second question is on Sakhalin LNG. I appreciate you've taken it out of kind of your guidance. In the near term, where you're still contracted and presumably the product is still exporting, is your guidance on the LNG front effectively understated by the Sakhalin amount? Just trying to think about how that will flow through to earnings.

Excellent. Thanks, Biraj. I'll take the first one. And Wael, I'll pass the Sakhalin one to you.

So thank you for the question, and thank you for the comments on our very strong cash flows. I'd echo that, of course, as you'd expect. I won't comment on our competitors or anything around that. But what I would say, of course, is trading plays an integrated part in our results always. And it hits across all of the different elements, whether that's in Upstream, where it's looking at how we offtake from the likes of Brazil; whether it's in Integrated Gas, which, of course, you've heard Wael talk about; but also in our R&ES business as well, where we've talked about, of course, some of the pipeline gas moving through and the power sales. But particularly this quarter, it's fair to say that in our chemicals and products area, particularly on the product side, we had very strong trading and optimization results. And the team did an excellent job there.

Fundamentally, this is all about integration for us. It flows through across all of our portfolio. And what you would have seen this year in terms -- or sorry, this quarter specifically is as you move from our EBITDA, our adjusted EBITDA into a CFFO, you would have seen, particularly on the derivative side, $2.2 billion coming through in terms of a help on that, which helps towards that $22 billion as well. Now fundamentally, you will continue to see our trading business stay very close to the assets, continue to drive some of the results that we see. Wael?

Yes. Thanks, Sinead. Just -- I'll keep a simple on Sakhalin. In essence, it has been delivering roughly 90,000 barrels a day for us and 0.8 million tonnes a quarter. That comes out as of the second quarter. In terms of -- you will no longer see it. So when we talk about guidance, I'd say, 7.4 million to 8 million tonnes. Of course, that is net of taking out that 0.8 million tonnes from Sakhalin.

And when it comes to the financials, of course, until we are able to totally get out of it, which is -- which we hope will be soon, they're -- essentially, they'll flow through the normal dividend flow that plays into it.

Next question from Irene Himona from Societe Generale.

Both my questions are on marketing following your new disclosures today. So firstly, when I look at your adjusted lubricants earnings in Q1, they are down 13% year-on-year. Mobility is down 29%. I wonder if you can talk about the trends you are seeing, particularly on demand, with COVID lockdowns, but also on margins. Obviously, there's a time lag before you can pass prices on except there are now various government efforts to limit that. So across the global Shell portfolio, are you seeing some earnings recovery in lubricants and mobility so far in Q2? And then any guidance you care to share for the rest of the year?

Importantly, Q1 marketing free cash flow is $1 billion negative in the quarter. And you gave us today a 20-quarter history of that. It's only the third quarter when you had a negative free cash flow in marketing. So any guidance would be very useful for the rest of the year.

Thank you, Irene. Great questions in there as well. So sorry, I'm just going to look down as I look towards some of the questions here. So you're right. In terms of marketing volumes, we are seeing those down. It's a little bit about seasonality, of course, driving season, et cetera, but also, of course, knock-on effect of some elements of COVID as we see in particularly around China, et cetera.

I'm really pleased, however, when you look at the lubricants results. Yes, always a struggle in terms of the knock-on impact in terms of demand. But the margins are strong and the team is doing a great job there.

Now specifically, what you asked about as well was around the billion dollars of negative free cash flow, as you flagged there. Now remember, of course, in this sort of area, it's all about our working capital. So of course, prices like this, that's what you would expect, and you're really seeing that flow through.

But in terms of lubes, I'd just bring you back to, of course, the fact that we have an incredibly strong lubes business. Now 1 in 8 machines around the world are protected by Shell lubricants. And that's a fantastic set of results, I think, there. And of course, we serve more than 1 million customers as well. So I hope that helps a little bit with the look forward. Thank you.

Lydia Rainforth from Barclays.

Two questions, if I could. If I just come back to big picture, obviously with the Russia -- Ukraine invasion, has anything changed within the Shell strategy? I mean other things that you're accelerating or looking at doing from that side and -- other than -- especially additional buybacks?

