Welcome to Shell's Second Quarter 2023 Financial Results Announcement. Shell's CEO, Wael Sawan; and CFO, Sinead Gorman, will present the results, then host a Q&A session. [Operator Instructions]. We will now begin the presentation. .

Welcome, everyone. Today, Sinead and I will be presenting our second quarter results for 2023. During Capital Markets Day, we reiterated our commitment to our Powering Progress Strategy, including net-zero emissions by 2050. We also outlined our plans over the coming years to deliver more value with less emissions. .

I'm pleased with the progress that we are making on our journey. In the first half of this year, we delivered our second-highest adjusted earnings in a decade, better than in the same period in 2014 when the average Brent oil price stood at some $110 per barrel compared with $80 per barrel this year.

And we continue to help our customers cut their carbon emissions while reducing emissions from our own operations. .

For instance, in the first half of this year, we removed 0.4 million tonnes of greenhouse gas emissions through abatement projects. This removal is equivalent to taking more than 160,000 cars off of Europe's roads for a year. Performance, discipline and simplification continue to be our guiding principles.

And in the second quarter, we demonstrated strong operational performance across our portfolio. .

Take Prelude, our floating LNG facility in Australia, which delivered its highest quarterly production since start-up in 2018. In Renewables and Energy Solutions, our CrossWind JV produced its first green electricity engine.

This is an exciting ongoing project that, when completed, is expected to produce around 3% of the Netherlands total demand for electricity. .

In the Gulf of Mexico, our turnaround operations at Appomattox, Perdido and Olympus were safely completed ahead of schedule and below budget. And in Downstream, our improved Shell V-Power formulation, which can clean up to 100% of deposits on vital engine parts, delivered strong volume and margin growth.

However, despite the strong operational performance, our financial results were impacted by lower commodity prices, planned maintenance and the skew of our LNG portfolio towards the Northern Hemisphere winter. .

Our 4-quarter business and financial delivery has been strong, enabling us to responsibly invest in our businesses, reduce debt, all while enhancing shareholder distributions.

At our Capital Markets Day, we announced a 15% step-up in the dividend and a plan to buy back a minimum of $5 billion of shares in the second half of 2023, subject to Board approval. .

We continue to believe our shares represent significant value, and so today, in addition to delivering on the dividend increase, we are commencing a buyback program of $3 billion for the next 3 months. With that, let me hand over to Sinead to tell us more about our financial results in the quarter. .

Thank you, Wael. We delivered resilient financial results in the second quarter. Our adjusted earnings were $5.1 billion and we delivered $15.1 billion of cash flow from operations, including a working capital inflow of $4.8 billion.

The working capital inflow was mainly due to lower prices, inflows from initial margin and a reduction in accounts receivable. .

In Integrated Gas and Upstream, we saw lower prices, fewer trading and optimization opportunities due to seasonality, and lower production due to planned maintenance, which included higher value barrels in the Gulf of Mexico.

As Wael mentioned, and as we outlined during Capital Markets Day, our LNG portfolio is geared towards the Northern Hemisphere winter, making Q1 and Q4 typically stronger than Q2 and Q3. .

In our Downstream and RES businesses, marketing achieved one of its highest mobility unit margins in recent years, largely due to a combination of the driving season in the U.S. and an improving macro environment.

In Chemicals and Products, the products business was impacted by fewer trading and optimization opportunities than in the first quarter, whilst chemicals margins remain below historical averages, despite a slight improvement quarter-on-quarter. .

Moving on to our financial framework. Today, we are lowering our 2023 cash CapEx outlook to $23 billion to $26 billion as we continue to demonstrate discipline in our capital spend. We have brought down our net debt to around $40 billion, which is almost half of what it was in 2019.

And finally, we are delivering on the 15% dividend increase that we announced at Capital Markets Day, whilst also today announcing a $3 billion buyback program for the next 3 months. .

As we continue to believe our shares represent significant value, we will commence a program of at least $2.5 billion at the Q3 results, subject to Board approval. Together this means we are meeting our target shareholder distributions of 30% to 40% of our CFFO through the cycle. And with that, I'll hand back over to Wael. .

Thank you, Sinead. Looking ahead to Q3, the macro outlook continues to be uncertain, with mixed demand signals in China, healthy inventory levels in Europe and Asia, but with general tightness in the supply of oil and gas in the medium term.

And in our own operations, we will undertake considerable planned maintenance activities, including the Prelude and Trinidad and Tobago IG assets in the coming months. .

We will continue to deliver more value with less emissions, not through words, but through actions, remaining committed to our guiding principles of performance, discipline and simplification and aiming to be the investment case through the energy transition. Thank you. .

[Operator Instructions]. .

Thank you all for joining us today on what is a busy day for results, I expect. We hope that after watching this presentation, you have seen how we have performed in the second quarter of 2023. Today, Sinead and I will be answering your questions. [Operator Instructions].

And with that, Dan, can we have the first question, please?.

The first question is from Oswald Clint at Bernstein. .

Two questions really around the results here. Firstly, Upstream, we had the $700 million volume and mix negative impact in the quarter. And I think that's high-margin barrels, probably Gulf of Mexico.

I mean the question is, does that all swing back now positively in the third quarter?.

And how much would be offset now by Trinidad and kind of Prelude coming off in the Integrated Gas business? And just extending that question is, I mean, how do you feel about your net length here in LNG in the third quarter, just given it's not too long ago, third quarter last year, where we probably had perhaps one of the weakest trading and optimization quarters through probably -- at least over the last 10 years anyway? So that's the first one.

