Marsh & McLennan Companies Inc

NYSE:MMC

Welcome to Shell's Fourth Quarter 2024 Financial Results Announcement. Shell's CEO, Wael Sawan; and CFO, Sinead Gorman, will present the results. They will then host a Q&A session. [Operator Instructions]

Welcome, everyone. Today, Sinead and I will present Shell's Fourth Quarter and Full Year 2024 Results. 2024 was another strong year for Shell. Despite some softness in our Q4 earnings impacted by some noncash items. This year, we delivered the second highest cash flow from operations in our history. The culture that we are building with a focus on performance, discipline and simplification has been key to achieving these results, enabling us to make great progress in delivering more value with less emissions.

Let me start with safety, which remains our top priority. Whilst I'm pleased with the improvements we've seen in personal safety this year, we must continue to do more on process safety and focus on delivering the fundamentals. We will focus on returning to the downward trend of previous years, including leveraging new technologies such as sensors, robotics and AI. These technologies have already started to have an impact, but there is so much more running room to go, and I'm encouraged by the progress that we are starting to see.

Now on to Capital Markets Day 2023 and the progress that we are making against our targets. CMD '23 was an important milestone for us. And due to the efforts of so many across the organization, we are ahead of schedule across the majority of our key targets and ambitions. Starting with structural costs, where we achieved a reduction of $3.1 billion by the end of 2024, 1 year ahead of our end 2025 target date and above the range of $2 billion to $3 billion that we set in 2023. The first year of these reductions was more heavily weighted towards portfolio actions, but we have now entered the phase that increasingly leans towards reducing costs through performance initiatives and simplification.

On CapEx, I'm really proud of the discipline that we have shown, whether that be through the pausing of projects such as our biofuels project in Rotterdam or passing on opportunities that did not meet our high bar for investment. At CMD '23, we lowered our CapEx range from previous years. And in 2024, because of our focus on value creation, our CapEx number ended below the lower end of our guidance. All of this, together with our improved operational performance enabled us to outperform our targets for absolute free cash flow growth and free cash flow per share growth. And we have distributed this additional cash to our shareholders. At CMD '23, we increased our distribution range from 20% to 30% of CFFO to 30% to 40%, and we have delivered at the top end of that range. In 2024, we returned more than $22.5 billion to our shareholders, primarily through buybacks, just as we said we would. All of this while further strengthening our balance sheet.

Moving forward, we will continue to preferentially allocate incremental capital to buybacks given the attractiveness of our shares, which are underpinned by the significant progress that we are making as an organization.

Now let's look at how we are delivering less emissions alongside more value. In 2024, we abated more than 1 million tonnes of CO2 from our operations. This allowed us to keep our total Scope 1 and 2 emissions, roughly flat compared with last year despite increased asset utilization. To date, we have achieved 60% of the reductions required to meet our 2030 target. Methane emissions remained well below our 0.2% target for 2025 and routine flaring remained flat year-on-year. And we achieved a reduction in the net carbon intensity of the products that we sell, moving us closer to our target of a 15% to 20% reduction by 2030 compared with 2016 levels. Progress against our carbon targets will not always be linear, but our plans are clear, and we have shown that when we commit to something, we deliver it.

Let's now move to the progress that we've made on strengthening our portfolio. In our Deepwater business, we saw Whale and Mero-3 come online, adding significant production volumes. At CMD '23, we said we would deliver new projects with more than 500,000 barrels of oil equivalent a day of peak production by the end of 2025. Today, we've delivered over 80% of that with 2025 just beginning. In addition, we took a final investment decision on Bonga North in Nigeria this quarter, a project that's expected to deliver peak production of 110,000 barrels of oil per day, another example demonstrating the strength and attractiveness of our project funnel.

Earlier in 2024, we also further strengthened our leading integrated gas portfolio through the acquisition of Pavilion. We entered into the Ruwais LNG project in Abu Dhabi, and we took final investment decisions on a number of important projects, such as Manatee in Trinidad and Tobago. And we continue to look for innovative ways to unlock value across our existing portfolio. In the North Sea, we recently announced an incorporated joint venture with Equinor, adopting a new business model to deliver more value from our existing U.K. assets. In Downstream and renewables, we continue to strengthen and high grade our portfolio. In mobility, we completed the divestment of Shell Pakistan, helping us achieve our Capital Markets Day aim of disposing of 500 sites annually. At the same time, we have now installed more than 70,000 EV public charge points globally, achieving yet another aim 1 year ahead of schedule.

