When everyone was still swearing by mega-projects in renewable energies despite the economic nonsense, particularly in wind power, Wael Sawan bluntly announced his intention to double down on a strategy of returning to basics—fossil fuels, liquefied natural gas in particular. See Shell plc: Farewell to political correctness.
This time around, he is welcoming the low price of oil and announcing that he would gladly consider acquisitions in the areas of deep-water drilling or retail distribution of gas or fuels – sectors that both the majors and investors tend to shun at the moment.
We have repeatedly pointed out recently that the Anglo-Dutch major's stock market valuation appears attractive given the prodigious returns on capital – particularly in the form of share buybacks – that it has been offering its shareholders. It is undoubtedly this characteristic that has enabled its stock to outperform its peers over the past three years.
This does not prevent Shell from feeling the impact of crude oil prices at their lowest level in four years, with consolidated cash profit – or free cash flow – falling by almost a third in the first nine months of the year, from $31bn to $22bn, despite a virtually unchanged production volume of 2.7 million barrels and equivalents per day.
At the same time, net debt increased from $35bn to $41bn, while $6bn was distributed in dividends and $10 billion was spent on share buybacks. The group also announced that it was abandoning its plans for the Rotterdam biofuel plant and continuing to slowly but surely scale back its unprofitable chemicals segment.
Over the last nine months, the production and exploration segment generated $8.6bn in free cash flow; the gas segment $6.6 billion; the trading segment—well known at Shell and often a source of surprises—$5.2bn; the chemicals segment $1.6bn; while the renewables segment lost half a billion.
Shell remains valued at less than ten times its cash profit, which is one notch above TotalEnergies, but still at a significant discount compared to the American majors—which, it is true, hold a large portion of their reserves in their domestic market and operate within a much less tyrannical regulatory framework.
