Earnings Call Transcript
Shell plc (SHEL)
Earnings Call Transcript - SHEL Q4 2025
Operator, Operator
Welcome to Shell's Fourth Quarter and Full Year 2025 Financial Results Announcement. Shell's CEO, Wael Sawan; and CFO, Sinead Gorman, will present the results, then host a Q&A session. We will now begin the presentation.
Wael Sawan, CEO
Welcome, everyone. Today, Sinead and I will present Shell's Fourth Quarter and Full Year 2025 results. 2025 was another year of consistent delivery and real progress. We continue to execute with discipline and delivered against our targets in service of becoming the world's leading integrated energy company. As always, safety is a top priority. In 2025, four colleagues tragically lost their lives in our operated businesses. We owe it to them and everyone who works with us to learn from these incidents and to prevent such tragedies from happening again. On process safety, we continue to make encouraging progress with 30% fewer incidents in 2025 compared to the previous year. Improving personal and process safety is a continuous journey and will remain our top priority. Turning to our strategy of delivering more value with fewer emissions. Last year, we beat our ambitious CMD23 targets and set out important new financial targets at CMD25. The first of these financial targets is to deliver structural cost reductions of $5 billion to $7 billion by the end of 2028. By the end of 2025, we had already achieved $5.1 billion of reductions with more to come. Nearly 60% of the structural cost reductions came from operational efficiencies, a leaner corporate center, and faster value-based decision-making. Achieving this target three years early demonstrates the drive of our organization to deliver. The next target is disciplined capital allocation within a cash CapEx range of $20 billion to $22 billion, and we ended 2025 in the middle of that range. This is about greater discipline and better capital allocation to enhance returns, and you see that reflected in tough choices like stopping the construction of the biofuels plant in Rotterdam. The third is annual growth and normalized free cash flow per share of over 10% through 2030. We are on track to deliver through a focus on performance and discipline by turning around underperforming capital, and we continue to focus on shareholder distributions through buybacks. This brings me to the fourth financial target: shareholder distributions of 40% to 50% of CFFO through the cycle. This remains sacrosanct. And in 2025, we delivered at the top end of that range. In short, we are on track to achieve our financial targets, showing that we deliver on what we say we will do. Now turning to our portfolio. In 2025, we executed several deliberate value-driven decisions to strengthen our businesses. In Upstream, we completed the divestment of SPDC in Nigeria, the conclusion of a major multiyear effort. We also completed the Adura joint venture in December, which as of today is the U.K. North Sea's largest independent producer and unlocks additional value. And finally, in Chemicals & Products, we divested our loss-making asset in Singapore and are working to reposition our Chemicals portfolio to unlock further value. These decisive actions demonstrate our focus on value. At our CMD25, we also set an aim of growing our LNG sales through to 2030 by 4% to 5% per annum. Last year, those sales grew by 11%, supported by the highest number of cargoes delivered in a single year. This record was supported by last year's start-up of LNG Canada, where ramp-up to full capacity is continuing. Beyond our organic growth, we also completed the acquisition of Pavilion Energy last year. We also committed to bring new oil and gas projects online that, at their peak, will add more than 1 million barrels of oil equivalent per day by 2030, and we're progressing well. By the end of last year, we had already started up more than a quarter of that new production. We have also further strengthened our deepwater position by increasing our interests in the Gulf of America, in Brazil and in Nigeria. And we took final investment decisions for the Kaikias waterflood in the Gulf of America and for Gato do Mato, now renamed to Orca in Brazil. In addition, we have expanded our footprint for exploration by acquiring acreage in Angola, South Africa, and the Gulf of America. Moving now to marketing, where we continue to high-grade our portfolio. Last year in Mobility, we closed or divested about 800 lower-performing branded sites. And by focusing on performance, discipline and simplification, both Mobility and Lubricants achieved their best-ever results in 2025. In Power and Low Carbon options, we've continued to high-grade the portfolio through the year, divesting projects like Atlantic Shores and ScotWind, while also diluting parts of the Savion portfolio. These steps are aligning our portfolio with our increased focus on flexible generation and trading. Turning now to the less emissions part of our strategy. At CMD23, we said we would invest between $10 billion to $15 billion in low-carbon energy solutions between 2023 and 2025, which we have delivered on. We have created options in Power and Low Carbon in areas such as CCS and bioenergy. We're now focused on delivering returns on those investments, helping our customers to decarbonize and leveraging our trading capabilities. Last year, we also made significant progress against a number of our ETS24 emissions target. Starting with our target to halve Scope 1 and 2 emissions under our operational control by 2030 on a net basis compared with 2016. We have already achieved about 70% of that target. Next, our target to lower the net carbon intensity of the products we sell by 15% to 20% by 2030. We are on track, delivering 9% in 2025 compared with 2016. Linked to that, we also set an ambition to reduce customer emissions from the use of the oil products we sell by 15% to 20% by 2030, and we met that ambition, achieving a reduction of 18% in 2025. 2025 was also the year we achieved our target of eliminating 100% of routine flaring from our Upstream operations, once again showing that we deliver on what we say. With that, I will hand over to Sinead, who will tell you more about our financial results and our financial framework.