In Renewals and Energy Solutions, we completed the acquisition of a combined cycle power plant in Rhode Island, and we are progressing well with the construction of our Holland Hydrogen I project, which will be Europe's largest renewable hydrogen plant once operational.

And in Chemicals, we took a final investment decision to expand our CSPC petrochemicals joint venture with CNOOC and Daya Bay, China. We are focusing the portfolio in areas where we can create value whilst also ensuring that we take opportunities to high-grade and all of these decisions are leading to improved delivery across the company.

And with that, I'll hand over to Sinead, who will tell you more about our financial results and financial framework.

Thank you, Wael. Let's start with adjusted earnings, where we delivered $3.7 billion this quarter. Whilst cash flow was strong, adjusted earnings reflected a lower macro and noncash items, such as well write-offs in addition to lower trading and optimization. This was partly offset by another quarter of strong operational performance.

Our cash flow from operations was some $13.2 billion despite normal Q4 cash outflows, such as the annual payments for the biofuel programs. I mentioned the strong operational performance this quarter. But if we take a step back and look at 2024, it was a year of improvements across the organization. Integrated Gas and Upstream performance improved year-on-year. At Prelude and QGC, we achieved record availability resulting in their highest-ever production.

In Chemicals, we saw improved utilization, thanks to the ramp-up of all 3 units at Shell Polymers Monaca. And in marketing, we achieved the strongest annual adjusted earnings since 2020 at some $3.9 billion, just missing our end 2025 target despite a higher oil price than premised. Mobility in lubricants had a great year, with lubricants delivering its highest result. All of this enabled us to achieve a full year adjusted earnings total of $23.7 billion. And on cash, we generated $54.7 billion of CFFO, our second best year on record, whilst our free cash flow was $39.5 billion, higher than 2023 despite the lower price environment.

Moving to our financial framework. Our 2024 cash CapEx totaled $21.1 billion. We were able to invest for growth across the businesses, whilst also maintaining a high bar for investment. Our cash CapEx range for the full year 2025 is expected to be lower than our 2024 range. We will provide more specific guidance at our upcoming Capital Markets Day. We further strengthened our balance sheet and reduced net debt by $4.7 billion year-on-year whilst absorbing additional leases from major projects such as LNG Canada.

We continue to deliver compelling shareholder distributions. Today, we announced another $3.5 billion share buyback program, which we expect to complete by the Q1 results announcement in May. This is the 13th consecutive quarter in which we have announced $3 billion or more in buybacks. In addition, earlier today, we also announced a 4% increase in our dividend, in line with our progressive dividend policy, delivering even more value to our shareholders.

And with that, I'll hand back to Wael.

Thank you, Sinead. 2024 was a strong year for Shell, and we made significant progress towards our targets. I'm proud of the hard work and dedication demonstrated across the organization that has driven these achievements.

Our operational performance has improved. We brought some outstanding projects online, and we've taken final investment decisions that will help strengthen Shell for years to come. Putting aside our strong delivery, 2024 was also an important year for us given the external context. We're pleased with the Dutch court's ruling in favor of Shell in the MD case. We continue to believe our strategy is the right one for the global energy transition. And as a result, we will deliver more value with less emissions. As we build on the momentum that we have created, we aim to be the investment case through the energy transition.

Now I'd like to highlight 2 upcoming events. First, our annual LNG outlook, which will be published on the 25th of February. And then on the 25th of March, we will host our Capital Markets Day in New York where I really hope you can all join us as we outline the next steps of our journey. Thank you.

[Operator Instructions]

Thank you for joining us today. We hope that after watching this presentation, you've seen how we delivered strong results this year and how we are delivering on our targets. Today, Sinead and I will be answering your questions. And now please, could we have just 1 or 2 questions each so that everyone has the opportunity. And with that, can we have the first question, please, Seymore.

Our first caller is Lydia Rainforth from Barclays.

When I think about the G&A, there's obviously been a lot of progress that you've made from 2023. So can you just talk about what philosophy you want to take going forward to help realize some of the value in the shares that you talked about? Are we thinking about now the base has been really good? So you can think about more of a radical agenda in a kind of [indiscernible] fashion. But are you thinking that continued consistency and approach is probably still the best one for you?

And then secondly, can you just talk about access to reserves in Canada? Because obviously, we've had the debooking of Groundbirch and as you think about the ramp up of LNG Canada and potentially a function of Phase 2, do you have enough access organically to gas molecules in Canada? Because when I think about CapEx and just that organic versus inorganic discussion?

