Earnings Call Transcript - SHEL Q3 2025

Operator, Operator

Welcome to Shell's Third Quarter 2025 Financial Results Announcement. Shell's CFO, Sinead Gorman, will present the results and then lead a Q&A session with Shell's CEO, Wael Sawan. We will now begin the presentation.

Sinead Gorman, CFO

Welcome to Shell's Third Quarter 2025 Results Presentation. This quarter, we delivered another strong set of results. Our adjusted earnings were $5.4 billion, and we generated $12.2 billion in cash flow from operations. The quarter-on-quarter improvement was driven by strong performance across our businesses with all demonstrating positive momentum. This quarter clearly illustrates our focus on performance, discipline, and simplification is laying the foundations of a winning performance culture across Shell. So let's start with performance. In Integrated Gas, strong operational delivery drove higher liquefaction volumes, which in turn enabled a higher contribution from LNG trading and optimization this quarter. The start-up of LNG Canada where 13 cargoes were delivered from Train 1 in Q3 contributed to these volumes, and there's more to come with the expected startup of Train 2 later this quarter. In Upstream, our strong operational performance resulted in higher production. Together, Brazil and the Gulf of America made up more than half of our liquids production in Upstream. In Brazil, we achieved our highest ever quarterly production. And in the Gulf of America, we reached our highest quarterly production level since 2005. Both were supported by successful project ramp-ups such as the Whale project in the Gulf of America, which reached nameplate capacity with wells producing above the investment case expectations. This was achieved in less than half the expected time, showing the benefit of our design one, build many philosophy. And we also saw numerous examples of operational excellence in other parts of the company. In marketing, the business delivered its second highest quarterly adjusted earnings in over a decade, as we continue to capture more value through growing margins of our premium products. Chemicals & Products results also improved quarter-on-quarter with stronger crude and products trading, whilst chemicals continues to face challenges with weak margins. Moving to our second focus area, simplification, where the organization is making real progress. At our QGC asset in Australia, for instance, production reached an all-time high in the third quarter. This was supported by a reduction of almost 90% in well site permits ensuring operations are not only safe and fit for purpose, but also allowing the team to free up time for even more value-added activities. We're also simplifying our portfolio, just as we said we would at Capital Markets Day. We continue to maintain a relentless focus on value over volume, high-grading the portfolio, where we see the opportunities to do so. And you can see this in our mobility business. Year-to-date, we've divested or closed some 400 lower-performing retail sites. Beyond mobility, we have completed the divestment of the noncore interest in the Colonial Pipeline, which generated around $1 billion in proceeds. And we also completed the sell-down of five Savion solar projects as part of our power strategy, where we are allocating capital to part of the value chain that offers higher returns and where we have differentiated capabilities. Our third focus area is discipline. We take our responsibility as custodians of shareholders' capital extremely seriously. And that is why we made the difficult but value-driven decision to not restart the construction of our HEFA biofuels facility in Rotterdam. And we continue to apply that rigorous value-driven lens to all of our investments. Our disciplined approach to capital allocation allows us to remain resilient throughout the cycle while continuing to invest in growth within our $20 billion to $22 billion cash CapEx range such as the HI gas development project in Nigeria, where we took a final investment decision this month. Looking at our financial framework more broadly. In Q3, our net debt decreased as we continue to maintain a strong balance sheet. We also continue to deliver attractive shareholder distributions. And at the end of Q3, our 4-quarter rolling shareholder distributions were 48% of CFFO, in line with our target range of 40% to 50% of CFFO through the cycle. And today, we announced another $3.5 billion share buyback program, which we expect to complete by the time of our Q4 results announcement. This marks the 16th consecutive quarter in which we have announced $3 billion or more in buybacks. Once this program is completed, we will have repurchased more than 1/4 of our shares over the last four years. So to summarize, in Q3, we delivered strong financial results, improving our performance quarter-on-quarter. This improvement was driven by strong operational performance across the company and we'll keep delivering on what we say, focusing on performance, discipline, and simplification. So we can continue to deliver more value with fewer emissions. Thank you.

Operator, Operator

We delivered strong financial results in Q3, improving our performance compared to the previous quarter. This was driven by solid operational performance across the company, and we will continue to focus on performance, discipline, and simplification. This approach will enable us to deliver greater value while reducing emissions. Thank you.