And then the second one, I just want to -- how are you seeing difficulty on the cash amongst different stakeholders? Because clearly, energy prices are at the highest levels that they've been for over a decade. So just in terms of how you balance different perspectives at different stakeholders.

Thank you. Thanks, Lydia. And great that we could get you back in. Sorry about the issue previously. Ben, can I suggest you take the first one? And then I'll take the second one on cash.

Yes, sure. Thanks, Lydia, for the questions. Well, the -- maybe the short version of the answer is nothing has changed. Our strategy is still very much a strategy that we want to execute. I believe it's the right strategy also for the circumstances that we are facing. And of course, you have to bear in mind that with the purpose of the company being providing more and cleaner energy solutions, that is exactly what the world needs, a response to the crisis that we are facing. And we need more energy, and we're definitely -- cleaner energy. But we also need more energy security. So the energy transition, therefore, can also be seen in that light.

We talked about share buybacks, maybe change. Well, can I also say that the performance that we are seeing this quarter, of course, has been helped by the macro, and the macro has been impacted by the war in the Ukraine. But at the same time, the macro was already strengthening in the run-up to this quarter.

And what we are also seeing, of course, is a much better operational performance in a stronger portfolio. So it's not necessarily a windfall in that sense coming from the Ukraine war. We do have a better company. We do have better performance. And yes, indeed, our shareholders will benefit from that as well.

Thanks, Ben. And Lydia, your second question really was around that balance with different stakeholders, how we deal with cash. Well, of course, first and foremost, we have to think about our customers. And of course, this is a difficult time. What we have done there is to ensure that we have some support mechanisms in place.

So if I look to the U.K. as an example, of course, where we are seeing some of those issues in terms of the cost of energy, we've put in place millions of points worth of funds to be able to support. We are also looking at things like payment holidays, timing of bills, et cetera, just to make sure that we are there as much as we can be for the customers as well.

Beyond that, of course, it is about continuing to invest. And particularly, if I take it to the U.K. again, by investing in the transition and making sure we continue to spend our dollars wisely fundamentally to making sure we're very focused on where we spend that money and, of course, keeping within the capital discipline that we talked about before of $23 billion to $27 billion.

Beyond that then, if we take it to our shareholders, and we talk about that as well, as you can see, we've said that we expect in the second half of this year to be distributing in excess of 30% of our CFFO. But at the same time, of course, there's also the progressive dividends that we have going through as well. And as you know, we're also then trying to firm up the balance sheet. So really good to see the stability coming through in that. And the balance sheet, of course, you saw the net debt go down to $48.5 billion, which was great. Thanks, Lydia.

Our next question comes from Michele Della Vigna from GS.

Congratulations on the very strong cash flow. Two questions, if I may. First, on the new Renewables and Energy Solutions line, a very strong start at $500 million EBITDA, clearly strong contribution from trading. But I was wondering if you could give us a 3- to 5-year look of where you expect EBITDA to grow in such an important business for your long-term strategy.

And secondly, also very welcome the increase in cash return to shareholders in the second half to over 30% of CFFO, which if the current macro environment endures, may mean a buyback of over $5 billion per quarter. And I was wondering if there is a limit to how much buyback you can execute in a quarter given the liquidity in the market and whether that may need to entail some form of special dividend.

Okay. Thank you, Michele. Wael, would you mind taking the first one? I'll take the second one.

Of course. Thanks, Sinead. And Michele, thank you for the question. It's -- of course, it's nice to be able to start the reporting of R&ES with a healthy $0.5 billion of EBITDA. But of course, these are times where both the macro has significantly helped and, of course, seasonality as well. Q1 tends to be a very strong quarter from a demand and trading perspective.

We're not giving at this stage an outlook over the coming years. What I can say is we are really looking at building the foundations of many of what I would call the R&ES assets to be able to, over time, get that to become the larger portion of the overall contribution.

Trading is doing a fantastic job. I mean we are one of the largest gas and power traders in the U.S. Pleasingly, there's been a lot of progress in our European trading desk as well. And what you will find is that we will continue to build that capacity over the coming years.

But it's also important to recognize, as we bring that transparency, this is an area we're going to be spending on. So this is going to be, for the next few years, an area where we are building the foundation that hopefully is going to generate the sort of returns, the sort of cash flow contributions that we expect towards the latter part of the decade where it becomes, I think, much more of a meaningful contribution in the bigger scheme of things. But very proud of what the team has done and pleased with the trajectory that they're on.