.

And then secondly, I think Sinead just mentioned mobility having -- and I see that gross margin is one of the highest you've had in the last, actually, 5 or 6 years despite some of those concerns over the economy here.

So the question is, has that quarterly result surprised you? Has it made you think about leaning back into this side of the portfolio, given that during Capital Markets Day, we've obviously -- we're seeing the CapEx come down within that business from 2024 onwards?.

Great. Thank you, Oswald. I'll take the first one, if you want to take the next one, Sinead? I think on the first one, Oswald, just around this quarter first, maybe -- and maybe even backing out a bit. So the Upstream business actually is delivering very strong operational performance overall, as is IG actually.

It's been a good quarter for both businesses. .

To give you an example, in Upstream, we have seen Bonga at a 5-year high on availability. The Gulf of Mexico is ramping up nicely on the Vito asset up to north of 90% at the moment. And of course, we have indeed had 3 major turnarounds there this quarter. And all 3 were done safely, were done ahead of schedule and were done below budget. .

And those are amongst the most valuable barrels we have in the portfolio. So indeed, those come back into the portfolio going into the third quarter. A couple of points that I would make. We have other maintenance and turnarounds going on in the third quarter in also high-margin barrel locations, like, for example, the U.K.

is one, Kazakhstan is another. .

So we will have a bit more activity going into the next quarter. I won't give you numbers in terms of how that swing happens, but that gives you, hopefully, a feel. When it comes to Upstream, the other thing to consider is it will also depend, of course, on the weather, and in particular, hurricane season in the Gulf of Mexico. .

So something to keep an eye on, which we also do. On the IG side, T&T -- Trinidad and Tobago -- and Prelude indeed go into turnaround season now. And that's why you see the lower guidance in terms of volumes. We -- typically Q2 and Q3 are not too dissimilar in that we don't have a lot of length.

Again, we are much more geared towards the Northern Hemisphere winter. .

And if we can continue to make sure that the volumes are delivered, our traders will hopefully have opportunities, but it is not a high optimization quarter. Typically, that comes in the fourth quarter and the first quarter, as you know well. I'll leave it there. Sinead. .

Indeed. Thank you. And also, yes, great to see high numbers for mobility, indeed, $900 million coming through this quarter. We know that our marketing business is very robust coming into the season in the sense that you've got driving season occurring, of course. And you see that through the end of Q2 and into Q3. .

I think it's also fair to say that often with a lower price environment, we see our downstream business, but particularly marketing, actually being quite resilient in this. When we talked about Capital Markets Day, we were very much talking about value over volume and making sure that we focus on where we put capital.

So I don't think anything has changed from then. .

You see the results coming through in terms of value from certain areas, and we will make sure that we continue to spend more of our money there and fundamentally believing in the future of that part of the business. So you'll see us being very rigorous in terms of where we are. .

Thanks, Sinead. .

The next question is from Irene Himona at Societe Generale. .

My first question is on the second quarter group adjusted operating expenses. It was up 3.6% year-on-year. I presume maintenance had a part to play. Obviously, you have a target for a $2 billion to $3 billion reduction by 2025. And you have -- you will have initiated actions.

How long do you allow before we start seeing the benefits of those plans, please?.

And then my second question on Chemicals and the new plant in Pennsylvania.

Can you talk about where capacity utilization stands now? And how long do you anticipate to get up to norm? And then is the slow ramp-up by design, or were there some start-up snags perhaps?.

Thank you. You want to take the first one? I can take the second one. .

one is where we pay, and the second is how we play. .

So in terms of the where we play, what we see there, of course, is very much around -- that's very much top-down. And in terms of top down, that's about the decisions we make at the Executive Committee in terms of what our portfolio is. That you'll see quicker, you'll see that much faster.

And of course, you are seeing that already in terms of aspects where we've announced looking at Pakistan, hoping to get quite close to signing in terms of SERL the U.K. energy retail in homes for gas and power. .

So those are different examples. And that will be much, much faster. And you'll see that probably over the next 12 months, and you'll see us report right on that.

The other side of things in terms of how we play, that's much more, of course, as you can imagine, building from the bottoms up, and that's very much around getting the grassroots together and ensuring that we have everyone working with us. So that will take more time. You'll see that play out over a period.

And yes, we look forward to coming back to you with some real examples of that as it plays out, but assume that takes time. .

Thanks, Sinead. Irene, your second question. So Penn Chem, or what we call now Shell Polymers Monaca. Firstly, just again, the strategic context of Penn Chem. It's an important valuable asset for us. It sits in this catchment area where you have 70% of North American demand within a 700-mile radius. .

You are on a supply basis sitting right next to the Marcellus. And therefore, that Marcellus gas doesn't have to cross all the way to the Gulf Coast to be able to be monetized. And of course, there's fiscal advantages being there with the support that the Pennsylvania government provides for economic development.

So the fundamentals of the project are sound. .

It's a project that we expect to deliver some $1 billion to $1.5 billion of EBITDA when all is said and done. Where is the project at the moment? It has had a long ramp-up. No, this was not by design.

There were elements of it, of course, that were by design, but there were a couple of equipment issues that we've had to work on, and we are in the process of repairing that equipment. .

So no major issues, but it does mean that it has slowed down compared to what we would have wanted to be. So where are we at the moment? Two of the 3 polyethylene trains are up and running at or slightly above capacity at the moment. So roughly 2/3 of the plant is up and running.