Wael Sawan, CEO

Thank you for joining us today. We hope that after watching the presentation, you've seen how we delivered a strong set of results in the third quarter and how our principles of performance, discipline, and simplification are guiding us in our actions. Today, we also released updated guidelines on how to model Shell, which you can find in our slide pack. We hope you find them useful. And now Sinead and I will be answering your questions. So please could we have just one or two questions each so that everyone gets the opportunity. With that, could we have the first one, please, Luke?

Operator, Operator

Our first caller is Matt Lofting from JPMorgan.

Matthew Lofting, Analyst

Congratulations on the strength of performance in 3Q. Two questions related to operational performance, if I could please. First, I thought the performance in the Upstream business across Brazil and the Gulf of America looked like it was a highlight of the third quarter. How sustainable do you see that performance going into 2026 and beyond? And then secondly, in the IG business, to what extent was the third quarter improvement in trading supported by operational outperformance versus greater market opportunity? In other words, is there any change to the new norm market conditions that we referenced in the summer?

Wael Sawan, CEO

I appreciate that, Matt. Thank you very much. I'll answer the first question and have Sinead address the second one. I'm very proud of our performance in both Brazil and the Gulf of America. This progress reflects a journey we've been on for several years, focusing on the fundamentals and maintaining rigor in executing the turnaround. In this quarter, we successfully managed turnarounds in both regions, completing them faster than planned and under budget, which is a significant achievement. The teams are diligently following through on various operational metrics we are concentrating on. This strength is not limited to those two major areas but is also evident across our conventional oil and gas portfolio. I believe the improvements we have achieved are sustainable. We will continue our routine annual maintenance of facilities, but we have also benefited from new projects. In Brazil, Mero-3 and Mero-4 began operations this year, and in the Gulf, the Whale project has started up with a quicker ramp-up than we have seen in many of our previous deepwater projects. Overall, I am very pleased with the momentum we have and look forward to maintaining and enhancing it because we recognize there is still more work to be done.

Sinead Gorman, CFO

Thanks. And thanks, Matt. Indeed, last quarter, we talked about integrated gas, and we talked about it moving towards a new normal. And how fast it was it's a new normal absent any opportunities to be able to trade around additional length or a variety of things that could occur in the market. So what did we see in Q3? In Q3, we saw very strong as well, put its operational performance, not just on upstream, but also on our integrated gas business as well. And that gives us length and therefore, the ability to trade around those. In addition, of course, there were some arbs opening up in terms of the different price lines between both Asia and Europe as well, which give the results that you see, which we're really pleased with. It's not a given, and we're so proud of the team for what they managed to deliver this quarter. When we then look at Q4 and beyond, what do we see in Q4? So already, we're seeing some of those opportunities, but nowhere near the amounts that we had before, and we don't see any one-off helps. Of course, as we look to 2026, what we're seeing at the moment, the spreads aren't there. We'll see how it plays out as the year continues.

Wael Sawan, CEO

Luke, let's have the second question, please.

Operator, Operator

Our next caller is Lydia Rainforth from Barclays.

Lydia Rainforth, Analyst

I have two questions, please. The first one, artificial intelligence. We do seem to be seeing an acceleration in recent months of agents of the tech available. How are you thinking about AI deployment cross-sell? I know you've been doing it for a while, but how far through the journey are you? And when you think about what it means to the cost base, does it make a difference there in terms of where you are with the plan? And then secondly, can I do a big picture? I'm sorry about this, but what are you seeing demand-wise, because clearly, within the market that's competing seriously between is there an unclear versus market starting to tighten next year versus inventories not showing up? How do you see that given all the demand base you have? And how does the buyback fit into sort of that uncertainty?