Lydia, thank you for those questions. I'll take the first one and maybe Sinead, if you want to pick up the second one. On your first question, so what's the philosophy? I think where we started in 2023, we said very clearly, we have an organization that has an amazing set of assets, a great portfolio, a great set of capabilities and that what we needed to do was to build a couple of key things. One, we needed to be able to make sure we consistently deliver results and do so through the cycle. So that point around consistency will hold not just for today, not for tomorrow, but I think throughout because we are still in a capital-intensive cyclical industry where value is created through the life cycle and what we want to try to do is make sure that we focus on the areas like performance, discipline, simplification and inculcate that into our culture because I think that's a critical part of what we do. And part of the consistency is not just the delivery, but also the distributions, which is what you see us doing, 13 quarters in a row of $3-plus billion, we need to create that.

I think the second key piece we want to continue to do is to create a machine -- a Shell machine that also has resilience through the cycle, that we can generate cash to be able to take some of those countercyclical opportunities to have a healthy balance sheet to be able to do that. And that's what we are trying to establish. Now we have moved a long way. Capital Markets Day '23 to now you have seen us, in essence, do what we said we're going to do or a bit more. And of course, I'm playing out the structural cost reductions and the like. And so from here on, it's going to be -- we still have a lot more to do, and we have a bit more range now to look at other things, and you'll hear more about that, of course, in Capital Markets Day. Sinead?

Thanks, Wael. And thank you, Lydia. Indeed, on Groundbirch, so 2 parts to that a little bit. So first of all, around the debooking and related to the reserves and then about what do we actually need. So first and foremost, yes, as you know, SEC bookings, et cetera, are very highly regulated, so they follow a specific process. And in this case, it was really around the YAP, so the year average pricing that played out, which meant that the Groundbirch volumes got debooked as you know, that came about because of very low AECO pricing, which, of course, is due to almost the thinking process around LNG Canada coming up, so what people were doing was getting ahead of it and being able to produce the wells early on to sell into the market. And that, of course, drove the price down when Henry Hub was already very, very low and they had no ability to evacuate down to the U.S. So technical debooking. And of course, as you know, what we focus on in reserves very much is always around our contingent resources and the ability to extract value across things rather than the technical aspect of it.

Second part of your question, of course, was around what do we actually need. And with LNG Canada, which is great progress and hoping to move forward towards the first cargo of course, middle of the year, same as we've talked about before. We've also talked about the ability for us to either buy in the markets or AECO directly or to be able to produce our own volumes. So we have that beautiful hedge implicitly in that, so what we see now, of course, is with very low AECO pricing. If it stays like that, I don't expect it to. But if it were to stay like that, we would be able to just take our own -- sorry, to be able to take from the market and we will not actually produce that much in. The alternative, of course, is if we are lower than where the market goes to, we will produce our own numbers. LNG Canada Phase 2 is also the part you brought to, that's for the future, and we look forward to working towards a proper decision on that. But at the moment, it's about getting LNG Canada Phase 1 up running and getting the cargoes out.

Thanks, Sinead. Thank you, Lydia, for the questions. Seymore, can we go to the next question, please?

Our next question is from Doug Leggate at Wolfe Research.

Wael and Sinead, I wonder if I could take 2 completely different topics. The first one is with the Nigerian announcement that they have approval at the end of December, and obviously, Singapore is still pending, and I think you have the power sales or reduction in terms of your interests currently pending. Can you give us an idea of where things stand on the disposal visibility for 2025?

And my follow-up is really on the progress on the cost cutting, obviously delivered the full number, 80% of the 500,000 barrels a day. You've done a lot of things that have really reset the balance sheet. At what point would the dividend growth start to get a bit more attention over and above just the pace of the buyback? Because at least from our standpoint, that seems to be what's holding back that market recognition of value?

Let me touch on the first one without giving a specific number at this stage and then maybe if you want to talk about the second one, Sinead. Let me just maybe pause there, Doug, and just update you on where things are. I mean I think firstly, on Nigeria, indeed, as you said, consent came through. We're still reviewing the conditions of that consent and are engaging with the regulator to be able to close that. That sort of will hopefully play out through the course of this year. .