Thank you, Wael. And Michele, you asked specifically about the cash returns and the more than 30%. So of course, we fully intend to come back to you in the Q2 results and be able to go into more detail. So I won't speculate where we will end up on that, but we'll come back with a lot more details.

But you also asked whether or not there is a limit to how much we would do in terms of the buybacks. What I would say, of course, is we've already done $4 billion of the $8.5 billion for the first half that we talked about doing in terms of buybacks. We expect to see the remaining $4.5 billion to complete before the Q2 results that we come out with. But that does mean we are hitting the technical limit in terms of the buybacks that we can do.

In saying that, one of the things you'll see at the AGM, of course, is that we have had a resolution to allow for, in effect, off-market share buybacks. So it allows us to go broader, to go into other markets like Amsterdam in a variety of cases to be able to buy excess shares back. So that gives us a little bit more flexibility as we go as well. Rounded up, we'll come back to you with more at the Q2 results. Thank you.

Next question from Henri Patricot from UBS.

A couple of questions, please. The first one on CapEx and the comments you made in the opening remarks with the cash CapEx remaining within the $23 billion to $27 billion range for this year. I appreciate you talked about the lower end of this range. Are we talking more like in the middle of this range now?

And the second thing on CapEx, when you mentioned that any incremental CapEx around energy security and the energy transition. So does that mean that the focus is very much around the low carbon? Or can we see also some more around gas and LNG?

And then finally, just a question on the refining side, where you still have some maintenance in the second quarter. Should we expect that utilization to increase in the second half of the year? And where do you see that stabilizing given there's been quite a lot of change in the portfolio?

Okay. Thank you. So a couple of questions there, the first 2, I think, really around CapEx, which I will take. And I think the third one was really around effective utilization of LNG, was it?

Refining.

Refining, sorry. Ben, I'll ask you, if you don't mind. Sorry, I didn't quite catch that, Henri.

So with respect to the CapEx, yes. In terms of -- we've been very clear, nothing has changed in terms of our capital allocation framework. We will remain disciplined, and we will remain within the $23 billion to $27 billion.

To give an example of that is you've just seen the Sprng acquisition, which Wael actually just talked about. And of course, that remains within the $23 billion to $27 billion as well. So staying disciplined within that range.

In terms of where will we spend it, we're looking at the opportunities that are available to us. But you're correct that we are focusing more on in terms of energy security and in terms of the energy transition. So you'll see that come through. And Sprng is a super example of that as well.

Yes. And on refining, Henri, it -- indeed, Q2 typically is a maintenance quarter for refining. As a matter of fact, we did have a very large turnaround in Q1 as well in Pernis. So that's why that's -- you have to take that into account also in judging our Q1 results and our Q1 utilization. I hope that makes sense. But in Q2, there will be some more, which is just a normal seasonality that we see in our maintenance strategies.

Now the second part of the question was about the stability of the refining portfolio. There are no changes in our strategy there. We said we would bring our refinery portfolio back to 5 core sites, which will not just be refineries but energy and chemical parks so -- where we have the benefit of strong integration and where we have sites that we can also use as a platform for biofuel investments, even hydrogen investments and later on also synfuel investments.

We're not quite at the 5 yet. There's a few refineries still to go, but they're all in the process of being divested. One that we are almost done with or we're almost done with was the second German refinery, PCK in Schwedt. That's -- was preempted, that sale by Rosneft. And now we will have to see how that plays out.

But our intentions are very clear. We will bring back our portfolio to these 5 refineries, which will then be part of 5 energy and chemical parks.

Next question comes from Lucas Herrmann from Exane.

Sinead, welcome to the crew. Two, if I might. The first, perhaps this is -- it's something for Q2. Perhaps I shouldn't give you the excuse before it. But you clearly -- relative to where you were 18 months ago, you're clearly redeeming shares at a much, much faster pace than was the case. The base level of dividend or the cash level of dividend is obviously going to -- more dramatically. 4% seems a sensible growth rate.

