WEBVTT - Shell CEO Wael Sawan Talks Second Quarter Expectations

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<v Speaker 1>We are nine joints by Wales so On CEO of

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<v Speaker 1>Shell so Wale, good morning. Thank you for joining us

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<v Speaker 1>on the buyback then three point five billion RBC. Before

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<v Speaker 1>these results, one of their allets came out and said

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<v Speaker 1>you could raise that buyback it's a four billion. Are

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<v Speaker 1>you being overly conservative on the return of cash to shareholders?

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<v Speaker 2>Thank you for the opportunity this morning. What I'd say

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<v Speaker 2>is we have actually announced in June of last year

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<v Speaker 2>that we wanted to go on what we called our

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<v Speaker 2>first ten quarter sprint, which just drove the fundamentals of

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<v Speaker 2>the company to become much stronger, lower cost. We have

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<v Speaker 2>now announced one point seven billion dollars of cost takeout,

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<v Speaker 2>more capital, discipline, improved operational performance, all allowing us to

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<v Speaker 2>continue to be able to indeed enhanced shareholder distributions. We've

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<v Speaker 2>talked about thirty to forty percent of our cash flow

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<v Speaker 2>from operations going to distributions, and you're right to say

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<v Speaker 2>that we are with the three point five billion dollars.

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<v Speaker 2>We've been approaching the higher end, if not slightly above

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<v Speaker 2>the forty percent. And what we continue to focus on

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<v Speaker 2>is consistency of delivery. This is not about simply one

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<v Speaker 2>quarter after the next, looking at what we can do

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<v Speaker 2>from a distribution's perspective, but looking through this period and

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<v Speaker 2>continuing to make sure that we are able to reward

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<v Speaker 2>our shareholders consistently at the higher end while continuing to

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<v Speaker 2>moderately deleverage and invest in our businesses. So overall, we

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<v Speaker 2>like the balance of where we are at the moment.

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<v Speaker 1>Do you like the balance of the mix, though, in

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<v Speaker 1>terms of the upstream during the heavy lift, the downstream

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<v Speaker 1>looking a little vulnerable, refining margins still a little soft. Well,

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<v Speaker 1>is the business vulnerable if oil moves low? You've benefited

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<v Speaker 1>from eighty five dollars hour all over the quarter. That

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<v Speaker 1>environment could change.

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<v Speaker 2>It's fair to say that we have seen in essence,

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<v Speaker 2>normalization of prices and margins across the energy system back

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<v Speaker 2>down to pre twenty twenty two levels, whether you're talking

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<v Speaker 2>refining margins, whether you're talking LNG prices, even power prices.

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<v Speaker 2>We are building a company that is actually resilient to

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<v Speaker 2>the low side of the prices as well, and that's

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<v Speaker 2>critical for us. We create value through the cycles, and

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<v Speaker 2>what we have done is by taking at some of

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<v Speaker 2>our costs, by really focusing on the capital discipline. We

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<v Speaker 2>believe that we have an organization, a company that is

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<v Speaker 2>able to continue to buy back shares to as low

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<v Speaker 2>as fifty dollars oil price that puts us in a

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<v Speaker 2>good situation. Our balance sheet is the strongest that it

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<v Speaker 2>has been in a very, very long time, and our

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<v Speaker 2>fundamental business model continues to work. While indeed we enjoy

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<v Speaker 2>the upside during high commodity prices. It's important to recognize

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<v Speaker 2>our marketing business particularly performs really well when you see

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<v Speaker 2>commodity prices go down, and of course we have the

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<v Speaker 2>world's leading trading business which also allows us to take

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<v Speaker 2>advantage of those volatility moments. So by and large, we

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<v Speaker 2>like this model we have of a multi energy vector

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<v Speaker 2>company that allows us to be able to win in

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<v Speaker 2>today's energy system, but also importantly to continue to win

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<v Speaker 2>in the lower carbon energy system of the future, of

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<v Speaker 2>which we are committed to play our role.

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<v Speaker 3>Talk there, good morning to you. Talk there about the

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<v Speaker 3>resilience of the business down to fifty dollars barrel. In

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<v Speaker 3>terms of the oil price. Clearly there's a lot of

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<v Speaker 3>focus on whether we see a higher oil price from here,

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<v Speaker 3>partly perhaps driven by geopolitical tensions. We haven't necessarily seen

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<v Speaker 3>prices come in as high as they could have done

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<v Speaker 3>since the most recent bout of Middle East tension. What

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<v Speaker 3>are you braced for? What do you think could happen

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<v Speaker 3>on oil prices as a result of this?

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<v Speaker 2>Geopolitics very difficult to predict. It's fair to say that

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<v Speaker 2>at the moment we see that the physical markets are

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<v Speaker 2>well balanced, if anything slightly tight, in particular on crude.