Sinead Gorman, CFO
Thank you, Wael. Our financial results in the fourth quarter of 2025 were lower due to non-cash tax impacts and lower oil prices, which were partly offset by another quarter of strong operational performance. Our adjusted earnings for the quarter were around $3.3 billion. Upstream delivered a strong quarter in the current price environment, and as expected, Integrated Gas results returned to more normal pre-COVID levels as we have outlined in previous quarters. Marketing results were seasonally lower and further impacted by non-cash tax adjustments in joint ventures. Products delivered strong results, helped by higher refining margins, partly offset by lower trading, which is typical in the fourth quarter. And in Chemicals, we continue to face challenges due to both low chemical margins and lower operational performance. Fixing and repositioning this business is a key priority in 2026. Turning to cash. Q4 CFFO was robust as we generated $9.4 billion despite some of the typical year-end payments. Moving to the 2025 full year. From a macro perspective, Brent prices on average were over $10 a barrel lower than the year before. Despite this, we are proud that our stronger operational performance drove solid financial results in this lower price environment. Full-year adjusted earnings were $18.5 billion, and we generated close to $43 billion in cash flow from operations. And we delivered just over $26 billion of free cash flow. Both Integrated Gas and Upstream had a very strong year operationally, with high controllable availability driving increased production. In particular, we saw increased contributions from higher-margin Upstream volumes, especially in the Gulf of America and Brazil. In Downstream and Renewables & Energy Solutions, Mobility and Lubricants delivered higher margins through increased sales of premium products while also reducing operating costs. As a result, both businesses continue to improve their ROACE year-over-year in 2025, with Mobility increasing to over 15% and Lubricants to over 21%, both achieving their highest ever contributions to our results. Chemicals & Products had a mixed year with better refining performance being offset by continued low chemical margins and lower trading and supply contributions, while our Renewables & Energy Solutions business performed in line with expectations. Now moving to our financial framework. Our cash CapEx range for 2026 remains at $20 billion to $22 billion. We continue to maintain a strong balance sheet with gearing of 21% or 9% excluding leases. And our distribution range of 40% to 50% of CFFO remains sacrosanct. We continue to deliver compelling shareholder distributions. And today, we announced a 4% increase in our dividend, in line with our progressive dividend policy, as well as a $3.5 billion share buyback program, which we expect to complete by our Q1 results announcement in May. This marks the 17th consecutive quarter in which we've announced $3 billion or more in buybacks. And with that, I will hand back to Wael.
Wael Sawan, CEO
Thank you, Sinead. Before closing out, I want to take a moment to thank our staff for their hard work, their commitment and their delivery across the year. We're living in a rapidly changing world, but our business model is well positioned for these conditions. That confidence is underpinned by our balance sheet strength, which we've improved in recent years through stronger operational performance and disciplined spending. This has led to enhanced cash generation. We'll continue to focus on what we can control and ensure we are positioned for countercyclical opportunities where they might arise and meet our high bar for investment decisions. Ultimately, we hope it's clear that you can be sure of Shell. You can trust us to stay value-focused and disciplined. We have entered 2026 as a more resilient organization. We have raised the bar on operational performance. We are showing more discipline and making great progress to deliver more value with less emissions. And there is so much more to come. Lower costs, further performance improvements supported by the transformative potential of AI and a higher returning portfolio of world-leading franchise businesses. All of this gives us confidence for the road ahead. Thank you.
Operator, Operator
Thank you for joining us today. We hope this presentation has demonstrated how we achieved strong results in 2025 and that we are on track to meet our targets. Now, Sinead and I will take your questions. Please keep it to one or two questions each so everyone has a chance to participate. Jake, could we have the first question?
Alastair Syme, Analyst
I feel obliged to kick us off on reserves. You've listed a huge amount of portfolio refocus in the Upstream. But I guess, to Shell, we've had three years of sprint and cost takeout, but at the same time, reserve life has fallen 15%. And if I take you back a couple of years ago, you used to say there was no portfolio problem. And I think now the message has morphed into one that acknowledges there is a bit of a problem to address, but there's no hurry. So I guess the question is, what is the plan? How do we frame the timeline around hurry? And how can you counter the market concerns that the business is simply shrinking?
Wael Sawan, CEO
Yes. Thank you very much, Alastair. I'll suggest I kick off, and then maybe, Sinead, bring you in. Yes, first, thank you for the question. I think I'll start with what you and I have talked about in the past. Where we start, and what I keep saying and I keep hearing back from my investors is that at the end of the day, it's intrinsic value creation that we are driving. And it's particularly value creation per share that we are driving towards. And so there are a few elements of how we are unlocking that. I think you touched on one of them, fundamentally driving the performance culture in the company, the takeout of the $5 billion of cost reduction, and we are now driving towards the higher end of the $5 billion to $7 billion range. There's more to be done on capital efficiency. There's more to be done on improving the returns on the actual capital employed. So there's significant value uplift on that side of it. We also showed, of course, in Capital Markets Day 2025, the trajectory to 2040 for both Integrated Gas and Marketing, where we see our cash flow growing from around $20 billion last year to close to $25-plus billion at a slightly lower capital diet. So all of that is showing the growth. But then let me come specifically to the heart of the question around resource. What we have tried to do is look at the resource as an important KPI in the overall mix, but most importantly, look at the cash flow that's coming from it. I mentioned in Capital Markets Day that we had a gap to 2030 that was close to 100,000 barrels per day to be able to, for example, keep our liquids flat. I'm pleased to say that with the $2 billion of deepwater bolt-ons that we did in 2025 and improved recovery from some of the reservoirs we have, we already have largely plugged that gap of the 100,000 barrels per day. So that actually gives us the runway to be able to derisk the 10% free cash flow per share that we talked about in Capital Markets Day. Your question, though, is a fair one when you look out to 2035. We still have a resource gap there that we plan to fill. But we want to make sure that the bar continues to be high there. And we have a few years to be able to fill that gap. So this is not ignoring the issue. But this is derisking what we can see in front of us, what we can control, and making sure that we deliver on our commitment to our shareholders to do it in a highly accretive way. And that's what we want to be able to work on. We are liquidating the 1 million barrels per day of new capacity we're bringing in. Last year, we brought a quarter of that. We have another 750,000 barrels per day to bring online. We have exciting new projects like Bonga South West that are also coming in the post-2030 time frame. We need to be able to move those things through. But the core continues to be one of real focus on proper capital stewardship as we unlock that future cash flow. Sinead, maybe you want to add a few words?