Wael Sawan, CEO

Lydia, thank you for those questions. Let me address them both, starting with the AI question. I think the reality is we are every single day learning the potential that AI brings to our business and continuing to grapple with that and what it means. It's requiring us to rethink workflows, the way we do work in general and how we can improve. And so I think we're at the cusp of some exciting things ahead, and we're challenging ourselves as a team, as a company, to be able to embrace some of those opportunities. I spoke a moment ago to Matt's question about some of the improvements in the Gulf of America, for example. The platforms like Olympus in the third quarter of this year, but also Ursa, you'll recall, we deepened our interest in Ursa buying Conoco share. Those two platforms had outstanding performance this past quarter. A large part of that is driven by our ability to detect issues before they materialize on the platform. And that is very much leveraging AI, leveraging our data capabilities and being able to bring those signals to the front line, so they can intervene before a trip happens on a facility. So it is already helping us today in the way we are driving business outcomes. We're also using AI in trading more and more and looking at how we can leverage some of those split-second decisions to be able to make sure that we can create value and optimize across the portfolio. The last thing I'd say about AI is, of course, beyond how we use it for ourselves. We are in constant communication with many of the hyperscalers. You'll have heard about our deal with Google here in the U.K., where we provide them the low carbon renewable energy that allows them to be able to run their data centers. So we are in the service of many of these hyperscalers and looking at the opportunities to do the same in the U.S. through our Savion entity. So a really exciting space that we're getting our minds around and continuing to drive value out of. To your broader question around demand, what we see at the moment is indeed headwinds on the supply-demand fundamentals going into 2026 and a highly credible scenario that there is an oversupply in 2026. Of course, what we've seen in the last quarter or two is significant uptake in Chinese storage, and we have seen a lot more oil on water. So that has, in a way, sort of pushed out some of the oversupply. And of course, there's the macroeconomic or the geopolitical reality that we see as well, which puts a premium on prices. And so I think in the short to medium term, there are headwinds. Longer term, we continue to have strong conviction in crude prices going forward. In LNG, we see a balanced outlook for the next year or so as we continue to see that supply-demand balance in good shape. And then, of course, longer term, we continue to be very bullish on LNG, and we can talk about that a bit more. Finally, on your point around buybacks. I think in the context of the macro that we are going to be seeing what we have said, what we have already guided and continue to hold on to is our 40% to 50% distributions from CFFO is sacrosanct. And we very much intend to be able to continue to be within that range. And of course, we have positioned the company to be able to do that and to weather any potential downturns that emerge over the coming months to a year or so.

Operator, Operator

Can we go to the next question, please?

Operator, Operator

Our next call is Jason Gabelman from TD Cowen.

Jason Gabelman, Analyst

Yes. I wanted to ask about the outlook for the LNG segment, particularly with LNG Canada ramping up and then Pavilion kicking in. And if I recall correctly, you had mentioned that Pavilion wouldn't really contribute this year. So should we expect to see any uplift from those two items in 4Q and how should those impact results in 2026? And then my follow-up is just on kind of the resource hopper and at the Investor Day, you had talked about needing more long-cycle liquids in the 2030s, a couple of quarters since that Investor Day. How is the organic opportunity set shaping up to fill that resource hopper versus your outlook for inorganic?

Wael Sawan, CEO

I'll address the second question and then ask Sinead to respond to the first one. To summarize our current position, we are actively strengthening our organic pipeline. As mentioned during Capital Markets Day, we plan to bring online about 1 million barrels per day of oil equivalent between now and 2030 at breakeven costs just below $35. There's considerable work ahead to achieve this and attain the desired outcomes. Additionally, I highlighted in the last quarterly call our focus on exploration, emphasizing our efforts to streamline the team and concentrate on areas where we have a competitive edge. We are leveraging our digital and AI capabilities to support these initiatives, and I'm encouraged by the progress from the team. I hope to provide further updates as we approach Q4. In a broader sense, we have also made some strategic inorganic moves. For instance, we've increased our presence in Brazil with Gato do Mato, expanded in deepwater Nigeria, and recently enhanced our position in Ursa. We are actively pursuing these bolt-on opportunities to create value while continuously assessing other attractive opportunities. However, as I've mentioned previously, our standards are high, and we will remain committed to that high standard to ensure we generate value for our shareholders from any capital investments in this area.

Sinead Gorman, CFO

Thank you, Jason, for your question about the LNG segment or our integrated gas operations. We've previously discussed the new norm regarding this area. In examining this segment, we are considering both our operational capabilities and the trading prospects that accompany them. Our team is diligently working to ensure that all of our assets are fully operational. Regarding LNG Canada, we have already delivered over 13 cargoes from Phase 1. Our focus now is on when we will begin ramping up the next train, which we anticipate will occur between now and the end of the year. However, it’s important to note that it's not just about the initial cargoes; it’s crucial to have all assets running fully to ensure we can trade around them effectively. We agree that the significant impact will be felt in the latter half of next year. For Pavilion, we discussed this last quarter, highlighting our eagerness to secure those contracts. Currently, everything is integrated into our portfolio, but we need some contracts to expire to gain more flexibility with the volumes. We expect this to occur in the second half of 2026.

Wael Sawan, CEO

Thank you, Sinead. Thank you for the questions, Jason. Luke, let's go to the next question, please.

Operator, Operator

Our next caller is Martijn Rats from Morgan Stanley.