The other -- third train is the one that's being worked on with one particular piece of equipment being repaired. And that's what the focus is on. .

We're expecting to be at full throttle by the first quarter of next year. And importantly, as we go through that, we are looking to certify a whole bunch of our 40 grades of products that we have there to be able to achieve the premium valuation for those products.

That will happen in stages, but that will take a bit more time, of course, once you have all 3 trains up and running. So it's coming, but it's taken a bit longer than we would have liked. Thank you for the question. .

The next question is from Lydia Rainforth at Barclays. .

Two questions, if I could. The first, I guess it has been 6 weeks now since we met in New York. So not that sort of long a time, but lots of energy to get things done. Can you talk us through what receptions you've had within the company? Because clearly, there were some highly publicized departures.

And how much do you think you can drive cultural change?.

And linked to that, Sinead, if I can come back to the OpEx side -- and thank you for the additional disclosure on the segment cost and the split between types of costs -- what do you actually want us to track with this? And [indiscernible], why, when you have cost control, and you can see it in your Upstream business, the cost coming down and yet is that marketing and Chemicals and Products businesses where the costs are going up.

Is that culturally something different between the 2 businesses?.

Great. Let me start with the reception of the company and then let you, Sinead, address the second one. Lydia, thank you for the question. I think firstly, Capital Markets Day was received as a significant addition of clarity to the organization. The issue we have typically had is not what we do, it's what we stopped doing. .

And so a lot of what we try to do with Capital Markets Day is to provide real clarity around a few things that we are doing. So let me just give you an example to be able to bring it to life. We had multiple, what we call, sectoral organizations, many sector organizations, trying to do their best to help that sector decarbonize. .

We had an oil and gas sector, for example, we had an agricultural sector and so on and so forth. Since Capital Markets Day, we have moved very quickly to be able to focus on the 2 sectors we said we want to really focus on, which is transportation and industry.

And that's just an example of, when we made the choice, at least it helps the organization then really channel their collective energy into that space. .

By and large, of course, there's been a lot of positive feedback from the organization. I'd be lying to you if I said there weren't some who were also questioning, so what does that mean in terms of energy transition? Not because of what they heard or didn't hear in Capital Markets Day.

But of course, there's also the media and the press which raises alarm bells in their minds. .

And the biggest reflection I've had is, because our energy transition strategy is sitting in March to be published, it just does mean there's a bit of a gap.

And so there's less of an issue around the culture of driving the organization forward, but making sure the organization fully sees that we are doubling down on both purpose and profit, not one or the other. .

And our ability to be able to tell that through the energy transition strategy will be an important part, while holding absolutely true to the capital allocation and the Capital Markets Day messages, because that is going to underpin how we go from here. Sinead. .

Yes. Thanks, Lydia, and glad you like the extra disclosures. What we're seeing here -- so 2 parts to your question really, was why are we seeing the costs going up in certain parts of the business, and is it due to cultural change. So on the first bit in terms of why we're seeing the costs going up.

It's very much just the differences of the underlying businesses. .

one is, specifically, we, of course, have some maintenance spend on Deer Park. .

Of course, as you know, that went down with the fire. And then secondly, we've got some restoration work going on in South Africa around a refinery that we have there. So that's more D&R type costs.

On top of that, of course, you're also seeing now Nature Energy and Volta, the 2 acquisitions that we did in Q1, both of which actually sits in our marketing business, playing through. .

So that's part of the ramp-up that you're seeing there. So that explains a little bit the $300 million difference that you're seeing between Q1 and Q2.

In terms of the cultural differences, I think the bit I would probably come back to is that in our Downstream business, there is -- parts of the business have the opportunity to, of course, use OpEx to generate more yield, more returns that are out there.

And you see that particularly the example I just gave you, Lydia, in terms of driving season and more advertising costs. So those are the differences rather than anything particularly cultural, I would say. .

The next question is from Biraj Borkhataria at RBC. .

The first one is just Q2 specific, the gas realization in the Upstream was much weaker than I had modeled. If I look at your gas realizations over time, you tend to track within the middle of the peer group or slightly above, and this is well below what we've seen from your peers so far.

So could you just walk me through why was there such a significant drop quarter-on-quarter and whether this is the sort of new normal relative to the benchmarks we can see out there?.

And the second question is on LNG Canada. I believe you took a fairly sizable impairment this quarter. I was a little bit surprised by the timing because normally the major projects start up before the impairments come through.

But could you just help me understand what's going on there and also the remaining book value of that project after the impairment?.

Thanks, Biraj. Both down your lane. .

Yes. Absolutely. Thank you. In terms of -- let me start with the second one first. So LNG Canada. So what occurred there it is largely LNG Canada, as you say, Biraj.

And as you know, when we look at impairments, we look at it from the point of view, typically, of it's around price, any portfolio change and effectively, the third one is typically about accounting mechanics. .

This one was in the accounting mechanics one, pure and simple, discount rates. So as you saw, risk-free rates changing, of course, that played into the WACC, and that's where we went up 1%. That's where it played in on this asset. And of course, when you look at this asset, you look at it across 3 elements again. .

Again, it's your Upstream, which we have good confidence in. As you know, a large part of the gas that's coming from this is coming for us from our own assets, Groundbirch and otherwise.

It's the midstream, which is an infrastructure play, not surprising that you would see on an infrastructure play with the rising interest rates that you would have an impact. .