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<v Speaker 2>Going into the summer season, we saw stock draws all

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<v Speaker 2>across the world except for China. I think the biggest

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<v Speaker 2>determinant of where prices might go is a combination of indeed,

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<v Speaker 2>as you mentioned, geopolitics, but critically OPEC's decision in the

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<v Speaker 2>coming weeks, around the pace at which it unwinds its cuts,

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<v Speaker 2>and of course the Chinese demand, of which there are

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<v Speaker 2>mixed signals at the moment. And so what we try

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<v Speaker 2>to do is to focus on what we can control,

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<v Speaker 2>and what we can control is everything from our own

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<v Speaker 2>cost structure, our capital discipline, our operational performance, and the

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<v Speaker 2>portfolio choices we make. We want to make sure that

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<v Speaker 2>we are allocating our capital in the most responsible way

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<v Speaker 2>we can.

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<v Speaker 3>Okay, and so with that in mind, well you might

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<v Speaker 3>not like this question, which maybe you think is something

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<v Speaker 3>you can't control US politics. I wonder what's at stake there, though,

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<v Speaker 3>because you do have to think about these things even

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<v Speaker 3>when you can't control them. LNG markets in particular, do

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<v Speaker 3>you see the USLNG landscape shifting considerably dependent on whether

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<v Speaker 3>we have a Harris or a Trump administration.

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<v Speaker 2>We don't see major shifts in the short to medium term.

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<v Speaker 2>These projects that are being talked about would only come

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<v Speaker 2>which are being held at the moment, would only really

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<v Speaker 2>sort of start up towards the end of this decade

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<v Speaker 2>early the next decade, and so for the next five

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<v Speaker 2>to six years, whatever is in the funnel and and

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<v Speaker 2>already sort of under construction will be what comes into

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<v Speaker 2>the market. But indeed, as I've said in the past,

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<v Speaker 2>the biggest issue is the LNG markets like any other

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<v Speaker 2>energy market that looks at long term fundamentals, requires stability,

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<v Speaker 2>requires consistency, requires predictability, and any major policies that start

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<v Speaker 2>to rattle investors in those big infrastructure projects can potentially

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<v Speaker 2>undermine confidence in that market, which which I think would

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<v Speaker 2>be a real miss given the incredibly important role that

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<v Speaker 2>LNG in particular will need to play. In the energy transition,

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<v Speaker 2>both from an energy security perspective but also from an

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<v Speaker 2>energy transition perspective for call to gas switching.

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<v Speaker 1>Are you getting that? Are you getting that reassurance? Here?

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<v Speaker 1>In the UK? The new Labor government raising the windfolds

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<v Speaker 1>ax on energy players here. What is your response to

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<v Speaker 1>that move.

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<v Speaker 2>Look, we've invested for a long long time in the

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<v Speaker 2>UK and in successive recent government means what we have

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<v Speaker 2>seen is changes to the overall framework for the energy system.

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<v Speaker 2>For the energy investments. The number one thing we look

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<v Speaker 2>for when we look to invest, Given the nature of

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<v Speaker 2>our investments, which typically are long term investments, multidecadal investments,

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<v Speaker 2>both by the way, in the conventional energy space as

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<v Speaker 2>well as in the new energy space, what we look

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<v Speaker 2>for is physical and regulatory stability and anything that potentially

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<v Speaker 2>destabilizes that, of course, is not welcome. And so what

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<v Speaker 2>we continue to do is to engage constructively with the

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<v Speaker 2>government to be able to clearly express our views and

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<v Speaker 2>then to respond to the signals that the government chooses

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<v Speaker 2>to put into place.

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<v Speaker 3>Have you already been engaging with the government, Well, what

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<v Speaker 3>are the early signals You're guessing we.

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<v Speaker 2>Have been engaging with the government for several weeks now,

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<v Speaker 2>and we expect continued engagement in the coming weeks. I

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<v Speaker 2>continue to hope for a balanced approach, recognizing some of

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<v Speaker 2>the challenges that the incoming government is trying to deal with.

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<v Speaker 2>But at the same time, what we can do from

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<v Speaker 2>a SHELL perspective is to advise on what are the

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<v Speaker 2>key ingredients of an investment climate that will be conducive

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<v Speaker 2>to the sources of investment that are able to support

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<v Speaker 2>any government as it's thinking about its energy policy. We've

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<v Speaker 2>said to many governments we are willing partners in their

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<v Speaker 2>efforts to establish energy security and decarbonize their energy grid

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<v Speaker 2>as long as it makes sense from a strategic perspective

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<v Speaker 2>for us, and as long as we see the stability

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<v Speaker 2>that is required.

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<v Speaker 3>Well, thank you very much, thanks for joining us. Well

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<v Speaker 3>so on the CEO of Shell.