Martijn Rats, Analyst

Two questions, if I may. They're both a bit about sort of specific line items in the financial statement. I noticed that the line item, underlying OpEx was up sort of 10% year-on-year. And I was wondering what lies behind this. Of course, I know there's inflation in the system, there's inflation, almost everywhere, and it can be hard to fight. But 10% still struck me sort of as a reasonably noteworthy number. Maybe a year ago, this number was just luckily very low for some reason or another, but I was hoping you could say a bit about it. The other thing I also wanted to ask you is, could you elaborate a little bit on the sale of the stake in the Colonial pipeline. Because the context around the question is that the trading is clearly very important for Shell that has become more important for Shell as the years have gone by. And I can totally see how an individual pipeline or a pipeline system might not be the highest returning asset. So you could say, okay, part of the disposal program. At the same time, assets like that, I would imagine, are precisely the type of assets that really help the trading business. So there's probably some sort of trade-off there. And I was wondering how that type of consideration come into discussion about some of the disposals, particularly this one.

Wael Sawan, CEO

Sure. Thank you for that, Martijn. Do you want to take those two Sinead?

Sinead Gorman, CFO

Thank you, Martijn. We have two different questions that dive into our numbers. Regarding underlying operating expenses, several factors are influencing those figures. You’re witnessing the effects of inflation, although we are managing well despite it, and we’re also acquiring new assets. Much of this is related to timing. For instance, the full operational expenses from LNG Canada are coming through now that it has started up, which includes significant ramp-up costs. The same situation applies to our Chemicals operations and the Monaca facility, which are also in the process of ramping up. Additionally, with respect to divestments, there’s a timing aspect to consider. We haven’t yet seen the ramifications of all the divestments, particularly with the refinery and chemical plant in Singapore. We do have costs associated with transitioning those assets to the new owners, as well as some ongoing support for the buyer in Nigeria. So, part of this is about timing. On the marketing side, we have increased our advertising and marketing efforts, focusing precisely on areas where we want to make an impact. This is reflected in our marketing performance, particularly in promoting our premium products, which is showing in our numbers. Year-on-year, our nine-month costs have actually declined by 4%, so we are performing well and continuing to aim towards our target of $5 billion to $7 billion, which we are confident we will reach; it’s just a matter of how quickly and vigorously we can pursue that. Regarding Colonial Pipeline, it’s a relevant question. We’ve discussed what we need for our trading operations several times. Our traders are dedicated to maximizing returns and capital efficiency. They assess where they can add value and control points, and Colonial was not viewed as one of those assets. It was part of a longer list where capital could be better allocated elsewhere. This decision reflects our ongoing strategy of reallocating capital for the best possible returns. They presented the opportunity to us, and we successfully executed it this quarter.

Wael Sawan, CEO

And that's a good point. Indeed, it was the traders who brought that opportunity to us. Thank you, Sinead, and thanks for the question, Martijn. Luke, let's go to the next one, please.

Operator, Operator

Our next caller is Kim Fustier from HSBC.

Kim Fustier, Analyst

I have two, please. Firstly, on LNG Canada. I wondered if you could give any color on how you're managing the feed gas from Western Canada. So maybe just a rough split between your equity tight gas production versus grid supplies and your ability to shift from one to the other depending on prices? And the second question is on Chemicals. I wondered if you could give an update on the restructuring of your chemicals business. I also understand that Monaca will have a turnaround in the fourth quarter. So what remains to be done in terms of works at Monaca?

