Shell’s CEO Ben van Beurden today reinforces his priorities for the company in presentations to financial markets.
Van Beurden said: “Shell has a strong asset base and industry leadership in many of its growth themes. While this position of strength gives confidence for the future, it is also clear that we need to get a tighter grip on performance management in Shell. I am determined that, by focusing sharply on our three key priorities – better financial performance, in particular in our Upstream Americas and Downstream businesses, enhanced capital efficiency, and continuing strong project delivery, we will continue to grow our cash flow and improve our returns.”
Shell will drive sharper performance management of the company’s portfolio than in the past, through a more detailed segmentation of the business, into performance units.
Van Beurden said: “With sharper accountability in the company, this approach will target growth investment more effectively, focus on areas of the business where performance improvement is most required, and drive asset sales from non-strategic positions.”
Shell’s investment strategy recognizes three distinct time horizons that can be characterized as follows:
Van Beurden said: “Shell has considerable strengths in portfolio, technology and management capabilities. However, we must improve profitability in several areas. We are taking stock of our investment opportunities and operating positions. Are our assets attractive economically, and are they resilient to industry cycles? Are our plans credible, are they competitive and are they affordable? This approach is driving hard choices on today’s asset base, new opportunities, and disposals plans, where we have recently announced exits from Australia and Italy downstream, Wheatstone LNG in Australia, and US gas-to-liquids.”
Highlighting two areas that need improvement, the company updated on Upstream Americas and Downstream today.
The $35 billion organic investment programme for 2014 and the $15 billion divestment targets for 2014-15, announced earlier this year, reflect an on-going commitment to grow the company and at the same time to increase divestments to more typical levels, after a slow down in 2013. Asset sales announced so far in 2014 total some $4.5 billion. Project start-ups from 2010 onwards added $9 billion (over 20%) to our 2013 cash flow, with more growth to come, from Shell’s industry-leading project flow.
In 2014, Shell expects capital investment of around $37 billion, a reduction of $9 billion compared with 2013, “as we moderate our growth ambitions and strive to improve our free cash flow and returns.” Asset sales are a key element of Shell’s strategy – improving its capital efficiency by focusing the investment on the most attractive growth opportunities. Sales of non-core assets in 2011 to 2013 generated $16 billion in divestment proceeds. Exits from further positions in 2014 to 2015 are expected to generate some $15 billion in divestment proceeds.
Commenting on the financial position of the company, Van Beurden said: “We’ve delivered industry-leading cash flow growth in recent years, and we want to pick up the pace again both on cash flow and returns, driven by financial performance, capital efficiency and project delivery. Shell’s dividend growth – expected to be some 4% for Q1 2014 – underscores that momentum and the potential for the future.”