And the third one is trading and optimization. Of course, under IFRS, we don't put trading and optimization in when we do the impairment. So that's the thinking around that. It's a 40-year asset. This is the accounting mechanics that came across. I don't think I have too much concern around that. It will change over time as we play through.

And of course, we're continuing derisk it. .

The other one, I think, Biraj, just to -- I find quite useful when I look at it as well, it is sizable, as you say, but we've got depreciation of some $5 billion to $6 billion typically a quarter in Shell, and this is about -- the equivalent of about 1 month of that.

So it just helps me put it into context as we run through an asset of that long of 40 years. In terms of your second one -- or your first one actually, which was around gas realization, I think there was a couple of things in there. .

Obviously, the weaker EU gas market, you alluded to that as well. A drop of some 33%, of course, in EU TTF. But also, we had a bit of a change in some parts of the portfolio where we went from term deals to spot deals, and that did play out here.

And then the final part that's really there is, of course, with the closure of the Groningen field, we're beginning to see lower volumes coming through and also then the weighting changes to other parts of the portfolio. That is why you saw lower gas realization coming through in the second quarter. I hope that helps. .

The next question is from Peter Low at Redburn. .

Just quite a quick one. So you've lowered the cash CapEx range slightly for the year.

Can you kind of give some color as to what's driving that? And then also you kind of touched on kind of your efforts to reduce operating costs within the business, but can you comment at all just on the kind of the wider cost environment that you're seeing out there and whether you're still seeing kind of inflationary pressures come through?.

Let me start with the second one, I'll come back to you, Sinead, for the first one. Inflationary pressure continues, Peter, of course. What we see at the moment is it's anywhere between 5% to 10%. And I'm talking here very generically and averaging, which is always risky.

And we are able to absorb around half of that, so potentially getting down to the 5% or so. And using our scale, our enterprise framework agreements to be able to manage the other half. .

What you see is it's a mixed picture at the moment. So you still have inflationary pressures on things like industrial gases, energy costs, any high-voltage equipment. So transformers, for example, what was a 12-month lead time is now taking 36 months. Those are the sorts of things where we continue to see the pressures. .

If you flip to the other side, steel prices are down, that helps, of course. There's other elements that we also see downward pressure on. So by and large, there's a handful of categories that we are really trying to manage carefully. .

Indeed. And cash CapEx, Peter, you're right, we brought it down from the $27 billion on the top to $26 billion. So the range of $23 billion to $26 billion for this year. If you look at the context of where we are, we have spent around about $12 billion for the first half of the year so far. So that gives you a bit of a feel. .

Of course, what we did coming out of Capital Markets Day, we were in the process of doing so was taking the same framework that we use there. So where do we want to spend our money. So a lot of that discipline is really showing through now. So you're seeing us be able to reduce down for this year as well. .

The next question is from Roger Read at Wells Fargo. .

Yes. Just a couple of questions for you. It's been some news during the last month or so since the Investor Day kind of talking about Shell looking at certain businesses that it might be more interested in exiting.

And I was just wondering, Wael, as you look at it, what are the decisions to exit a business? Is it as simple as the returns you see that you're generating right now, or are there some strategy things we should be paying attention to as well?.

Super. Okay. Thanks for the question, Roger. I don't know specifically what examples you're referencing, but let me sort of broaden, maybe, the response. I think what we try to bring across in Capital Markets Day is that this is going to be a management team that is absolutely committed to delivering more value with less emissions. .

And so at the core of the choices we are making, we are looking at, indeed, value, and you can use returns as a good proxy for that, as well as how we could potentially contribute to lowering the emissions of the portfolio, either on our Scope 1 and 2 or potentially investing to support Scope 3 reductions. And so that's a bit of the frame we use. .

What we have done, if I just sort of play out some of the choices we've made, take the recent sale, for example, or the announced sale this week of the Masela Block in Indonesia for up to $650 million, an asset we have been in for a while, and we had made the decision to get out of that asset. It's an LNG -- potential LNG asset. .

But we didn't feel that it would compete with some of the other capital choices that we had in the portfolio. And so we've made a very concrete decision on that one. Of course, in Capital Markets Day, we also announced things like the review of the assets in Singapore. We announced the sale of the Shell Pakistan asset. .

Those were much more in the context of really high-grading the overall returns of the portfolio. And both of those assets were not contributing in the way that we would like from a capital -- the productivity of the capital employed there.

Other considerations for us will tend to be carbon, the carbon footprint of the asset, will indeed tend to be like in our marketing business, is it a tail or is it a core part of the portfolio? And as we do that across the portfolio, we're looking to just really go after the quality of the asset base that we have.

High grade the quality of the asset base, be disciplined in the way we allocate new capital and over time, therefore, start to build a sort of competitive return that we would expect out of this business. Thank you for the question. .

The next question is from Henri Patricot at UBS. .

Two questions, please. So the first one, following up on that topic of disposals, there have some reports recently that you could be considering selling a stake in the Renewable Power business.

I was wondering if you can comment on that, whether that's something that you'd be considering in [indiscernible] implication in terms of the timing, size of disposals in renewables that you mentioned last month?.

And then secondly, just on the European gas market. We're seeing quite a bit of volatility in gas price at the moment. It looks like from a European gas storage situation, we should be full before the start of the winter.

Can you give us perhaps your view on possible scenarios for the next the 3 to 6 months or you see the potential upside risk for European gas prices?.

Sure. Thank you, Henri.

I'll take the first one, if you want to take the second one, Sinead?.