Wael Sawan, CEO

Kim, I'll address both questions. First, in the third quarter, we experienced several days where AECO pricing went negative. To give you some context, we rely on the Shell trading organization to source feedstock for our equity interest in LNG Canada, and we use Shell's trading capabilities to market those LNG cargoes. Our traders are focused on finding the best options to create value for the enterprise. Recently, we reached a capacity of about 100,000 barrels of oil equivalent per day in Groundbirch, our Canadian feed gas, but we reduced our output to around 70,000 to 75,000 barrels per day. This was more economically favorable as we could manage the flow from third-party sources more efficiently. I was in Calgary recently and observed the decision-making process in the control room, where traders work alongside operators to maximize value. This integrated approach between assets and traders is exactly what I envisioned. We look forward to ramping this up with Train 2, which is just days away, and we anticipate our first LNG cargo soon. Regarding your second question about chemicals and the update, you mentioned Monaca's planned maintenance in the fourth quarter. We have more work ahead to ensure we are running at full capacity. To reflect on our Capital Markets Day in 2025, we noted that we have $45 billion of capital employed that is currently underperforming, with $25 billion in chemicals and $20 billion in renewables. The downturn in the chemical sector means that even after implementing cost reductions over the past few years, we still haven’t achieved free cash flow neutrality. As I mentioned in the last call, I've instructed the team to pursue further cash preservation measures, which they have outlined. We plan to reduce operational and capital expenditures by several hundred million dollars in the coming months, though I don’t expect to see these changes impact Q4 immediately, as it’s usually a weaker quarter for both chemicals and products. I do hope to see improvements in 2026. On the renewables side, particularly in power where we have the most capital, we’ve been working to reshape our investments away from capital-intensive renewable generation towards more trading-supported assets. Recently, we announced our withdrawal from the Atlantic Shores offshore wind project in the U.S., sold several B2C platforms including Inspire, and divested our 49% equity interest in Cleantech in India, in addition to joint ventures in Savion. This is a positive step in reallocating capital to more productive areas, enabling us to move closer to our target of achieving a 10% return across our segments. I hope this clarifies our approach to chemicals and gives you a broader view of how we’re managing our unproductive capital. Thank you for your question. Now, Luke, I’ll turn it over to you for the next question. Thank you. Luke, let's go to the next question, please.

Operator, Operator

Our next caller is Biraj Borkhataria from RBC.

Biraj Borkhataria, Analyst

Two, please. Just going back to LNG Canada. Have there been any further discussions on Phase 2 of the project? And I just wanted to update where we are there. I saw us put on the top of the list for Carney's major project review. So any color that would be helpful. And then just on the cancellation of the biofuels project. I'm trying to get a sense of how much of this was project specific? And how much of this was sort of related to your view on the end market and policy risk because obviously, there is elevated policy risk in a bunch of ways right now. The alternative for you is to just keep deploying more capital to the buyback which, obviously, the value proposition is fairly obvious. So just trying to understand how the investment committee is thinking about political risk across the various FIDs you have in the hopper?

Wael Sawan, CEO

Yes. Thanks for that, Biraj. I'll take the first one and then Sinead, if you want to address the second one. LNG Canada Phase 2, look, I think the biggest things we're keeping an eye on at the moment is the joint venture is working with the various contractors to be able to at least frame a quality decision for us at some point next year and see what that looks like. What are some other important factors that we will have to sort of consider when we get to that decision point. Clearly, the support of both the federal and the provincial governments in Canada will be important. And I think as you rightly inferred there, we do see very strong support at the moment, both at the provincial and the federal side. So that's good news. We're very appreciative of that support, and that is enabling for a future investment. But we're also looking carefully at the broader dynamics. You know our views that we are strong believers in the future of LNG demand through to 2040 and beyond. And we're also conscious of the significant investment that is taking place, the number of FIDs this year, in particular in the U.S. is unprecedented. You're talking of the 70 million tonnes per annum of capacity that's been FID-ed. 60 million is sitting in the U.S. Now if we then think about future investment opportunities in liquefaction, it is about making sure that we are delivering to the demand destination from the right supply sources. Where Canada features is, of course, they have a transportation advantage vis-a-vis the U.S. it takes 10 days to ship from Canada to Asia versus 25% from the Gulf. So there's an advantage there. And that's why we're trying to understand what that overall balance of new supplies coming in, at least in the medium term and how that features in our broader calculus because not all supply is equal, and we want to make sure that we get access to the best supply for our customers and also cost advantage supply to make sure that they can create value for themselves as well from that. So lots to consider over the next several months there, Biraj.

Sinead Gorman, CFO

Thank you, Biraj. There are two main aspects to your question. First, regarding the decision to pause half a plant, we took that step to evaluate our internal capabilities and ensure we could achieve an appropriate return while also considering the broader market dynamics. We approached this decision carefully, recognizing its significance, and ultimately decided to halt operations for now, which we believe was the right choice. We remain optimistic about trading in biofuels in the near future, but we need to monitor the supply and demand fundamentals moving forward. Additionally, stable policy is crucial for us. The second part of your comment pertains to our assessment of political or policy risks. You mentioned our investment committee, which reviews all projects not just as individual opportunities but collectively to assess concentration risks in various areas. We're evaluating not just specific countries but broader themes such as regulatory changes to understand potential scenarios, both positive and negative. We're analyzing all available data to ensure we make informed capital allocation decisions.

Wael Sawan, CEO

Thanks for the question, Biraj. Luke, next question please.