I guess my question is, very simply, given the pace at which you're able to redeem stock at the moment and the reduction in absolute dividend rise as a consequence, how do we think about -- or how should we think about the potential of rebasing the dividend, albeit retaining the future growth rate at a later date?

And secondly, can I just ask you about volatility and planning and how you're thinking about the world today and how long you might expect the dislocation that we're seeing, particularly in product markets in Europe, to extend for? Can you give us any advice or guidance on how we should think about the margin elevation that we're seeing at this time and how Shell manages the dislocation and the arrival of product at refineries, so on and so forth at this period?

Thank you, Lucas, and thank you for the welcome to the crew. Much appreciated. Two questions really there. The first one in terms of the dividend, I'll take. And Ben, if you're okay...

Yes.

Take the second one in terms of the product coming through.

So on the first one, Lucas, I think you predict where I'm going to come on this. We expect to see more than 30% distribution coming through. But we will, of course, give more information in terms of Q2 results as well.

And as you know, dividend and buybacks in Q1 at the moment are exceeding those that we had in Q1 2020. So it is a significant pace, as you say, that we're doing on the buybacks at the moment. But it does look like we're hitting our technical limit for the next period. But hopefully, with the AGM, we will actually have more space on that as well. More later. Ben?

Yes, absolutely. Thanks, Lucas, for the question. I think it is a bit early to exactly call how the market is going to pan out. It is an absolutely dramatic disruption that is happening to the products market at this point in time. And I don't think we are stabilized yet.

Bear in mind, it's not just a matter of, indeed, crude now going to different places, being refined in different places but nevertheless having to come back to the markets where the product is being used. It's also Russian products that are dislocated as a result of it and quite crucially also Russian components that would typically go around to the logical places to fill up refining capacity that are now also not available anymore for free optimization. Think of heavy bottom of the barrel products that would traditionally go to the United States to fill up refineries that are predominantly otherwise running on light oil from the shales operations.

All these things have been disrupted. It will take some time to rebalance all of this. And then of course, it takes some time also for the shipping fleets, which, by the way, are also impacted by the Russian dislocations and Russian shippers, et cetera. It will take some time for that to settle out as well.

So I predict that -- and I know predict is a difficult word. But I expect that it will take us some time to see where this settles. And in that period, we will probably see higher cracks also because of the factors that I just mentioned.

But ultimately, of course, if it settles and when it settles, of course, I think we will be reverting back to normal again and reverting back to more traditional and historical cracks because there is no reason for that matter for markets to give more rent to refine us. And therefore, our strategy still remains the strategy that it is, which is concentrate our refining footprint to 5 energy and chemical parks.

Next question from Paul Cheng from Scotiabank.

Two questions, please. Ben, you mentioned earlier that second quarter refinery run rate is low because you have a heavy maintenance downtime. But just curious that is there any impact at least in your European operation due to the Russian sanction or that your decision there to reduce so that impact on the feedstock as well as on the crew that you may have some difficulty to fund total replacement. Also if the high natural price there have impacted the economy and as such, you guys decided to run at a somewhat lower or suboptimum way. So I just want to see if the low run rate, is it solely a matter of the maintenance activity or is somewhat based on the -- driven by the market condition.

The second question is just want to see, in your renewable electricity business, in the rising power price environment, generally that how that translates into your earnings? Is it a net benefit to you guys? Or that it would hurt you given you probably have some fixed price points or PPA? So I want to understand there how the dynamic work.

And then finally, I just want to comment that really appreciate you got to be the first company break out the renewable business as a separate segment and provide information there. Really appreciate it.

Thanks, Paul. Thank you for the appreciation on the R&ES segmentation. I have to say that upfront. We're glad you appreciate this transparency. Ben, on the first one? And then Wael?

Yes, absolutely. Now Paul, you're right. There is an impact on our refining system as well when we had to basically forgo buying short-term crude cargoes on the open market.

Contrary to what many other players do in the market, we actually program our refineries relatively short term. So that means that most of the crude we buy for our refining system is actually spot or short term. That allows us to optimize better. That's the whole idea behind our integrated trading and optimization business. But it does mean that we have indeed more transactions and therefore, more interventions on the spot market.