Sinead Gorman, CFO
Yes, let me elaborate on that because you touched on how we're addressing the issue. I want to share our thought process a bit. As Wael pointed out, metrics like reserves or reserves-to-production ratio are important, but they are just one aspect when we evaluate our portfolio. Specifically regarding reserves-to-production ratio, we were at approximately 7.8 years now, down from 9. The drop was due to two main factors: the sale of assets in Nigeria and our decisions regarding oil sands. We've discussed these topics over the past year. Both choices were made deliberately; had we retained those assets, our ratio would have remained stable due to the additions we made. However, we decided to allocate that $2 billion of capital expenditures towards deepwater projects instead, which included regions like the Gulf of America, Brazil, and Nigeria, among others. This focus on high-margin barrels has generated significant value, even though it didn't enhance our reserves-to-production ratio. Ultimately, our discussions with shareholders highlight the importance of creating value rather than simply meeting a specific metric.
Wael Sawan, CEO
And so let me close then, Alastair, and thank you for that, Sinead. What I will say is we are, of course, at an inflection point as a company as well. We have really been focused on the performance drive, embedding the performance culture, and I think made great progress. What I can say and what I will be saying to our investors is both Sinead and I will bring that same focus and rigor now as we have really gotten the self-sustaining performance loop into the company. We will now look at portfolio reallocation, how we are going to be reallocating capital to the opportunities that allow us to unlock even further growth post-2030, and that's where our attention will continue to go in the coming years.
Josh Stone, Analyst
Just a question on the buybacks. I'm curious as when you set the buyback, how much of a close call that was this quarter? Because I understand you've got a strong balance sheet, prices seem to be holding up better than expected, but also for the first time in a while, we've got more people buying energy stocks and your shares are clearly re-rated with that, and they're more expensive. So was that considered at all in your decision to leave it flat? And how close was that call?
Wael Sawan, CEO
Thanks for the question, Josh. Sinead?
Sinead Gorman, CFO
Yes. No, happy to take that. Thanks, Josh. Really good question. And what I like is you're asking us about how we think about it. And it is a conscious decision in terms of capital allocation each quarter, of course. I mean, with respect to the buybacks and where do we go on the buyback, I mean, one of the first things I would say is what we've looked at is the fact that we've bought back roughly, what, 25% of our shares, I think, over the last three years. And of course, that's at some 20% below where our share price is today, so you can see the allocation around that. So that thoughtfulness is there. The frame that we use has been sort of quite clear. We've always said to you that sort of 40% to 50% in terms of CFFO distribution is sacrosanct. And of course, that varies a little bit quarter-to-quarter because it is through the cycle. So you see that in our thinking. And of course, this quarter was 52%, but you have volatility with price and everything else coming through. So we're very comfortable and very focused on staying within that. But indeed, we still see the buybacks as particularly at this sort of price as very much value led. And of course, we have such a strong balance sheet, as you know, when we're sitting at some 20% of gearing as well.
Irene Himona, Analyst
I had two, please. So first, can you please speak around the key financial impacts of the Adura joint venture in the U.K. in 2026 on key metrics like perhaps your cash dividend receipts or Upstream tax rates, et cetera? And then secondly, looking at group return on capital, obviously, it is below double digit. It's clearly not helped by widening Chemicals losses. The Chemicals downcycle appears to be a really prolonged one, which is clearly something that cannot be controlled. So I wanted to talk around what you are controlling in Chemicals and in particular, to ask about progress on the announcement you made at CMD25 of the restructuring intention for Chemicals? So how far has that progressed?
Wael Sawan, CEO
Thank you very much, Irene. I'll take the second one. Maybe you want to start with the first one on Adura?
Sinead Gorman, CFO
Certainly. I'm pleased to see that Adura is now operational with our partner as of December 1st. The teams are performing well there. It's a stand-alone venture, and they are currently seeking to raise debt to support the business's growth and utilize capital efficiently. You inquired about how this would reflect in our metrics. Since it operates independently, we can observe typical factors at play. This is evident in our outlook, which indicates a reduction in production for Q1. You will notice this in the Upstream numbers. Conversely, as you rightly pointed out, we anticipate dividends coming in. While we don't usually provide guidance for a stand-alone entity, we do expect significant dividends. I also noted yesterday that our partner commented on this as well. The venture is strong and has growth potential, being the largest independent producer in the North Sea now, and they are actively pursuing more opportunities to deliver the promised dividends to shareholders.
Wael Sawan, CEO
Thanks, Sinead. Irene to your second question around group ROACE and then the Chems. So a couple of points maybe. Firstly, in my response to Alastair's question, I talked about our real focus on performance, right? We want this company to be the best performing, best returning company in our sector, positioned for longevity and positioned for sustained growth. And so we've been focusing very much on the performance. And actually, that's also starting to show through on the returns. You saw that this past year at 9.4% ROACE. By the way, that was up compared to 2024, despite a $10 drop in oil price. And that shows you we're making progress. Some of that progress is coming through, for example, in Mobility, where we had put a target of getting to 15% ROACE. We're up from 12% to 15% in 2025. Lubricants is up from 19% to 21%. Res, despite the fact that it is still nowhere close to where we need it to be, is up four percent points on ROACE as well between '24 and '25. So we're making progress. And Chemicals is not where it needs to be. And there's a couple of elements around Chemicals that you touched on. Let's talk about, firstly, the strategic element of Chemicals. Nothing's changed from what we talked about in Capital Markets Day. What I also said in Capital Markets Day is we are going to be patient because while we know where we want to go with it, we do not want to be selling at bottom-of-cycle conditions. We have promised our shareholders to be good stewards of their capital. And what we are looking at the moment is constructs that could potentially work. I won't update you at this stage on where things are because there's nothing specific to update on. But you can rest assured that we continue to look at opportunities around that. Where I would say I have less patience is in our own self-help. I already indicated a couple of quarters ago that we are looking at what more we can do. So the team did some great work around that. Q4 was a bit more difficult as well because we had a planned downturn in Monaca. But as we come out of that, we hopefully get a bit more tailwind there. But most importantly, we have identified a few hundred million dollars' worth of cost reductions, CapEx reductions to be able to just ensure that we get closer and closer towards free cash flow neutrality. So at least it covers its face in a difficult macro like we have at the moment. Hopefully, that also sets us up for a better performance when we see Chemical margins come through. But we are assuming that if there is a prolonged period of depressed Chemicals margins that we at least need to be able to avoid the bleeding in free cash flow from Chemicals. And that's very much our intent and what we're focused on.