Operator, Operator

Our next caller is Doug Leggate from Wolfe Research.

Douglas Leggate, Analyst

I'm curious about the path back to profitability for the Chemicals business and whether we should consider it a core part of Shell's future. Additionally, I'm wondering if there's any chance for Shell to revisit the arbitration with Venture Global, especially since one of your major peers had a different outcome. What is the way forward on that?

Wael Sawan, CEO

Thanks for that, Doug. Let me address both of your questions, starting with the Venture Global situation. I want to express my deep disappointment with the outcome of the arbitration tribunal. We have a lot to reflect on and learn from, as we believe strongly in our case and need to explore all avenues to protect our rights. Regarding the path back to profitability for Chemicals, I want to acknowledge the significant difficulties we are currently facing. Navigating this situation has been very challenging. We have been working on reducing operational expenses for several years, but it has not been sufficient. We expected this to be a typical cycle and anticipated an upswing sooner than we have experienced. Unfortunately, we currently do not see a clear timeline for when that recovery will occur. Therefore, we have decided to focus on cash preservation. Our goal is to achieve free cash flow neutrality by maximizing our operational and capital expenditures. I previously mentioned the need to identify hundreds of millions in savings in the coming months to at least halt the financial losses from that unit. My team is very focused on this, and we have established a plan that is now entering the execution phase.

Operator, Operator

Next question, please.

Operator, Operator

Our next call is Christopher Kuplent from Bank of America.

Christopher Kuplent, Analyst

In the same vein, perhaps. Can you comment on renewables and where you see the role here, considering where the M&A market is, the PPA market, where do you see capital allocation and opportunities perhaps. Just quoting one example is not just a gigawatts, but it's also your JV in Brazil that's crying out for fresh equity injections. So how do you feel about adding more commitments into this country, given what you know so far about the basin?

Wael Sawan, CEO

Let me take the second one and then ask Sinead to address the first one. On the second one, clearly, worrying. Our first focus is our staff and the well-being of our staff in case the situation escalates, which we hope it doesn't. Clearly, the Dragon license, which was granted by OFAC to the Trinidad and Tobago government, through which, of course, Shell would be implementing that license. We still have to figure out exactly what's happening there. So we're assessing the situation closely, working with the government in Trinidad and Tobago and making sure that we are able to determine how to move forward. But I'd say, very early days to be able to judge exactly how this will play out, and we are in a wait and see mode at the moment to see what happens. Sinead?

Sinead Gorman, CFO

Indeed. And thank you, Christopher. In terms of renewables, as you remember, when we talked about renewables in Capital Markets Day, we talked about our role in it and how we would play. And there's two aspects to your question because you brought in both biofuels and, of course, the gigawatts, the electrons side of it. So looking at both in unison there. In terms of the biofuels side, I talked a little bit about half of our view on let's see where supply and demand goes to into the future and about where we see the sort of trading in the prompt you alluded to, of course, a joint venture or a company that we are invested in, in Brazil as well. Of course, it's a listed company, so I always look to the company to speak for itself. But just priority is there for them to look at really all of the different options that they have in terms of the turnaround and to ensure it's value accretive, and we see their management team doing a superb job on that as well. So making sure it's aligned with all of our goals as well. Moving back on to the electron side for a moment, and you talked about the gigawatts aspect there. What you can see us doing, of course, and what we talked about was moving from being 80% in producing assets or solar wind, different aspects like that, and 20% in trading and shifting that focus between now and sort of 2030 much more towards 20% into the producing assets and 80% into the trading side. That continues to move forward. While talk to a number of those different actual capital reallocation that's occurred, whether that was around Cleantech that he mentioned, and Savion, of course, the opportunity where we actually diluted our stake in some of the producing fields of the solar fields and actually kept the electrons. And that's about really where is our strategy going to. It's making sure that from a strategy point of view, we're very much focused on considering how can trading maximize the value from the flow, and that's what you see us doing. We continue to look for opportunities in things like gas-fired combined cycle power plants as well. You saw us do one of those last year. And of course, we continue with some of the battery investments we're doing as well. So that process continues and really good progress, I would say, well.

Wael Sawan, CEO

Yes. Thanks, Sinead. Christopher, thank you for those questions. Luke, next question, please.

Operator, Operator

Our next caller is Michele Della Vigna from Goldman Sachs.