Now what you saw in the first quarter is that we had to stop, and we wanted to stop, buying Russian crude on the spot market. We would only go to term. And that meant indeed that in the first quarter, we had to underload our refineries, particularly in Europe, because you cannot stop buying Urals, for instance, for loading in the Black Sea and fill it up with a crude coming from somewhere else where the trade routes are weeks or months longer. So that's point number one.

But that's behind us now. We -- I think we are back at loading up particularly our European refineries at full capacity, but potentially the exception of PCK Schwedt, which is supplied by a pipeline from Russia, the Druzhba pipeline. And therefore, we cannot easily, of course, run in a different way. We're looking at ways for doing that together with the German government. But that will probably mean that, that refinery will be turned down quite significantly because the incoming logistics are constrained and the refinery is not configured for anything else but Urals. So that will be the impact, but most of it actually, Rheinland and Pernis, that's all behind us.

Thanks, Ben. Wael?

Thanks, Sinead. And Paul, thank you for the question. And thanks for the -- as Sinead said, the appreciation for the breakout. I think we'll be able to provide more details as we go on, on this R&ES journey together.

I think on the power price, I think, first we need to recognize that this is very, very local structures of contract. So whether we're operating in the U.S. and even within the U.S., whether you're playing on ERCOT or you're on [Kysor] or you're on PJM, fundamentally different structures that we see. And of course, we now have a presence across the world all the way through to Australia, which was an important contributor to the results of this past quarter.

When we do have PPAs, which we typically do for many of our offtake agreements, of course, those are the realized prices at the moment. Those are fixed prices. And it's important to recognize that in essence, the way we work our power business is we have the sales and purchase contracts that are physical transactions, which we then look to hedge.

So we look to minimize the exposure that we have. But we choicefully take some merchant risk, which, of course, can really enjoy some of the benefits of the current price upside. And so what I would say is it's market dependent firstly. And then secondly, I would say that it is very much related to the split of merchant versus PPA that we choose in that specific market.

Peter Low from Redburn, please go ahead.

The first was just on some of the divisional level CapEx guidance you gave 4Q and whether that still holds. And I think Marketing, for example, you guided to $5 billion to $6 billion of spending in 2022. You've done less than 10% of that in the first quarter. Is there anything that would cause that to ramp up significantly in the rest of the year? Or have you perhaps reallocated some of that CapEx between different divisions?

And then secondly, it was a strong quarter for LNG trading and optimization. But I don't think that all of the supply disruptions you suffered from last year have been fully resolved. Can you perhaps give us an update on your LNG supply from places like Trinidad and Nigeria and indeed anywhere else in the world where you might have had some outages, which are still to come back, if there are any?

Thanks, Peter. Great questions, and twofold there. I'll take the first one. And Wael...

Of course.

Thank you. So in terms of our -- what I would say is in terms of the capital allocation framework, it's not changed. We're very comfortable with the $23 billion to $27 billion. And we intend to remain disciplined within that. And I think I gave the example earlier, just that -- for instance, Sprng, as an acquisition, is within that as well.

We, of course, do allow for flexibility to allow allocation across the segments in our financial framework if the returns are correct and it fits within our overall strategy. But in terms of its Q1, I would say, Peter, a lot of time to come. And as you know, things take quite a while to develop as they come through. So I wouldn't use Q1 as an indication at all of what you will see going through. Message to take away is framework remains as it is.

Thanks, Sinead, and thank you, Peter, for the question. You started with the acknowledgment of the strong performance by the LNG traders. Thank you for that. Indeed, it was a very strong quarter. And important to recognize, that was after us tying their hands a bit given the significant volatility we saw this quarter and the decision at the top of that has to be able to make sure that we operate within a safer window until we saw some of that volatility level off. So really good results by the team.

And important to again remember that when we talk about trading and optimization here, a lot of it is really sort of supply chain optimization more than naked trading. And I think that's an important point to make.

You asked around the supply picture. So we have indeed seen continued improvements in both Nigeria and Trinidad and Tobago. Those were the -- at the heart of some of the challenges. And of course, Prelude, at least through the month of December, was down. Prelude is now up as of middle of April. So that's running.

The Nigerian supplies continue to improve. But clearly, Nigeria has multiple challenges, not least of which, of course, is the real security challenges we continue to see in the country.