Singapore, we're weeks away from hopefully getting to that completion. An important milestone for us and indeed another proof point of doing what we said we were going to do. And then from a power perspective, we have, of course, evolved our strategy into one that is much more focused on how we are able to offtake electrons, with investments in batteries, but essentially also looking at flex investments, all to take those offtake -- those electrons through into our trading organization, which continues to be a real differentiated capability. We're not putting numbers out there in terms of each of those, what we're realizing in terms of proceeds. But I think suffice it to say that where we are focused is very much maximizing value from those divestments and strategically moving that capital into areas that we see more productive opportunities for ourselves in. Sinead?

Indeed. Thanks, Doug. And certainly, your recognition of what we're doing in the company is appreciated. And as you say, it's beyond just cost cutting. It's about actually changing in the overall company. So yes, OpEx is down. Yes, CapEx is down. But fundamentally, this is by driving value. And you know we have a free cash flow per share metric, and that's very much our focus by creating value for each and every shareholder. So in terms of distributions, we have consistent distributions, as you know, in terms of both the progressive dividend, hence the 4%, but also in terms of the buybacks. So remember, 13th quarter in a row, $3 billion or above, which is giving you a bit of a feel for that consistency and the thought process behind it where we really value that and have a preferential distribution towards buybacks of the marginal dollar. And of course, it just makes sense for us. Buybacks are a great investment in our undervalued assets, of course, particularly when it's at this sort of share price, and that's where we focus at the moment.

Thank you, Sinead. Thank you for the question, Doug. If we can go Seymore to the next question, please.

Our next question is from Matt Lofting at JPMorgan.

I'll ask 2, if I could. First, just reflecting on your earlier comments, execution on the strategic Sprint phase has been very effective through the last 12, 18 months. I wonder the extent to which delivering on aspects like the cost reduction objectives so early, indicates the opportunity set that you see to enhance value and margins within Shell's existing asset base is even greater than perhaps you initially anticipated. I wonder if you could just share some thoughts on that?

And then secondly, integrated gas and hedging. It seemed that noncash derivative and hedging effects in IG were a key component of the lower EPS baseline versus cash generation in 4Q while that appeared to be somewhat quarter specific in nature, perhaps, could you just clarify whether there's material out of the market derivative position still on the book that could trigger a repeat of that going forward?

Thank you for those 2 questions, Matt. I'll take the first one and then have Sinead maybe respond to the second one. Thank you for the recognition of the progress on the Sprints. Like the way I'd characterize it is if I go back to this set of outstanding assets in this portfolio, we're blessed with a very, very good hand. And what we have found as we have prosecuted the performance discipline simplification drive in the organization is, of course, started to challenge existing paradigms. Paradigms that have been long lasting in the organization. So for example, our dependence on a very big contractor community in our IT spend, we have now reduced that by some 30%. The way we do work, the amount we travel. So we have, for example, cut our travel expenses from the pre-COVID time by some 30% to 40% in 2024. Those are just -- those are just examples. You can expand that into the way we mature projects where we used to often keep them too long in the funnel, spending a lot of money on them before we decide to can them or progress with them. The way we do our supply chain sourcing.

All to say that as we have gone into that space, we have discovered that we can do things differently. And that's why you saw the accelerated delivery of the structural cost reductions, but also that's why you saw the delivery of the more disciplined approach to capital allocation. We thought that it was going to take us a couple of years. From year 1, we were already able to bring it into the 22% to 25% range. And in year 2, we were able to come below that range. And so I think -- and I believe this organization has huge potential. Our collective job is to make sure that we create the space, the ecosystem for our or people to unlock it. And so far, they have responded very positively, and I'm very convinced there is more to go. Sinead?

Indeed. And thank you, Matt. And you asked specifically by Integrated Gas. And of course, you're referring to the fact of their earnings rather than cash, which, of course, was strong. So what you're referring to is the noncash impact of expiring legacy paper contracts or hedge contracts. So we don't tend to disclose in terms of specific hedging and why do you not do that because we tend to do risk management, of course, at a portfolio level typically and across many seasons. But specifically on this one, what you'll see in our unaudited accounts, which we've published.

We talk about it this quarter, and we bring together both the derivative side or the hedge contracts on this side and the realized price, and you see it as being some $340 million for this quarter. That's the impact, noncash into the earnings. I do expect these legacy contracts to roll off over Q1, Q2 and Q3. So I expect an earnings impact of at least a few hundred million across both Q1, Q2 and Q3, so similar to this quarter. Of course, with derivatives, we have our hedges we have in place at the portfolio level, so there will be pluses and takes across that, but it's noncash. Thanks, Matt.