Michele Della Vigna, Analyst

Congratulations on all of the rejuvenation of your E&P portfolio through all of the FIDs and stake increases in the last year. I wanted to say really on that topic. And I wanted to ask you, what do you think is the scale of inorganic investment that you'll need to continue this 1% hydrocarbon production growth well into the next decade? And if there's any area in your portfolio and particularly that you would like to deepen in scale?

Wael Sawan, CEO

Thank you, Michele, for your question and for recognizing our successful strategy of bolt-ons, where we focus on areas of competitive advantage. This approach deepens our existing interests. I previously mentioned potential headwinds for oil prices coming in 2026. Over the past few years, we have positioned the company through cost reductions, performance enhancements, and portfolio high grading to be resilient during a potential downturn. We have prioritized allocating capital for buybacks, and in a world where we might face softness in the future, we see real opportunities both in buybacks and in exploring other inorganic options. Recently, we have seen more opportunities come our way, though none have met our standards yet. I hope for good opportunities in 2026, but I won't specify a scale since we aim to be value-driven and focus on creating shareholder value through free cash flow per share accretion. We will take a pragmatic approach to these opportunities. Between now and 2030, we are close to maintaining flat liquids production. This is not about 2030, where we are confident, but about building for 2035 and beyond, where we identified a gap of around 350,000 barrels a day that we hope to fill both organically and, where it makes sense, inorganically. We will continue to position ourselves for this and make the best capital allocation choices for our shareholders.

Sinead Gorman, CFO

Indeed, I believe we have a significant opportunity ahead of us, primarily due to our strong balance sheet. Our gearing is currently healthy, below 19%, and has decreased this quarter. It does fluctuate, but we are comfortable managing that. We've previously utilized our balance sheet for distributions, although we didn't need to do so this quarter. Historically, our gearing has ranged between 10% and 30%, and I am satisfied with its current position. When necessary, we can leverage it for various purposes like distributions or inorganic opportunities, and I anticipate our net debt will increase next quarter. This is expected as Q4 often brings unusual items that can impact our financials. This quarter saw outstanding results from our Upstream and Integrated Gas segments, helping us reduce net debt, but Q4 poses unique challenges, including expenses related to biofuels and emission certificates. There are significant costs we anticipate, amounting to several billion. We also foresee higher CapEx due to potential opportunities. Usually, our downstream performance tends to weaken in Q4, linked to seasonal patterns observable in previous years. The chemicals and products sector typically shows weaker trading, compounded by a few turnarounds mentioned earlier. While marketing has performed very well, Q2 and Q3 are peak seasons, leading to seasonal declines in Q4. I am optimistic about maintaining strong performance in Q4, even though these factors might reduce cash flow. We remain eager to explore available opportunities, including working capital adjustments, based on macroeconomic conditions. Ultimately, we have the flexibility in our balance sheet to support both distributions and inorganic growth.

Wael Sawan, CEO

Thank you very much, Sinead. And thank you for the question, Michele. Let's go to the next question, please, Luke.

Operator, Operator

Our next caller is Josh Stone from UBS.

Joshua Stone, Analyst

I have a couple of questions. First, I want to follow up on the fourth quarter. I appreciate the detailed information, especially regarding Integrated Gas, as it seems you're being quite conservative at this time. However, I expect liquefaction volumes to increase. Why wouldn't the rise in those volumes help improve margins in the fourth quarter? Are there other aspects of integrated gas we should consider? Also, could you update us on the hedging impact and any potential headwinds that may have affected this quarter’s numbers? My second question is about Namibia. I heard some news earlier this summer regarding plans to resume exploration drilling next year around mid-year. Could you provide more details on the areas you’re considering targeting? Furthermore, how willing are you to invest more capital in this country, based on what you currently know about the basin?

Wael Sawan, CEO

Josh, I'll take the second question and ask Sinead to address the first one. Regarding Namibia, we have previously mentioned that we are pleased with the volumes we've discovered. However, we faced challenges due to high gas-oil ratios and the mobility of the fluid. We have been spending time understanding the results of our appraisal program and analyzing the subsurface data we've gathered, along with insights from others working in the basin to enhance our knowledge. We are still interested in investing in Namibia, but any investment will need to meet our stringent criteria for investment opportunities. We are prepared to invest in an appraisal well for a new horizon if we can define a viable case for it, which the team is currently assessing. We expect to make a decision on this in the coming weeks. More generally, we are exploring options in basins where we believe we can differentiate our activities. For instance, in deepwater, we can utilize our knowledge of the North Atlantic to create opportunities, like the well we are currently drilling in Sao Tome and other wells in the Gulf of America. I look forward to seeing what emerges from these efforts. Sinead?