And Trinidad has been helped, of course, with last year us bringing Barracuda, which is an upstream gas project, on to production. So that's helped now as it's ramped up to full capacity.

Late March, we brought on another project, Colibri. And that's in the process of ramping up. So that will add to some of the sustainability. And we look forward to the longer term where we have a project called Manatee that will hopefully more structurally fix some of the shortage there.

So improvement, and I'll just remind you what we said a few months ago, which is we really see the majority of these issues continuing to some extent, at least until the second half of -- at least until the end of the second quarter, which we are right now on track to be able to achieve.

Christopher Kuplent from Bank of America.

Let me start by putting something to you, and I think there are 2 questions in there. But I wonder perhaps whether Ben, you can talk to us a little bit about what your response is to Europe's policymakers that are trying to, as fast as they can, get to energy independence from Russia. And I'm not asking you to defend that a windfall tax perhaps is not the right way of going about it.

But what is your message to Europe? And of course, you're an important energy consumer in Europe as well as you highlighted in your downstream strategy. How quickly can Europe achieve energy independence? What do you think that means medium term, how we're resetting gas prices in Europe? And how much more excited, therefore, are you about projects like Penn Chem, which to me looks now structurally even more advantaged when you consider your global downstream portfolio? So I think there is probably around 2 questions in there.

We'll let you away with it, Chris. Thank you. Ben?

Okay. Quite a few actually to talk to, Chris, but thank you very much for those questions.

Well, as you can imagine, we have been talking an awful lot with policymakers over the last few months at the highest levels and in multiple countries. And I think my message consistently has been, make sure you really understand what you're doing. It's not for us to say, politically, this is appropriate or whatever else. What Europe needs to do needs to be decided by Europe's elected leadership.

But we have been very clear to point out that these are the things that could be a consequence of that decision or here are levers that you can pull or if you want to pull this particular lever, please be mindful that there are different ways in which you can pull it, a good way and a not so good way.

I think what you will have seen so far, and which I believe is probably objectively also true, is that Europe, I think, has acted in a very measured way to the crisis. Of course, for some, that is not much -- that's not enough. We should have done more in Europe and -- et cetera. But I do believe European leaders have acted in a very measured and controlled way.

And then despite the -- also because I realize that it's very tough to go cold turkey on, say Russian crude oil but even more so on Russian gas. I think the measures that are now being talked about -- and let's focus on the gas because the crude is actually, in a way, an easier story. The measures that are being talked about, which is, yes, can we bring more LNG into the market, more liquefaction or regasification capacity. Also, can we think of more pipeline supply from Northern Africa, from the Scandinavian market, from Norway. I think they are all sensible things to do.

But it will inevitably also require an acceleration of the energy transition for the midterm because there is no way we can just bring more pipeline gas or bring more LNG and somehow replace all the Russian gas we currently consume. That is simply unfeasible. And I think we have to go significantly into energy conservation methods and strategies, which I think is also happening.

Now what does that mean for Penn Chem? No, yes, it was already a good project, Chris. But it looks indeed very competitive compared to European chemical projects simply because of the cost of energy, which is a very significant gap at this point in time.

So therefore, a lot of the concern, particularly out of Germany that you hear, and I'm sure you pick up on that as well, about the competitiveness of the German chemical industry is absolutely correct. But also there, I think companies like ourselves are very far advanced in the energy transition by either more efficient furnaces or hydrogen furnaces or electrical technology, et cetera, et cetera, all not solutions for tomorrow but definitely good solutions for the midterm.

Next question from Martijn Rats from Morgan Stanley.

I've got 2 relatively sort of straightforward ones, I think. First of all, I wanted to ask, you talked a lot about the oil products markets already being them sort of disrupted and sort of quite volatile. But I was wondering if in your marketing businesses, you're seeing actual demand destruction as a result of these high prices. We're all trying to figure out where the price level lies that sort of induces that. But I -- if there's anybody in the world that have -- should have good insight into that, I would imagine it's sort of Shell given your sort of vast sort of marketing business. And I was wondering if you'd be willing to say a few things about it.

And then perhaps a little bit of a technical one, but I was wondering if a tender offer for your shares would be sort of a tool in the toolbox to execute the share buy program either in the second half or sort of into next year. Is that something that you could consider?