Thank you for the question, Matt. Thanks, Sinead. Can we go to the next question, please, Seymore?

Our next question is from Biraj Borkhataria at RBC.

Obviously, you've made a lot of progress on the operational performance side and momentum on the cost. I just wanted to get a bit of clarity on how you're approaching sanctioning major projects. I saw the China chemicals expansion FID. Could you just talk a little bit about the investment case for that project, how you're seeing the chemicals market? And I'm thinking in context of a number of the projects you may have sanctioned over recent years, a lot of them would have looked better at the time of FID than what they turned out to be in reality. So what makes you confident that this one is more robust?

And then the second one was just following up on your comments on the sort of projects in the funnel. You wrote off your exploration efforts in Namibia. Could you just give a bit more color on any future plans you have there? And maybe a bit of color on that.

Thanks, Biraj. I'll take both. I think very quickly starting with the Namibia one, and then I'll come back to the broader question. Indeed, so what is -- where there is no doubt in Namibia is there is a lot of oil. The reason for the impairment, of course, is more to do with our inability to be able to find a commercial pathway to be able to monetize that resource. And so that, by no way means that there won't be opportunities, and we continue to look at those. So of course, there's a lot of drilling happening in neighboring blocks.

We continue to do our own analysis of the data that we have. So we have a lot of data that we are using. But suffice it to say, at this stage, we don't see that commercial pathway and, therefore, triggering the impairment. Who knows if things change, that will be a different view. But at this stage, this is a prudent way of being able to move ahead. On -- on the broader capital allocation frame, I'd start from a position of humility around the fact that we haven't always had a great track record in capital allocation. It's something which Sinead and I have spent a lot of time thinking through and trying to learn from the past and trying to improve.

We do a lot of what we call post-investment learnings and understand everything from was the strategic context, the wrong one, was the -- do we have something behaviorally? Do we have something structurally? And we're putting a lot of remedies in place to be able to move us in the right direction. At the heart of it, when we're thinking through capital allocation choices, we start from the perspective of how are we able to drive towards our North Star free cash flow per share accretion. And when we look at these projects, we look at them from what is the risk profile of that project, and then what is the return for that project? And what you're finding is in a place like China, what we see is you have a terrific market or demand for chemicals continues to grow fast.

We have a great platform in CSPC. We have one of the lowest cost delivery machines in the world when it comes to big infrastructure projects as we've seen in the first 2 phases of that project. We have technology, which we are deploying that allows us to have performance products coming out of that. You put all that together, it gives us confidence in that opportunity. We're still, by the way, within the Capital Markets Day '23 guidance of keeping our capital employed in chemicals flat through to the end of the decade. But what we're doing is we're building off existing platforms.

The final thing I would say is while we look at all those capital opportunities come our way, we keep a very close eye on how the risk reward balance there ranks up against the buybacks. Because at the end of the day, we're here to create shareholder value. And sometimes, that will mean this project does not make the cut because on the balance, it's better to go for the buybacks. And you saw us deliver some of that in the context of the 2024 results with the $21 billion of cash CapEx spend.

Let me leave it there, Biraj, Hopefully, that addresses the context. Seymore, can we go to the next question, please?

Our next question is from Josh Stone at UBS.

Two questions, please. Firstly, coming on to Chemicals. You highlighted all 3 units are now up and running at Monaca. When I look at your results, it's not obvious that's coming through to the bottom line, and we went to an even deeper loss in the fourth quarter. So maybe you can just provide a bit more insight there. What was the contribution from the Monaca cracker and where the offset is coming from the portfolio? When do you expect this business can return to being at a breakeven levels at the net income line?

And then second question on the court ruling. You won your appeal on the MD case. I just think when you think about your investment priorities for the next 5 years, does this judgment to have any implications in your view and how you're planning to allocate capital?

Thank you very much for that. I'll let you answer the first question in a moment and then come back to it. And maybe if you can build off Biraj's question just around the financing of -- of China as well. So to the question there on -- Josh, on the MD case. So when the MD case came through, of course, we were in the midst of going through our own thinking around where we wanted to go as a company, and we had already chosen through the 2020, 2022 period to already have a number of targets out there from a carbon perspective. And in a way, irrespective of where the case was going to go, we had already set our path, and we were moving in the direction we wanted. Our biggest concern and the reason we appeal that was the fact that the control of strategy was almost being advocated to be with a court in the Hague rather than actually with the Board where it should be. And so we were very pleased with the outcome of that case and hope to conclude it subject to the appeal, which happens by middle of February, the MD had the option to do that.