Biraj Borkhataria, Analyst
My first one is just on operating costs. You've clearly made that a priority in recent years and there's progress being made. When I look at your divisional breakdown, the one thing that surprises me is that when I look at the Renewables business, the OpEx still looks outsized relative to the size of that business and the contribution and I guess, the outlook. So my question on that front is, why aren't you moving faster to reduce costs specifically there? Or is that building options for the future, or is there something else? And then just a second question, a follow-up to the resource one. In the past, and even today, you've mentioned you want to be countercyclical. So I guess there's a balance between knowing where you are in the cycle, but also understanding the competitive landscape. As I'm listening to your peers talk about the same issue over recent months, a number of them have started to talk up M&A. So you could argue there's increased competition on the buyer side. So just some perspectives on your patience and the competitive landscape would be helpful there.
Wael Sawan, CEO
Biraj, thank you for those questions. Let me take the second one and maybe give you the first one, Sinead. Look, I think you heard me, Biraj, in the third quarter results, open up the space much more for M&A as we start to get much more comfortable that we now have the internal performance to be able to unlock value better than others can. And that to me was an important element of what we needed to do because I didn't want to simply add resources for the sake of it. Of course, we had started with a capital budget of $25 billion to $27 billion. We took it down to $22 billion to $25 billion in CMD23. We took it down to $20 billion to $22 billion in CMD25, and we haven't used the full capacity. Not because we can't buy barrels, but because we have said to ourselves that we're only going to go after accretive barrels. That's what's core for us. Now as we look at the landscape, I'd start off by saying the biggest thing we had to do was to continue to create the space for us to have the strategic patience. And to Alastair's question, we now have that line of sight to 2030, which means we built ourselves a few years to be able to really be selective about what we go for. But we are hungry for growth. Don't get me wrong. But we want to do it on the right terms. And so where do we see opportunities to play, where we can synergize, not simply buying the barrels, but where we think we can bring particular technologies and where we have synergies with existing assets. You've seen us do deals in Brazil, in Nigeria, and the Gulf of America. Those are the sorts of areas where we can play in, but there are other areas where we are looking for that. We will continue. I can tell you, I have a lot of opportunities coming to my desk on a regular basis. And I would say I see more of them starting to screen now than we would have a year ago. But we are looking at making sure that we do not fall into the pitfalls of the past, where we start to sort of do deals for the sake of resource buildup rather than do deals that create value through the lifecycle and allow our shareholders to be able to really get the most out of the decisions we're taking. Sinead?
Sinead Gorman, CFO
Indeed. Thanks, Biraj. You're absolutely right in terms of cost being a focus over the last period, but it's been cost really in service of performance. So what have we done? As you know, we've taken about $5.1 billion out of structural costs over the period. So actually heading into the bandwidth, which we have talked to the band that we talked about as a target for Capital Markets Day '25. So we've done it a couple of years early. So you can really see the business motoring in terms of just as a company, how can we ensure that every dollar is allocated in the right way. And there's a lot more to come. That's clear. And there's a lot of pressure from the boss on making sure we do actually deliver on that as well. But specifically, it's very thoughtful about where we take it out. And as you say, in terms of our Renewables segment, there is more to come. But we've actually taken $1 billion out of OpEx over the last few years there. And we're changing the portfolio mix, remember. So as we change that away from some of the generation assets that we would have had before, we're moving it more towards some of the flex and assets that we can trade around. So, of course, what you're seeing is as we make some of the divestments, as we change that portfolio mix, that comes down on that side but actually goes up in terms of the actual flex side. And actually, we had quite a bit of OpEx that came from our CCGT acquisition in Rhode Island as well. So that's coming through. And remember, that Res portfolio with that Renewables portfolio is continuing to change. And actually, we've done more than 15 deals over the last two years in that space, more than half of them actually within the last year as well. So more to come.
Paul Cheng, Analyst
Wael, can you talk about the new opportunity set? It seems like with the open up of Iraq, Libya and Venezuela, how attractive are those to you guys? And whether you are concerned the opening up of these countries will compound the oil market oversupply? And if that is the case, how will it shape your capital allocation outlook, if any?