Sure. .

On the media coverage of what we were looking at -- what we are looking at, look, if I go back to what we said in Capital Markets Day, we continue to believe that there is an opportunity space for us in integrated power that allows us to be able to achieve differentiated returns.

But it's a limited space, right?.

It's a space where we potentially have advantaged trading capabilities in that market. It's where we have a customer reach, because we're not convinced that we have a differentiated capability in renewable generation. Having said that, we have a 40-gigawatt funnel of opportunities in the renewable generation space. .

And so it's only natural that we would be looking to go after the market, not necessarily with -- let's sell this or do this, but really looking at how do we attract partners, funding, to be able to continue to high-grade the potential returns that we can get from this portfolio.

And you would expect us, of course, to do that, just to make sure that if there are opportunities to attract lower cost capital, higher competence in operating something, then we should be looking at how we monetize that. .

No decisions taken. And we don't have a narrow lens on this. We are just really exploring what the potential options are so that we can follow through on our -- on what we have said we want to do. Sinead. .

Indeed. And Henri, I think you're completely correct that there is certainly sufficient supply of LNG and pipe gas at the moment in Europe without a doubt. You're seeing certainly quite weak demand. And that's, of course, a combination of both weather at the moment and a reasonably slow ramp-up from China as well. .

If it continues as it is, yes, I think Europe will be in a good position out of the summer [ with ] heading towards certainly -- hopefully towards 90% of storage full. But of course, it can play out very, very thinly. So it can go in many, many different directions.

And particularly, we will watch very closely to see what China does, because that thin balance could mean it changes very, very rapidly. .

The next question is from Christyan Malek at JP Morgan Securities. .

Just two, if I may. First on just the recent German wind auction, 7 gigawatts. I'm not too sure whether you participated or you didn't -- you lost, but we just had one of your competition talk about how solid the returns are and in terms of potentially elevated power prices and being able to optimize.

I wonder, what is it about that project that you decided not to participate in?.

And how that sort of relates back to your agenda to be ruthless on returns, particularly as some of these big projects are coming in without subsidies? That's my first question. And the second question is on Namibia. I know the flow rates are very strong and had lots of very good data points.

But I wonder -- just talking to industry, I get the sense that it's not so clear how long these wells can flow for.

So I wonder whether you can talk a bit about the efficacy in terms of just duration of these wells, given we know a lot more about sort the flow rates and how strong the potential is?.

Thank you, Christyan. I'll take both. I think on the first one, so on the German offshore wind, we did participate. We actually like that market. We have a strong trading position in that market. We have a very strong customer base in that market.

So it was very natural for us to see that as one of the markets where if we could also get access to the green electrons we could create real value. And we competed hard within the range that we had guided in Capital Markets Day, within the 6% to 8%. .

But we lost. And we weren't willing to change our parameters around that. I can't speak for others. I think our focus was to make sure that we honor that return basis that we had committed to. And we couldn't even, despite our ability to be able to leverage trading and our customer base, we just couldn't compete.

And so I leave it to others to benefit from that opportunity. .

On Namibia, I think just stepping back, I mean Namibia for us continues to be a fantastic opportunity because it plays into the strength of our portfolio in deepwater, in particular, the Atlantic margin portfolio. Brazil, Gulf of Mexico, Nigeria, and this is in another sweet spot for us to be able to leverage our capability. .

And here, in particular, a shoutout to the team that we have in our drilling organization, they are drilling wells safely faster and cheaper than any other competitor can do in the deepwater space. And that gives us a real advantage as we go into Namibia. We've already drilled 4 exploration wells and 1 appraisal well in a very short period.

I mean this is a different pace of Shell than I think you have seen in the past. .

And it plays to that culture of performance, discipline and simplification that we're trying to drive. What we see right now is encouraging, including all the data I talked about, including the flow test that we did in May, which produced. What we need to make sure is -- this is a big area. We need to continue to derisk it. .

And even if the volumes are there, I think to your point, we just need to see how the subsurface is behaving in different parts of the field to make sure we understand the porosities and permeabilities, and so that we can make -- we can assure ourselves that any development there, if we so proceed with one, is of an economic attractiveness that is meeting our thresholds and our expectations.

.

More to come on that in the coming months as we derisk it further. But of course, we have a lot of knowledge from many other parts of our deporter portfolio that -- trust me, we are putting it all into Namibia to make sure that we are in a position to get to that determination soon. .

The next question is from Martijn Rats at Morgan Stanley. .

I have two. I wanted to ask you about the balance sheet gearing, because at the Capital Markets Day, I think there was a comment about targeting to pursue a AA credit rating. And given that it's only sort of 6 weeks since, as Lydia pointed out, we're now $0.5 billion of incremental share buybacks.

And I was wondering how that jives with the target to get to AA?.

It sort of at least raises the question that might not be quite such a priority. But if that is not quite such a priority and that has forward-looking implications, then maybe -- well, maybe more of the free cash flows can be made available for distribution if less of the free cash flows need to be used to pursue that credit rating upgrade. .

So in that sense, actually, this sort of targeted level of balance sheet gearing is quite an important one, and I was wondering if you could say a few words about that.

Is the balance sheet already actually broadly fine for the long run at this level of gearing? And the second question I briefly wanted to ask as a follow-up on Biraj's question about LNG Canada. .

I can see if the discount rate changes, then of course the net present value of the project sort of diminishes. But the reason why we have higher interest rates is that also the inflation outlook has changed.