How does it change our perspective. Very little. I mean, the MD case did not change our perspective on how we were investing. We were very much going through in a responsible way. Having set the targets we set with a conviction that ultimately, the energy transition is not going to be solely driven by what energy suppliers do, but at the heart of it by what customers demand and by what regulators incentivize. And so we will continue to drive it from a prudent capital allocation basis, and nothing's changed in that. Sinead?

Thank you. And just as you say, while you mentioned about Biraj's question on China. So just also say, of course, when we allocate capital, we're looking at every single dollar. And China is one of those unusual situations where it's a stand-alone joint venture, and we're project financing it. So it's not about putting a significant amount of our own capital in. This is about ensuring that we utilize financing that is out there because of the stand-alone nature and its ability to generate its own cash flows. So that just gives you a feel from where are we allocating capital.

And Josh, you asked specifically on Monaca. So Monaca is indeed all 3 up and running of the units. So that's been progressed through Q4. Those are now focused very much on both the reliability of that, but also getting more products into the slate. So you see them begin to generate more and more money coming through from that, and that will continue as we progress through the year. Of course, retail margins are very, very different. What you see, of course, is you're very much very low, shall we say, at the moment, very weak, but North America actually more on mid-cycle. And we're working on Monaca to be able to take advantage of that and pull it through.

So I expect to see this year being the year where they actually begin to show into our numbers a little bit more. One of the things you mentioned, though, is about CMP or chemicals and products being a little bit weaker. What I would say, of course, is also related to our trading and optimization. So it was Q4, and we saw less coming through on the trading side there. Just less activity in the market, and that played out relative to Q3. So it's probably just a good distinguishing aspect as well.

Good. Thanks for that, Sinead. Thanks, Josh. If we go to the next question, please, Seymore.

Our next question is from Alastair Syme at Citi.

Sinead, a quick point of clarification on the indicative CapEx guide that you're giving, where I think you said the 2025 range will be lower than the 2024 range. Just a clarification that we were talking a 2024 reference that relates back to CMD '23. So that would be the $20 billion to $25 billion range. I just want to check if I've got that baseline right.

And then secondly, while how do you think about LNG European Asian gas markets given all this LNG supply that's coming down the pipes. Do you feel a need to do anything different to prepare the business for this change in market dynamics?

Thanks for that, Alastair. Do you want to quickly take the first one?

Yes, very happy to. And Alastair exactly. What we're looking at, of course, is we set a range in CMD '23 of $22 billion to $25 billion. And what we've said is that we expect this year's CapEx to be below the range of $22 billion to $25 billion. So you're exactly spot on. So the range will be lower than $22 billion to $25 billion. But that's all we've said at the moment and really look forward to being able to discuss both our thinking of that in more detail on that in March on our Capital Markets Day.

And to your question there, Alastair, on LNG, maybe just take a moment to sort of ground us with what we are seeing at the moment. 2024 was very light on new supply, so roughly 1% addition compared to the 400 million tonne sort of global market. We anticipate 2025 will be of a similar magnitude. So that's 2 relatively slow years at a time when latent demand continues to go. Now you have 2 sort of different stories at the moment is what we see in Europe. Of course, the low supplies that -- the low storage that we see at the moment, that's just around 55% or so, which is low compared to the 5-year average and could end up around 30% or even lower does mean -- and of course, the Russian situation does mean that there's quite a bit of demand still in Europe. Asia, a bit softer and partly because of price sensitivity, partly because of a warmer winter and partly because storage is healthy there. .

So you are going to see interbase in place. As we look beyond that, the big question is what is the latent demand going to be? Because we know that at around $10 per million BTU, you have a lot of demand coming through. We've seen it, for example, in shipping, significant growth in shipping demand for LNG. We've seen it in LNG trucking in China and in India.

And of course, we will see it play out in industry as many industries sort of go back to gas where they have the opportunity to do so. And so I don't have the luxury of just looking at the LNG market over the next 2 to 3 years. We need to be looking at it 10, 20, 30 years. It is a very robust market, 50-plus percent growth between now and 2040. And really the opportunity for us to be able to take the incoming LNG Canada volumes, the Qatari volumes, many of our LNG market creating opportunities and to really continue to cement ourselves to do that, while recognizing that it will take time as Pavilion comes through for us as LNG Canada comes through for us. We've always said 2025 was a year of balance in our supply portfolio. We don't have as much length as ideally we would like, but of course, we start to come into that length as we get towards end of the year. Thank you for the question, Alastair. If we can go to the next question, Seymore?