Sinead Gorman, CFO

Indeed. And thank you, Josh. So back to Integrated Gas. No, you're absolutely right in the sense that when we talk about the normal, we're always talking about whether we can deliver higher operational performance and then what opportunities we can find in the market as well beyond that. So when I look at Q4, indeed, we're looking at strong operational performance. So we're looking at the team doing what they've said they're going to do and making sure they continue on the ramp-up of LNG Canada and other assets. But then we're looking at what do we see in terms of the availability of those lengths, so hopefully, we will have some. But in terms of the arbs and what are the opportunities to be able to trade around those. What I was mentioning earlier on was that we're seeing some of it at the moment, but less in Q4 than we did in Q3. So there is that sort of notice board. Those are closing at the moment, and you can talk about Brent versus Henry Hub and also it's a fun item there, but it is closing a little bit. You also mentioned then the impact in terms of the runoff by the way, in terms of the losses of the legacy positions. So I think I've positioned probably back almost a year ago, but I said we'd run through 2025. We're still seeing those legacy positions expire over this year. That impact is less pronounced than it was at the start of the year. That's just some really good work from the trading team in terms of effective risk management, but you will see that in Q4 as well. So looking to see what can we actually capture upside in the portfolio in terms of both net length and what's in the market as well? But of course, there is weakness versus downstream versus where integrated gas is. So as I outlined earlier, we're expecting to see downstream being weaker than it was in Q3 versus integrated gas, where we would not see it be able to capture some of the opportunities that we have seen this quarter, but we're looking at strong operational performance as well. So it's a tale of two halves there.

Wael Sawan, CEO

Thanks, Sinead. Thanks for the questions, as well there, Josh. Luke, let's go to the next question, please.

Operator, Operator

Our final caller today is Mark Wilson from Jefferies.

Mark Wilson, Analyst

There is significant focus on directing capital towards the highest returns. Could you provide insights on the U.K. North Sea business combination and your future plans for it? Do you view this as an investment area? Additionally, how do you anticipate fiscal changes in the U.K. impacting your strategic perspective on the North Sea portfolio?

Wael Sawan, CEO

Yes. I'd say on the U.K., firstly, excited by the Adura JV and hope that kicks off before end of the year. So good progress there. Look, at the end of the day, we have been very clear. When we invest in the upstream. We're looking for predictable and progressive tax systems that allow us to be able to make sure that the investment we are making is one that we can see the returns on. And the reliability of that fiscal setup is key to us. Now what Adura will do is, I think it takes the best of both. It takes the best of Equinor the best of Shell, puts it together has a nice development runway with the projects that are already sanctioned, but also has a great asset base to be able to go for follow-up opportunities if the conditions are right. But the conditions need to be right to attract that marginal dollar of capital. And so without speculating on where the budget goes in November, we continue to be hopeful that the fiscal situation is improved. And at the end of the day, that predictability and reliability come to play so that we can make the investments that allow for indigenous production to be able to serve the needs of the U.K. longer term.

Sinead Gorman, CFO

And just to add on that a while because the second part of that about capital allocation as well. So I think as we've discussed previously, the whole idea of capital allocation, you emphasized very clearly earlier, we have decisions on where we put the capital, whether it's organic opportunities, inorganic opportunities, whether we look to share buybacks, et cetera. And that decision criteria is key to us, the framework we use, which is really where Mark was going to at the end of this question as well. So we do look at both the performance of the company in the quarter, but we also look at the macro and where it's going to as well. And of course, that's sort of the decision criteria when we look at the buyback versus actually putting capital to some of our assets as well. We keep coming back to the fact that on a distribution policy perspective, 40% to 50%, as you said, is sacrosanct. And we want to remain within that range and that's what we will do. And of course, then we look at how do we fund it, whether it's through free cash flow or whether we are looking to lean on the balance sheet, as we've said. So we have a large range of different capital allocation decisions as we go through, but always focused on what we've said consistently, 40% to 50% of distribution is sacrosanct, and we look forward to growing the business as we can.

Wael Sawan, CEO

Thank you all for your questions and for making time to join the call. In conclusion, we delivered a strong set of results despite the continued volatility we see. Our strong delivery this quarter has enabled us to enhance another $3.5 billion of buybacks. And as we close out this year, we will continue to focus on performance, discipline, and simplification. Wishing everyone a pleasant end of the week. Thank you all again for joining us today.