And given that many commodity prices are effectively real assets, you can reasonably expect that when we have higher inflation that, of course, also future prices -- future commodity prices should be higher. .

And in that sense, I would have expected -- and even if you sort of changed the discount rate, you might have changed your price expectations and the impairment might not be necessary.

Has this also fed through your sort of updated model for the project, orr is it -- or has that not been done? Because frankly, the LNG price outlook looks different from -- also looks different from the moment when the project was FID-ed?.

Martijn, thank you for those 2 questions, which I'll pass on to Sinead. .

Super. And really good questions, Martijn, on the second one, so I'll just take it quickly, actually what you see is when we do the impairments, we don't include much of the T&O, so there's trading optimization value in there. So you're very on point about prices and how that flows through.

There's only a very small part of it that actually gets updated into the actual model. .

So you're seeing much heavier weight on the discount rate than you are actually on the optimization that we can do through moving cargos to different places. So that explains -- but yes, you're spot on. There is a bit of a difference there. The first one was around the balance sheet.

And really, where we are there, as you say, we have reduced in terms of the gearing, we've reduced the debt pile down considerably over the period. .

We've had a very good quarter, as you know, in terms of cash generation. And really where my thinking goes through on this is simply it's less around the metrics. It's more about thinking about how can I allocate the cash at the end of the day.

So in a stronger quarter or a good quarter from a cash point of view, I'll take that opportunity to reward both shareholders and to strengthen the balance sheet. .

And that's what you tend to see. So in this case, you saw both happening. So you saw it hitting in terms of bringing us down to just over $40 billion, and you also saw us being able to reward shareholders with some $3 billion in terms of the buyback. In terms of -- we'll have different quarters.

We'll have different ones where we are higher on maintenance, where we have much more significant working capital moves, whether that's outflows or whatever. .

And in that side of things, you'll see us -- you see my thinking will be much more about -- how do I say this? -- how do I make sure that I actually reward the shareholders at the same time. So you'll probably see me lean more on the balance sheet at that point in time.

But directionally, per your question, do I want to go further on the balance sheet? Yes, directionally a little bit more in terms of there, but it's not significant in my mind, given how far we've come so far. I hope that helps, Martijn. .

The next question is from Christopher Kuplent at Bank of America. .

I think I've got two questions. And the first one, I apologize, just shows you how simplistic my brain works.

But if you add up the cost of your dividend, the buybacks that we now know across at least 3 quarters plus the 2.5 floor for the fourth, is that a way of -- I accept simplistic and stupidly -- gauging at the high end of your 40% payout ratio your view of CFFO this year?.

Just trying to really, without wanting to be stupid, getting to your definition of, hey, this is my through-the-cycle payout ratio because the number that I get to is not low in terms of the implied CFFO. Question number one. Question number two, following on from the net debt comments just now.

These are round numbers, and I do like them, $65 billion was the target not so long ago. .

And that was tied to a 20% to 30% CFFO payout ratio. You're now at EUR $40 billion net debt. And you're happy with a 30% to 40% payout ratio. Is there a number for net debt -- as you just said, you'd like to see that go down further -- where you would then be prepared to further increase the CFFO payout commitment? That's it. .

Thanks, Chris. Both to you. .

I know. And Chris as usual, they are far from stupid questions, as you well know. On the first one, you're correct. When you start adding it up, where are we sitting? We are sitting towards the high end, you're correct. Indeed, so I will be -- at the moment, we're looking at over the year, where will we be? Probably above 35%. That's very clear.

You can see that. And in terms of this quarter, we're sitting at some 38%. .

So you can see the high views on that. So that gives you a view of certainly the strength of -- our perceptions of the strength of the cash flow from the underlying business is correct. I would say, though, the other thing I would comment on is, I said this a few times, I don't just look at it quarter-on-quarter. You're right.

I do look at it across the year. I also look at it beyond that. .

So it's about the future cash flows of the business as well. So it's not quite as narrowly just calculation I'm doing literally a quarter-by-quarter, although I do watch those metrics very carefully.

In terms of the second one in terms of net debt, I smile because you're trying to draw me into, am I going to reset CFFO distributions or anything like that, which I'm not, Chris, as you can imagine. .

But you're correct that we have brought down the debt considerably. We've managed to strengthen the balance sheet as a result of that and be able to push more towards our shareholders. Now I'll say it again, the quarter has moved. So this is about us. We're investing over, of course, years upon years in cases of decades. .

So we're trying to be very pragmatic in the view as to how we do this. And I will lean on the balance sheet from time to time to ensure that I can reward shareholders in a pragmatic manner as well. So I won't go further than that to be drawn into what happens if my debt goes down lower and whether I would increase. But thank you for the question. .

The next question is from Kim Fustier at HSBC. .

Firstly, could you talk about how a higher interest rate environment affects you in general, but particularly in Renewables? Are you looking for higher target returns in order to maintain a decent spread over WACC? I know you talked about a 6% to 8% target unlevered return in renewables, but don't risk-free rates of 5% or 6% made that look a little bit too low?.

My second question is on Integrated Gas.

Beyond the seasonality effect that you've already outlined, how do we think about a new normal for LNG marketing and trading profits? I think at the CMD, you said the business makes money, broadly speaking, from 3 things, prices, spreads and volatility, and that it was unlikely that all 3 would be lower at the same time. .

But it seems to me that that's pretty much where we are today, prices and spreads are lower and volatility is also a lot lower than last year, I mean, despite some [ bouts ] of volatility. So any help around that would be great. .