Our next question is from Martijn Rats at Morgan Stanley.

I've got 2, if I may. I recognize there probably not an awful lot of question we can ask, which the answer is not -- we adjust it in at the Capital Markets Day, but I'm going to give it to go nonetheless. I was wondering about the refining portfolio and Shell, in the sense that look, it's not that long ago that there were tens and tens of refineries. We're down to sort of 5, but out of those 2, Singapore being sold, the Rheinland refinery in Germany being repurposed. So we sit down to 3. And now they're quite large in and of themselves, but of course, 3. This is a fairly small number. And I was wondering if refining still has sort of critical mass within Shell or whether we should also expect that, that much reduced portfolio of just sort of 3 units also at some point, become so disposal targets. I wanted to ask you about that.

And then the other one, perhaps a bit more technical, but there is, of course, a reference to the additional lease obligations that will come when the Pavilion deal is completed. Can you give an indication of sort of the magnitude of what we should expect and put in our models for when that comes through in terms of the increase in the lease obligations?

Thank you for those questions, Martijn. Let me take the first one and then Sinead will address the second one. Look, I think what you said around our refining portfolio, of course, this was part of a long-standing strategic belief that we wanted to rightsize our refining footprint, which has brought us down from north of 50 to indeed sort of single digit at the moment. We have no plans to sort of get out of refining altogether, where we do have a strategic interest is to make sure that the midstream, the refining capacity, the storage, the pipelines are very much in service of what is a leading trading capability, and our ability to be able to continue to meet our customers' demand by having what I would call asset-right infrastructure.

So our trading business -- our trading capability allows us to be able to really sort of draw on third-party supplies, but that needs to be underpinned with our own supply. So -- by the way, I wouldn't be shocked if we take a small minority equity interest in a refinery one day to be able to underpin that flow. But we're not looking to expand our refining -- our operated refining footprint. And if we do anything, it will be very selective investments to be able to just protect and support our flow. But we see this as a long-term play, not a -- let's sort of shrink ourselves out of this play. Sinead?

Thank you, Martijn. On this one, of course, we have to wait until it completes to be able to see the exact numbers. So -- but indicatively, it's less in LNG Canada and roughly speaking, you're in the $1 billion to $2 billion sort of mark. But let's see where it comes through. I'm expecting it to be probably a little bit towards the end of that range of lower part of that range that I've given you. But as I say, they are continuing to operate, of course, and we close in the course of hopefully Q1, Q2. Thank you.

Thanks, Sinead. Thank you, Martijn. Seymore, can we go to the next question, please?

Our next question is from Ryan Todd at Piper Sandler.

Great. Maybe first question on inorganic spend. You've done a great job driving capital down -- capital spend levels lower over the last couple of years, but it's also been characterized by noticeably low levels of inorganic spend. How should we think about your approach to or appetite for acquisition going forward? And maybe any thoughts or comments on how you would characterize markets across your portfolio, E&P, low carbon, et cetera?

And then secondly, on CapEx trends, I mean as we think about the go forward, I appreciate the guide into 2025, but going forward, if the potential for further downward pressure, is that more likely to be driven by capital avoidance similar to what we've seen from the Rotterdam Biofuels project or are there other trends in terms of cost reductions, efficiencies, et cetera, that you believe can continue to drive further downward pressure on CapEx?

All right. Thank you for this, Ryan. Do you want to take those 2?

Yes, certainly. So thank you, Ryan. I'll take the -- actually, the second one first. So with respect to the second one in terms of the CapEx trends, what is it? Are we seeing further on avoidance? Are we seeing efficiencies, et cetera? What we see there is a bit of a mixture. So yes, you mentioned the Rotterdam HEFA project, of course. That's where we see, of course, stopping CapEx. But actually, what we're seeing is the teams are really just digging deep to be able to be more efficient in what they're doing. We see that on the wealth side. We see it in actually our project execution as well, where we're seeing people very, very thoughtful about where they spend and looking at what a risk tolerance is and what we can do to ensure that we drive the best we can out of our contracts. .

So actually, whilst you see inflation, of course, being quite hard in the last year, you see our team has been able to really work hard to absorb as much of that as possible. And that came through also in OpEx as well. So you'll see more of that come through on both the CapEx and OpEx side.