Wael Sawan, CEO
Thanks for the question, Paul. Look, I'd start maybe first from a longer-term perspective. So we continue to see growth in energy demand through to 2050 at the moment. So some 25% uptick between 2025 and 2050 in terms of overall energy demand. We see oil demand continue to grow roughly by that 1 million barrel per day tick, at least for the coming few years. And remember, we're losing around 5% of overall supply due to depletion. So every single year, you're having to refill 6 million barrels per day. So longer term, the fundamentals continue to be very constructive, I would say, on oil. In the shorter term, you're right to hint at the fundamentals being maybe slightly long in terms of supply, but that's being balanced by a lot of geopolitical risk at the moment, whether it is Venezuela, whether it is Iran or others. You're seeing more ships at sea. And that's creating, I think, a bit more balanced and helping the oil price achieve what it has achieved. Now turning to the specific markets that you've talked about. There is, of course, potential to unlock more production, but the world will need that production. So it doesn't concern me. It actually encourages me that we will be able to find the supply to be able to meet that demand. Most importantly, I think we are very well positioned to be able to play in some of these theaters. I was in Kuwait just a couple of days ago where the KPC announced the opening of some opportunities there, which we will be looking at with interest. We are in discussions, of course, with the Libyans. We have an MOU for some fields there. In Venezuela, we are well positioned, in particular, in the gas side, given some of the work that we had been doing even before recent events, and so on and so forth. Iraq, again, we have a strong position there. So we see ourselves as particularly well placed to be able to enter some of these theaters. But again, it's going to depend on the entire sort of risk-adjusted return profile and our ability to be able to say to ourselves, 'Is this where we want to deploy our capital?' It doesn't change our appetite in terms of the longer-term fundamentals around oil. We continue to be bullish and constructive on that.
Michele Della Vigna, Analyst
I wanted to ask you about LNG. It seems we might be entering a period of oversupply, which could require shutting down some U.S. LNG plants for a few weeks this summer. How should we view this potential situation in relation to the Shell portfolio, considering the positives on the trading side and the negatives regarding spot gas exposure? Additionally, in a low LNG price environment, we should expect rising demand. However, one significant area of growth has been China, and it appears to be slowing down. With increasing geopolitical risks, they might be hesitant to rely heavily on a commodity where the U.S. is the largest producer. I would appreciate your thoughts on this matter.
Wael Sawan, CEO
Thank you, Michele. And let me maybe touch on that. So what do we see in the LNG markets at the moment? Again, if I take the long-term perspective, if anything, we are seeing even more constructive demand for LNG. We see it more and more playing the role of the stabilizing force in most energy systems. I mean, take Europe, for example, we do not have, of course, the coal assets of the past. Nuclear will take a long, long time to be able to bring in as Europe shifts its energy system towards more intermittent renewable energy, you will need more and more of that stabilizing force, which of course LNG plays. And that's demonstrated just this year by the fact that we have had record imports of LNG into Europe. You consider now where we are also in the current cycle, even if you think prompt and mid-term, just at the moment, we're looking at storage levels in Europe at the low 40% compared to the five-year average that is closer to 65%. So Europe will continue to play a big role. We see both China and India, actually, also still constructive on LNG, but at a certain price point, which is closer to the $8 to $10 rather than above $10. So I don't think the Chinese or the Indians are averse to taking more LNG, but they want it at the right price point compared to the alternatives they have, which typically is domestic coal. So where does that leave us as a portfolio? I think we are incredibly privileged to have such a diverse set of supply opportunities, one of the best, of course, being LNG Canada with AECO indexation that allows us to supply our markets in particular in the East. We, of course, also have significant access to U.S. LNG. I don't know whether there will be shutdowns or not in the summer, depending on demand levels and the wave of supply and how quickly it comes. But I would say we are very well positioned given that balance of diversified supply and diversified demand. We have multiple different indexations to whether it's Brent, TTF, we can sell on Henry Hub or AECO and so on and so forth. So the cross-commodity exposure gives us opportunities to create value out of the volatility that comes with that LNG market. So do I expect a length in the LNG market? Who knows? There might be some, but we look through these cycles and create value over the long term for our shareholders.
Kim Fustier, Analyst
I wanted to go back to Chemicals. Last quarter, you talked about cutting several hundred millions of dollars from Chemicals. I think you referenced that again today. But I mean, this could be a very extended down cycle of up to another four to five years. So a few hundred million of cost reductions may not be enough. And presumably, somebody has to shut capacity. So what exactly would be stopping you from outright shutting capacity? Is it the benefit of integration with your refining plants? Is it the environmental cleanup costs or labor issues in Europe? And then I wanted to go back also to the Upstream longevity point. You've talked about that and yet we're seeing Shell continuing to put assets up for sale in the market such as Vaca Muerta in Argentina. I would have thought Vaca Muerta has a lot of running room, and you do have plenty of unconventional experience. So if you could help us understand the logic of that particular asset being put up for sale, that would be great.
Wael Sawan, CEO
I will let, maybe, Sinead start with that second question and correct that fake news article that came out, and then I can address the Chemicals one.
Sinead Gorman, CFO
I think you just said it perfectly. Kim, I've seen the same article. I don't believe we've said anything about that specific asset at this moment in time. So indeed, lots of things I read in the paper or many other assets apparently that we're selling as well that I wasn't aware of.
Wael Sawan, CEO
Thank you, Sinead. And Kim to your Chemicals point. Shame on me, I should have also mentioned that, of course, we are also looking at unit by unit shutdowns where required. At the end of the day, we're looking at cash cost of each of these units and making the choices depending on where we are in the cycle. But nothing is off the table. Let me put it that way. We are looking at all the opportunities to be able to really get to free cash flow neutrality at some of these more severe realities around margin, and we are leaving no stone unturned.
Martijn Rats, Analyst
I have two questions, if that's alright. First, I'd like to ask about trading. The full year results provide a good perspective, although I realize there may be volatility throughout the year. In reviewing 2025, the group return on capital was 9.4%. Typically, you share insights about the impact of trading on the group ROACE, which usually falls within an uplift of 200 to 400 basis points. In 2025, were we at the higher end or lower end of that range? What was the overall contribution from trading? My second question, though it's a smaller point, concerns Kazakhstan. There appear to be significant compensation claims emerging from the Kazakh government. We've encountered similar situations in the past, so I was hoping you could provide some perspective on that issue.