You want to take both?.

Sure. In terms of -- I'll start with the second one, actually, Kim, so thank you for that.

In terms of LNG, what we saw is -- the way I tend to look at the LNG market, as you say, is very much around seasonality, it's around the price, it's around volatility, but I can look at it in a different manner as well, which is really by access to the volumes that we've got coming through. .

And then the opportunity for what we do with it, which is very much the same way we're talking about. IG had a great quarter. And to be frank, in terms of good operations, it was good volumes coming through. But it was about seasonality. So what we have said before is that we're very much focused on Northern Hemisphere.

So we're very much set up for Q1 and Q4. So you see a split into that manner. .

That means that we have much less length in Q2 and Q3. So if you were to look back at the previous year, you see pretty much the same thing coming through. So yes, price wasn't there, volatility wasn't there, but we didn't have the length anyway to take advantage of that. We had exactly what we would expect to have coming through in this quarter. .

And of course, what you see next quarter is very much we have, as Wael alluded to, we have quite a bit of maintenance coming through in terms of our outlook. So you can see it in there, very much around Trinidad and Tobago and also, of course, Prelude. So you'll see some of the access to molecules coming out. .

In terms of the first one, in terms of higher interest rates and returns, 68%, it really is around the Power side, as we've talked about before. We're very much looking at the integrated value. So you're right.

Those interest rates, although they do make it -- they're actually influencing quite interestingly in terms of the attractive opportunities on acquisitions and all, so you do see that coming through, but we do think about it long term as well. .

For us, what we're looking at typically, when we're looking at any of these renewables players, is about where can we do the uplift, and where we actually make the money is round the trading and optimization, again.

But it will be interesting to see how with this level of interest rate, the market actually plays, which I think is where you're going to, Kim. Just what do we see? Do we see actually it start to stagnate, do we see people with heavy borrowings start to have problems? So that's going to be an interesting one to watch. .

The next question is from Lucas Herrmann at BNP Paribas. .

Two, if I might. I just wanted to go back to Peter Low's question on gas pricing, which I don't think you answered the second part of it, which was in essence, when we look at European prices, what we're seeing, or is what we saw through the second quarter, a representation of change.

So should we be expecting something near $4, $5, et cetera, rather than the numbers that we would have seen historically?.

I also am not quite sure how pricing could be that -- is quite as low as it is. And the second question, I guess, stays with gas as well. Sinead, last year, big build in working capital into the third quarter as you put gas into storage looking towards the winter season.

Should we be expecting something similar this quarter? Can you give us any indications as to how we should be thinking about working capital moves from the underlying business rather than necessarily price over the course of the Q3 period? That's it. .

Thanks, Lucas. I'll take the first one and let you take the second one, Sinead. Lucas, on the first one, so a couple of dynamics playing at the moment. If I start with the demand side, firstly, what we see in China, maybe start there, is softer demand than what we had anticipated coming out of the pandemic, in particular in industry. .

On the mobility side, actually, we see strength. So we see quite a bit of activity in our marketing business in China. We see it on aviation, but we don't yet see it in industry, in particular, export-oriented industry. And so that means there isn't the same yet amount of pull, though there are signals that it is improving slowly.

You add to that to the fact that your storage levels in North Asia are high, Japan and Korea both have relatively high storage levels, and in Europe are high. It does mean that the gas price and the prompt is weak.

You had a couple of wobbles over the last few months when there was questions around outages from the Norwegian pipelines and the like, but that was just noise and level back off. .

That doesn't take away the reality that if you look a bit longer term into, in particular, going into this winter, and if you say come end of this year, if there is pressure on the storage levels because of it being a colder winter than anticipated or if you start to see a bit more buying by some of the more price-sensitive players like India and others, you can very quickly get into a tighter situation.

.

How that plays out, there are just too many variables at this stage to be able to determine. And so I wouldn't want to give an indication of pricing other than to say softer in the prompt and potentially stronger as you go into the medium term.

Sinead?.

And Lucas, in terms of the second part of your question, which was really around inventory excluding price. What can we expect to see? On this one, I would look at it first much more in terms of structural versus nonstructural.

So what you see is, coming through into sort of Q3, a little bit of build, particularly around some of the driving season aspects. So there is a bit of structural there. .

So you do see some come up because -- and then that tails off into Q4 as we come out of that. In terms of the nonstructural side of things, it's really what you're alluding to in terms of the gas injection.

So that -- very much last year when, of course, the market was tight and there was a real worry about a cold winter, we took quite a big opportunity to inject there. .

Given where the market is, I won't go into where I would speculate on the market and our strategy around that, but one could look at it now and say that there's not that much shortage in the market at the moment. But it will very much depend on what the opportunities are and what our views are in terms of the winter as it concludes.

Same thing to say on oil supply to be perfectly frank, in terms of -- you hear a lot in the market about a risk of sort of limited capacity or spare capacity in terms of where OPEC's going with its cuts, et cetera. .

In the same way we would look to take storage opportunities or options at that point, but that will depend on different things that will come through. So it's very much nonstructural. .

The next question is from Henry Tarr at Berenberg. .

Two quick ones. One on LNG Canada, again, post the impairment. Does that have any implications for a second phase of that project or not really, either from a returns perspective or anything else? And then secondly, could you give a quick update on Pennsylvania and the cracker? That would be great. .