Thanks very much, Martijn. On the first one, I have very limited to say apart from I think it's very early to be talking about something that would be sustainable like demand disruption. But Ben, is there anything you'd like to add on that?

No. I think the answer is, indeed, it's a bit early in the day. Demand is not that easily destroyed. That's one. And are we seeing it at the moment? No, we're not seeing it. As a matter of fact, if you just look at the performance, including in this year, we see a continued increase in product demand around the world.

What we also see, by the way, is a continued decrease in investment in supply. Hence, the difficulties that we are all experiencing price-wise, but we definitely do not see a reduction in demand.

Thank you. And on the second one, in terms of the question around tender offer, there are going to be a lot of tools that we can look to utilize, of course. And as you know, tender offers come with some risks, of course. They're not always completed. They tend to come after large divestments.

But frankly, Martijn, I'm quite comfortable that we have a range of different options to us. We have our approach as we do today in terms of the buybacks. We have our progressive dividend. But beyond that, as I said, we've gone to the AGM. And we will ask for the ability to buy off market. So we have quite a range of options available. But thank you.

Our next question from Christyan Malek from JPMorgan.

A lot of them have been answered. And congrats on the new role, Sinead, and all the best. Just one question, but it sort of speaks to more sort of your macro framework, which clearly is -- also pertains to your capital framework. And I know in the past, it's been difficult clearly to have a sort of line of sight around the macro, particularly to the long-term view of oil or clearly gas.

But in this period where clearly security for energy and sort of the need for more investments, you've highlighted, couldn't be more important, have you -- or do you plan to sort of have a firmer view on where you see the outlook on sort of longer-term prices for oil and, in the context of that, a firmer view around CapEx? Because the sort of language has changed from sort of (inaudible) the range to now middle of the range. And I wonder whether -- in the spirit of needing to invest more in oil and gas and, obviously, all other fuels, whether there's a greater call on your own budget to invest in security, particularly that the tools are most conducive.

And so I wonder whether that should generate a higher range in the future only because the macro backdrop calls for it. But you can see why I'm asking the question about the macro backdrop, because that's so relevant if we're going to understand sort of the capital frame and the balances of the medium term with Shell.

Yes. So Christyan, I think it's fair to say that we look at it in its entirety. So this is by the robust financial framework when it comes down to it.

Now in terms of where do we sit in terms of the macro, actually, when we look at our investments, we look at it from a range perspective. So we're looking at as to what will be the position at the moment. But what could it be in terms of the lower end and in terms of the higher end. So how bad could it get in terms of an investment.

And that gives us that ability to really stand back and say, what would it take for me to regret doing this investment fundamentally, which is very, very helpful. So I would say we will continue to do that. We'll continue to stress test that as we go through, and that will help us remain disciplined on the capital side of things as well. So it's that scenario planning as well. And frankly, we do it on price in terms of oil in the market, but we also do it on carbon as well.

In terms of CapEx, I would say, I'll go back to it. I don't think our capital allocation framework has changed. It really is within the $23 billion to $27 billion that we've said. We're remaining disciplined on that. And in terms of what will come up, will it be at '23, '24, what will it be at, we will see the opportunities that come through, see what the returns are and make sure we make a disciplined and focused decision around those. So thank you, Christyan.

We will now take the next question from Jason Gabelman from Cowen.

I wanted to first go back to refining. Ben, I think you said your European assets outside of Schwedt are running pretty -- at pretty elevated levels, I guess, excluding maintenance. Something that we've heard from some of your competitors is that some of the secondary units were running at lower rates because of higher natural gas prices and that was kind of impacting diesel output and tightening in the already tight market. And I'm wondering if you are seeing that in your refineries in Europe. And if so, has that changed as natural gas prices have come off?

And then my second question is just on your investments in renewable power. I think in the past, you talked about having an asset-light model and being able to hit your emissions reduction and return targets with that asset-light model. You put in your press release this morning kind of a backlog of 50 gigawatts of renewable power you can invest in. And I wonder, given the Sprng Energy acquisition and that number, are you at all looking to maybe invest in more hard power assets than you had been previously? And if so, what's driving that?