Sinead Gorman, CFO
Yes, I'm happy to address that. Martijn, thank you for your question. As you know, our trading organization remains a vital component of Shell's strategy. We have excellent individuals in place and a strong set of assets for them to trade. There are certain decisions that come into play as well. We've discussed the value they add in optimizing our operations across the organization and portfolio. They've had a solid year in 2025, as you mentioned. Typically, our Q4 trading performance is softer, especially for our crude and products desks. We've talked about this multiple times, and you can see it reflected in C&P, which remains unchanged this year. They've performed more towards the lower end of the expected range, around 2% to 4% in terms of ROACE. However, I am very pleased with their contributions, and they continue to deliver strong results this quarter. Thank you.
Wael Sawan, CEO
Thanks, Sinead. Martijn, regarding Kazakhstan, I cannot go into details due to ongoing legal proceedings. However, it is disappointing that we are unable to achieve alignment between the joint venture partners and the government on certain issues. This affects our willingness to invest further in Kazakhstan. We will monitor the situation closely. We believe there are still many potential investment opportunities in Kazakhstan, but we will wait until we have a clearer understanding of the outcome. I trust that the individual joint venture projects will adequately represent the collective position of the partners. I will stop here for now.
Lydia Rainforth, Analyst
On a slightly different topic, I understand you have partnered with SLB to implement agentic AI in the Upstream sector. Can you explain what that entails in practical terms and the goals you aim to achieve with it? Additionally, you have already achieved $5 billion in structural cost savings with a target of $5 billion to $7 billion by 2028. Why not raise that target? Furthermore, regarding the anticipated growth in free cash flow per share of over 10% through 2030, 2025 projected below 5%—was this figure disappointing to you or in line with your expectations? This suggests there needs to be an increase in free cash flow growth. When do you foresee that happening? Is it 2026, or more likely between 2028 and 2030?
Wael Sawan, CEO
Thank you for that, Lydia. Did you want to take that second question? I can touch on agentic AI and how we're deploying it?
Sinead Gorman, CFO
Certainly. As you mentioned, our target for free cash flow per share extends to 2030, and we anticipated that it would vary from year to year. You'll see changes in that on an annual basis. During this initial phase, share buybacks play a crucial role. Regarding our expectations for 2025, we were not disappointed. We had a good sense of where the figures would land. We have a variety of projects in the pipeline, including LNG Canada, which will ramp up to full capacity. We recognize that progress is not always linear, and our portfolio will evolve over time. As Wael has pointed out, there is much more performance enhancement to come, and this drive will continue to develop throughout the rest of the decade.
Wael Sawan, CEO
Yes. Regarding your question, Lydia, about the broader topic of cost reduction, we previously indicated a target range of $5 billion to $7 billion, and I'm pleased with the progress the team is making towards the lower end of that range already. I anticipate that we will reach the higher end by 2028, and we are committed to achieving that. AI plays a significant role in this effort, particularly agentic AI. As for our progress on this journey, I want to emphasize the investments we've made in data cleanup over recent years and our efforts to harmonize ERP systems. For instance, in trading and supply, we're modernizing our ERTMs to standardize them and create a data-centric architecture that will enable us to leverage AI more effectively across the organization. This is not limited to the upstream sector; it applies throughout our operations. In the upstream area, we're enhancing our subsurface analysis for both existing reservoirs and new exploration, and we're improving proactive technical monitoring and maintenance. Agentic AI is crucial to our functional evolution as we seek to automate our processes, challenging the structure of our workflows. I find this journey exciting, but I want to clarify that we are not yet anticipating significant cost reductions from agentic AI, as we are still in the learning phase. There's a lot of discussion surrounding it currently, and our focus is on identifying real cash savings rather than getting caught up in the hype. I will reserve my judgment on its potential impact on our bottom line until I can provide a genuine assessment of its effects.
Lucas Herrmann, Analyst
I have a couple of questions, if I may. Referring back to Alastair's initial question, when considering resources and how to address resource issues, do you believe we are primarily focusing on deepwater challenges, which is one of your notable strengths, particularly in the Upstream sector? The margins and potential return on capital there appear to be quite promising. So, the first question aligns with Alastair's inquiry about what we aim to resolve. The second question is somewhat simpler. Regarding this year and LNG, it seems to revolve around volumes, growth, and opportunity. It appears that you're seeing incremental volumes coming from Calcasieu, and I’m curious about the volume coming from Pavilion, as well as from Plaquemines and Canada. It seems like LNG, at least in terms of volume, is poised to drive improvement. Could you also provide an update on the status of Nigeria Train 7 and your thoughts on its timing?
Wael Sawan, CEO
Thank you, Lucas. I’ll have Sinead respond to the second question shortly. To address the first question, our approach to building our resource base is quite open. While we have a distinct advantage in deepwater, we also have significant strengths in various basins and technologies within our conventional oil and gas portfolio. We have been enhancing our capabilities in areas like Shales, as seen in Groundbirch, Vaca Muerta, and the upstream segment of our Queensland assets. Our goal is to complement these strengths and create value rather than becoming too focused. Ultimately, this aligns with my earlier discussion about generating value per share and ensuring our capital is directed towards accretive opportunities. That is our guiding principle rather than fixating on specific resources or countries. Sinead?