Okay. Happy to cover both. And Henry, I talked earlier about Pennsylvania, so maybe I'll just quickly connect that back up again. So on the Pennsylvania one, I tried to reference the strategic advantage of our cracker there. Multiple dimensions, supply, demand, as well as the fiscal advantage. 2 of the 3 polyethylene trains up and running.

The third one is has some technical issues, which we are working through and expect it to be up and running by the first quarter of next year. .

LNG Canada, I'll use the same frame. LNG Canada continues to be an advantaged asset, a really advantaged asset. You have, in essence, a captive export scheme for Western Canadian gas. You have a demand -- a market -- the Asian market, that is within proximity.

And you have, in essence, the cleanest, most -- the lowest carbon intensity LNG out there in the market, all coming together at a good point in time for those volumes to -- all of which will be full flexibility portfolio volumes for us, something which we, of course, like a lot. .

All that coming together around middle of this year. That's a project that now is over 75% complete on the midstream, over 90% complete on the pipeline. So it's coming along nicely. All the major units are either at the plant or are en route to the plant. So knock on wood, all seem to be going well.

Phase 2 is going to -- the impairment itself does not impact at all our view on Phase 2, back to all the reasons that Sinead explained around this being more driven by accounting. .

And of course, while the asset itself is very attractive for us, a big part of the attraction is also the optimization opportunities that full Flex LNG cargoes offers us in a portfolio like ours. And that doesn't change, of course.

And so what we will do is we will wait for the joint venture to have put their best proposal forward, and with the other joint venture partners, we will assess it and make a decision at the time. Thank you for the question. .

Today's final question is from Paul Cheng at Scotiabank. .

Two questions. First, I don't know whether it's fair [indiscernible], but if you look at over the past 8 quarters, your Chemical operations lost money in 6 of them. We understand that you put Singapore up for review or maybe for sale.

But other than that, I mean, is the rest of the portfolio is [ really ] performing according to your expectations or that we have some structural issue with the whole organization?.

And if they are some structural issue, what step then you are taking in order to make a [indiscernible] on that? And secondly then, there was a Wall Street Journal article recently on -- about the offshore wind project seems to be struggling, at least in the U.S.

and including you and some of your competitors, may be going back and trying to renegotiate on the terms.

So maybe there you can give us some idea then, I mean, how you look at the offshore wind, that market? Is it still considered as a reasonable market for you or meeting your criteria or [indiscernible]?.

Thank you, Paul. Do you want to take the second question first, I'll come back to the first. .

Sure. I think, Paul, offshore wind is a tough market, without a doubt. And it's always been tough. And of course, you've got inflationary pressures. You've got a multitude of issues going through there at the same time. A lot of people are, as you say, looking at trying to renegotiate, looking at the terms and conditions there.

And of course, we're no different than anyone else. .

We look at their value, and that's very much what we brought back in Capital Markets Day, very much a focus on driving the right returns for the risk that we take and getting the value that's there. So indeed, we will continue to do that. I think the market has a lot of work to do in that space to look at actually ensuring the right returns are there.

.

Super. Thanks, Sinead. Let me let me take your first question there, Paul, and then look to wrap up. If I reflect on it from a capital employed perspective, half of the capital employed in our Chemicals business sits in Shell Polymers Monaca, the Pennsylvania plant.

So the biggest thing we can do for that half of the capital employed is get the kit up and running and delivering at the premium levels that we need it to deliver so that we can achieve that $1 billion to $1.5 billion of EBITDA that we expect to get out of the facility. .

And so all hands are on deck to make sure that we are ramping up, we are certifying the grades and moving forward. That's how we want to handle the 50%. Of course, it hurts from a returns profile when 50% of your capital employed is not yet productive to the extent that you want it. So that's a key urgency for us. .

You've touched on Singapore, I would also add our review asset by asset of Europe, where we could potentially high-grade the returns on those specific assets. The rest of the portfolio is in good shape, the other 30%.

And so what we're trying to do is to move quickly to be able to address the start-up -- the healthy startup and sustainable start-up of Monaca of Pennsylvania to make sure that we move on the strategic reviews that are ongoing, and to continue to do what we can to be able to move further and further towards top quartile when it comes to operations. .

So we're pulling every lever we can to give ourselves options to be able to really create value out of this portfolio. That's what I would say. I think just in closing, and I know you didn't ask this, Paul, but I think given we're at the midyear point, maybe just worth reflecting for a moment.

I think firstly, thank you to all of you for the support over the last few weeks. .

We have taken up quite a bit of your time. And I recognize between Capital Markets Day, the dinner and all that, you spent a lot of time on Shell. So thank you for that. I can tell you, coming back into the organization, we're excited to move from framing the opportunity to now delivering it. And we have great opportunities. .

This management team, we spent a few days together last week really focused on now how are we going to deliver these outcomes.

How do we get performance discipline simplification to go to the next level in the organization? How do we frame more value, less emissions, in the way we are making choices project by project? And how do we make sure we overdeliver on the 6% free cash flow growth per annum to 2030 and the 10% free cash flow per share growth for 2025?.

You have a management team that's committed to be able to delivering that, and we're excited by the opportunities we see. And we'll make sure to keep you informed as we go through the coming months and years.

As Sinead rightly said, this is not a quarter-by-quarter battle, this is going to be one of every single day, getting to the quarters and then getting to the year and delivering on the promises that we have set out. .

Those of you who are taking some time off, I wish you a restful break. Thank you for joining us today and look forward to catching up with you at the next occasion. Thank you all..