Thanks, Jason. I think the first one clearly to you, Ben. Second to you, Wael. Thanks.

Thanks, Jason. It's -- short version of the answer is no. We do not see underloading because of high natural gas prices. We, of course, continuously optimize our refining kit for the prevailing price conditions that we see. And indeed, already for quite some time, we have been doing everything to bring back our gas consumption in our refineries and making sure that some of the units that we -- or some of the crudes that we buy or feedstocks that we buy actually allow us to minimize sort of a fresh natural gas intake.

The other thing, of course, that we have done is really concentrated our refining footprint to very complex assets. So you actually can play that game much more sensibly. And of course, the core assets that we have in Europe to play that game with are Pernis and Rheinland, both highly complex assets. PCK is a different story, but then PCK is not strategic anymore. And I guess PCK will be curtailed much more by logistics rather than by natural gas prices.

Good. Thanks, Jason, for the question. I think that the fundamental -- have we changed the strategy? The strategy is unchanged. So we continue to focus on an asset-light model that's looking at creating a double-digit return across the entire value chain.

I think the hard reality is that renewable generation on its own will not give you double-digit returns. And so our fundamental belief is that you can get some of those double-digit returns through both the trading and ultimately through being able to package that with other forms of energy that we can supply our customers, something we are, of course, advantaged in compared to many of our competitors.

Why do you see a significant pipeline of renewable generation? The reality is you will not be able to offer your customers what they want, which is additionality, if you don't have a fundamental base in the generation bid. So we are doing what we need to do to be able to at least have the platform to have those green electrons to be able to sell to our customers.

If I can just, for a moment, take an example here in -- or close by in the Netherlands, where in Borssele, for example, we had an equity position of 40%, 50% there. We, over time, diluted that but kept to 50% of the green offtake or green electron offtakes. That is what we will look to do. We will look to capital recycle, enjoy the developer premium for many of these renewable generation assets, dilute and make sure that we keep our hands on as much of the green electrons as we can get. And that continues to be a core part of our strategy.

Cecilia, can I have one last question? In the interest of time, I think we're going to have to cut it after that. And just apologies to anyone we didn't get to, but we'll make sure the IR team comes back to you directly.

We will now take our final question from Henry Tarr from Berenberg.

So 2 quick questions. One is we've seen obviously some pretty material working capital moves with derivative effects, et cetera. I understand it's an extremely volatile environment. But is there anything that we should think about as we look over the next few quarters from that sort of working capital and fair value effects, either unwinding or something similar?

And then just lastly, I'm sure it will come up again at Q2. But shareholder returns going above the 30% CFFO level. Is this because you sort of crossed the threshold on the net debt side? Is it linked to gearing in that sense?

Okay. Thanks very much. Henry, I will keep it somewhat short, given the interest of time. Working capital is sitting at about $7.4 billion, as you say. So what do we see there? There are 2 elements to it, largely, one of which was really around inventory, which was just over $6 billion. Now we did, of course, offset that by really reducing the volumes down. So we're very active in that space. And the remainder was really around initial margin, which isn't surprising in this sort of market that you would be having initial margin outflow. So in terms of working capital, I'm very comfortable that we manage it closely, that we're very much on top of it.

Second question you asked was about the shareholder returns. Is it greater than 30%? Anything to do with the fact that our debt is where it is? No. We manage it in its entirety. We're really looking at it from the perspective of the entire financial framework. And yes, our net debt is now down to $48.5 billion, which is great. But fundamentally, this is about the cash generation that we're seeing from strong -- really strong operations, which we're very proud of, and of course, the macro that also plays into that.

So apologies, a bit of a quick one there, without a doubt, Henry. But I'd like to thank you for your questions and for joining the call today.

I hope we've given you some insights into our Powering Progress strategy delivery and how we're striving to ensure the security of energy supply during one of the most challenging periods for the world.

We hope to see you in person soon at our annual ESG update event on May 10 in London. And we also invite our shareholders to support the progress we have made in our energy transition over the past 12 months and to cast their votes at the Annual General Meeting on May 24.

I wish you a pleasant end of the week, and I hope you and your families stay safe and well. Thank you.

And this concludes the session. Thank you for your participation. You may now leave the call.