Sinead Gorman, CFO
Thanks, Lucas. Indeed. You're asking about what is our expectation in terms of some of the LNG volumes coming through? I think two ways to take it. Of course, you're right, we have volumes that are coming up, whether that's indeed LNG Canada actually delivering in terms of up and ramped up and getting to its full potential. We've got a number of third-party volumes, as you mentioned, coming through. And then, of course, we'll have different items such as Qatar in the years to come. But it's more about what we do with those. At the moment, we have quite a balanced portfolio. We don't have a lot of additional length, and we talked about that before. We're a little bit tighter. And therefore, we haven't had as many opportunities to be able to deploy some of that trading capability that we have had in the past in different positions around the world. Some of those volumes will continue to come in the time period. But also if you look at it, we talked about actually having a growth in terms of our LNG sales of 4% to 5% coming through over the next period per annum, actually, through to 2030. Actually, what we saw in this last year was our sales grew by 11%. So you can see that sales side of things absolutely there and continuing to grow, and we need the volumes to be able to match that. So, of course, yes, some of those volumes will start coming through as well.
Doug Leggate, Analyst
Wael, I know this reserve number, you've kind of inherited that. It's been flogged to death today. But I want to ask you a direct question. As you inherited the portfolio several years ago now, do you believe legacy Shell has underinvested? And if so, how do you fix it in short order, whether through M&A or without a step-up in CapEx? That's my first question. And my second one is probably for Sinead. And it's just going back to the recommitment to the buyback. Going back to your strategy day, you had assumed a flat real oil price. Can you maintain that 10% free cash flow growth per share without the help of a flat real oil price or without leverage?
Wael Sawan, CEO
Good. Let me take the first one then, Doug. Look, I mean, I don't often look back. And if I were to look back, I would say, I wish we hadn't walked away from Guyana when we did. That's the honest truth. How do we resolve the issue going forward? Look, at the end of the day, I think we play to our strengths. I mean, today, we can underwrite a production flat line on liquids, and we have said we're growing our gas by 2% between now and 2030. And what we are finding is, as we really focus on understanding of our reservoirs, really focus on making sure that we are going after every drop, that is really unlocking value. I mean, remember, these reservoirs were barely scratching the surface of 25% to 30% recovery. You add 1% or 2% recovery from these reservoirs and you can sustain without massive capital outlays. Now having said all that, that doesn't mean we don't play with seriousness and other opportunities. And so how are we going to look at that? One, we need to keep doing what we're doing inside the fence and do the best that we can to unlock those resources. Number two, we will leverage the strength of this company to be able to be out there to partner with the likes of Venezuela, with the likes of Libya, with the likes of Iraq, with the likes of Kuwait and others as they look to be able to open up with partners that they trust and partners that have worked with them for a long, long time. We continue, by the way, to focus on our own exploration capabilities, which we have recently had a full reset of the exploration team, changed out the leadership of that team. And we're starting to see the early stages of success in terms of really securing some exciting acreage in a place like Angola. We secured acreage in more acreage in South Africa, acreage in the Gulf. And so that's the other, call it, value accretive way of doing it. And then selectively, we will continue to look at the right M&A opportunities with that high bar that I have referenced, but it needs to be able to justify itself to be a value accretive deal. Otherwise, we don't do it, and we have the time to be able to play that out into the coming years. Hopefully, that helps, Doug. Sinead?
Sinead Gorman, CFO
It's great to hear from you, Doug. You raised a question that can be viewed from two perspectives regarding our confidence in reaching our 2030 goals. This confidence stems from two main factors: our performance and our returns. Wael has discussed performance, which involves pushing the company to ensure every asset maximizes its potential and goes beyond that, as reflected in the upcoming projects. The second factor relates to our returns, both on capital and the distribution of capital. We're entering a phase of capital reallocation, directing more funds towards Upstream and Integrated Gas compared to past allocations. Regarding capital returns, we plan to distribute 40% to 50%, which we consider essential. Additionally, our balance sheet is strong, with a gearing level around 20%, well within our historical range of 10% to 30%. Over the past decade, we've consistently maintained that range. I'm pleased to note that we've also repurchased 25% of the company's shares at an average price about 20% lower than today's value, contributing to value creation. You asked about net debt; our net debt levels have remained stable over the last three years. However, our gearing has increased by about 2%, primarily due to the distributions that our shareholders appreciate. The remainder of this increase results from the Netherlands pension reform, which has affected our equity. Overall, I'm satisfied with our balance sheet and net debt situation. Our net debt, in relation to our cash flow, is very strong, not just from our standpoint but also in comparison to our peers. We're confident in our current position.
Henry Tarr, Analyst
The question probably is a follow-on from that. And I guess then, you've talked about securing acreage. Are you happy with sort of recent exploration performance? And I guess then, as you think about resource beyond 2035, is more capital going to be allocated towards exploration? And do you have a plan to sort of improving some of the returns there?
Wael Sawan, CEO
Henry, thank you for the question. As part of the reset, what we have done is not just put new leadership in, new targets in, but also make sure that we are really restraining the capital that we're putting into exploration to something that we feel is fit for purpose. So this is not an open bucket, let's go back to the swashbuckling days of exploration everywhere. We need to be able to prove to ourselves that we can create value out of that. And so you asked me for my report card on exploration. I'd say it's mixed. Really pleased over the last year where we had a good step-up in commercial discoveries in basins which are familiar and known to us, smaller volumes, but highly valuable barrels that allow us to tie back into existing hubs. Less pleased with the fact that we haven't found the bigger plays that allow us to potentially create big new hubs. And so that's the space we need to continue to work on to improve. That first bucket is motoring on well, and I think we have filled the funnel with good opportunities. I think we've really started to fill the funnel for the second bucket with some exciting ones. I mentioned the likes of Angola, which I'm really keen to sort of see where we can get to with that. And that's one that we need to be able to go. But I would characterize our pursuit of resources as being not one that is dogmatic around exploration or M&A or NBD, new business development. We will look at where best to deploy that capital depending on track record, that risk-adjusted return, where we think we can create value, and we will pivot depending on where that value can be created. Otherwise, we will start to have tunnel vision down one pathway rather than keeping options open and creating value through whatever is in the money at that point in time.
Christopher Kuplent, Analyst
Wael, I wanted to ask you about the state of the M&A market. Not what you're about to buy, I get you. You're agnostic on lots of levels. But I guess it'd be interesting to hear from you. You've been in a number of data rooms, what deals that are currently being signed, what they are telling you whether this is a buyer or a seller's market, particularly when we speak about the assets that you're looking for, i.e., resources that are yet to be developed, whether it's the Namibian farm down that we've seen from Galp or others. Where do you think the bid-ask is currently sitting? And if I may squeeze in another opportunity for Sinead to deny fake news. Tell us what's happening with LNG Canada, whether it's FID of Phase 2 or whether it's a farm down there?
Sinead Gorman, CFO
Yes, absolutely. Thank you, Christopher. What I always emphasize is that similar to Argentina, we are closely monitoring the news. We will assess every opportunity to invest our capital wisely and enhance value. We don't have any sacred or holy cows when it comes to our assets. Regarding LNG Canada, I want to clarify that we are not divesting assets we strongly believe in. We are focused on ensuring that we achieve the expected performance there. The coverage in the media about reallocating capital and speculation about exiting parts of the project may be misleading. I approach it simply by evaluating the returns on every segment of our asset base, considering whether it is the best use of our funds, which is what Wael and I are continuously assessing. This approach applies across our entire portfolio, as we aim to maximize every dollar we have. If certain assets are yielding low returns or if there are better investment opportunities, we will pursue those alternatives. For example, we realized value from our stake in the Colonial pipeline, which wasn't strategically crucial for us, allowing us to exit with a return of over 9 times EBITDA. We will continue to look for similar opportunities.
Wael Sawan, CEO
And to Sinead's point there, Christy, that focus on capital reallocation, I would say, is an important now area of my and Sinead's focus in this part of the journey that we're on as a company because we believe there is over 15% of the capital employed that we have, the $225 billion, that we could actually redeploy into higher return opportunities, which we want to actively be looking at. To the heart of your question, and that, of course, plays into it as we redeploy some of that into, for example, M&A opportunities in Upstream and beyond, I would say the market is somewhere in the middle at the moment. It used to be at the higher end of the 60% to 70% range, and now we're closer to the lower end of that 60% to 70% range. And it's sort of in that space. So it is not out of what we have seen, call it, mid-cycle conditions in the past. I think there's different things at play. I mean, there's one interpretation of the subsurface by different players. There's desperation by some to be able to create investment cases for themselves. And what you have seen us do is to look at all of these. And where we have been able to win is where we have had a real differentiated advantage like the bolt-ons that we did in 2025. Now as we look at some of the other opportunities, I'm sure things will continue to evolve. And we'll see how we will compete for those. But the most important thing for me is to keep that broader frame of strategic patience, accretion when we do these deals, and making sure that we can add value to the barrels that we're bringing in, not simply adding resource for the sake of being able to satisfy a KPI in our books. And that's the approach that we will continue to use. It is fair to say that this will take more of our time, of course, as we get that performance muscle much more embedded into the organization.
Ryan Todd, Analyst
Maybe if I could ask one on an asset that you mentioned earlier and has also been in the news, Bonga South West. I think reports have suggested that you're targeting the 2027 FID there in Nigeria. Can you talk about what hurdles you need to clear over the next 12 to 18 months to reach FID? And then maybe more broadly, could you talk about the broader resource opportunity in Nigeria and other existing basins within your portfolio like that and what may or may not have changed to make things more attractive in some of those areas?
Wael Sawan, CEO
Ryan, thank you for that question. Let's start with Nigeria. I was there, I guess, a couple of weeks ago now to meet the President and was very encouraged by the real drive to be able to support investment in the resource base of Nigeria. Of course, you know what we've done on the onshore, having exited that. That's opened up our opportunities now much more in the offshore. Bonga South West is a material resource. What were the conditions precedent? A key condition precedent was a set of fiscal support to be able to make this an investable project, which I was very pleased that the President was committed to providing in the coming days as part of a gazetting process that needs to happen, which means we already have now kicked off FEED. And indeed, as you say, looking to develop that into hopefully what is an investable project. So now it really is just follow through on all sides to be able to make this the project we need it to be. It's important to recognize that there is a lot behind those funnels in deepwater Nigeria for us. We have a project called Bosi. We have projects like Adura. These are all projects that now are starting to make their way through the funnel as the investment climate opens up in Nigeria. And we are talking about hundreds of thousands of barrels there. And so we are actively going after those and developing them. Of course, where we continue to have a lot of music is in Brazil and in the Gulf of America, where we have existing resources. Some of the discoveries that I've mentioned are in the Gulf that tie back into our existing asset bases as well. We're excited by areas like Oman, where we have significant access to gas resources in the blocks that we operate. We're building out in Malaysia at the moment and so on and so forth. So this is a portfolio that continues to create opportunities for us. And we are making sure that what is within our reach, we are maximizing the value from, while at the same time looking at those exploration and M&A opportunities that I referenced earlier. Let me, therefore, close off and thank you for your questions and for joining the call on behalf of both Sinead and myself. In conclusion, we delivered a solid set of results in 2025. And looking ahead to 2026, we believe we are well positioned with an investment case that remains robust through the cycle as a result of the actions that we have taken and continue to take. Lastly, I'd like to highlight a number of upcoming publications, including our annual report release on the 12th of March. And on the 16th of March, we will publish our annual LNG outlook, the LNG strategic spotlight as well as the response to the 2025 AGM shareholder resolution. Wishing you all a pleasant end of the week. Thank you very much for joining.