You then ask about inorganic. And of course, what we've done is our capital has come down in the last couple of years. And particularly, if you look at what we've done in 2024. We've really been about very limited inorganic in there. So it's roughly sort of $1 billion to $2 billion is in there from an organic point of view. But that's not because we're not seeing opportunities. We're not seeing opportunities that hit on very high bar at the end of the day. So this is about a value lens. We're very much focused on every investment decision we make is benchmarked against our shares. So we will be absolutely happy and willing to do deals where we see growth in value, and you see that Pavilion being a case in point and plenty of others where you see smaller deals that we're doing where we take a couple of percentage points in Gulf of Mexico or other places.

So we are about investing for the future. but fundamentally, it's about making sure we compare what is the best alternative. That drop in inorganic is probably key to say. Most of that has been around downstream renewables because we're high grading and transforming a business where we spent a lot in the past, and we now need to deliver the returns against that as well. Thank you.

Thank you, Sinead, and thank you, Ryan, for that. If we can go to the next question, please, Seymore.

Our next question is from Christopher Kuplent from Bank of America.

Just 2 more quick ones, hopefully. I wanted to check what is currently the most tempting option for you to not cut capital. I appreciate you've done extremely well on the CapEx front, but actually deploy more capital. You've written off those wells in Namibia. Canada and AECO is causing you pain on the reserve replacement front, but wouldn't that speak in favor of an expansion of Canada LNG? Or are you excited about Argentina. So I appreciate we're not going to get a list of projects now from you, but maybe you can give us a bit of a hint where you're currently most tempted to deploy more capital.

And at the same time, perhaps a question for you, Sinead, you've put your 30% to 40% payout policy back on the slide. And I wonder whether you aren't worried that this looks a little out of date. I mean CFFO, the way you use it has been flat. Payout ratios have been above 40% for 2 years in a row now. How do you address investors' concerns that if CFFO for whatever reason goes down, your cash return run rate doesn't go down with it considering that you're already through the upper end of that range.

Super. Thank you, Christopher, for those. And I will start with the first one and then ask Sinead to cover the second one. Look, if I link back to the previous question, we are not approaching capital allocation from a dogmatic perspective, Christopher. I mean, I think that is the big thing that we are trying to change from the lessons of history where we have said hey, look, this is the direction we need to take, therefore, buy through the cycle rather than actually one of the best things about our portfolio is we have breadth. We have leadership positions in multiple parts of the portfolio. We can be patient and we can capture opportunities at the right points rather than trying to rush into that.

And even more so now, given the underpriced value of our shares, we can actually come in and buy shares to be able to continue to deliver value from the cash that we're generating. So we have multiple options. To some of the examples where we could deploy, I think picking up exactly where Sinead left off, downstream renewals, we have deployed quite a lot of capital and now it's about delivering the returns, which means you move closer to the integrated gas and upstream space, and there, we have opportunities through the funnel. We've just taken one of them with Bonga North in Nigeria. LNG Canada will be one that when the venture is ready to put a proposal in front of us. We will scrutinize it, and we will look at it in the context of does it give us the appropriate return for the risk that we would be taking.

You mentioned Argentina. We're also investing there and are encouraged by what we're seeing from the new government. But again, we want to be able to make sure that, that capital is going to compete with other options. So I'd sort of -- I'd say we're really continuing to look. And of course, inorganic will play in that if we find interesting opportunities. But like Sinead said, the bar is very high and to be able to beat buying back our shares with the risk profile that comes with that is not easy at the moment. Sinead?

Indeed, and thanks, Chris, for the question. So indeed, where are we at the moment, 30% to 40% payout policy and 4-quarter rolling basis, we're at 41%. So -- but more than that, we've actually had 13 quarters where we have now hit $3 billion or above in terms of share buybacks. With prices varying and at different points, I've had length on the balance sheet and at different points, we've been very thoughtful. So that pragmatism that we've talked about before comes through. So hopefully, that shows you consistency and predictability in terms of what we're doing. So any updates to our financial framework. As you know, I'm going to tell you we'll be at the Capital Markets Day '25, but I hope it's clear that we are distributing at Shell with a thoughtful point where predictability consistency and resilience matters. And of course, we have a balance sheet strength, which will allow us to underpin that.

So to remind you, I mean where are we sitting on gearing at the moment. So if I exclude leases, from a net debt point of view, I'm roughly at about by $10 billion. And if you do it from a gearing point of view, it's less than 5%, this is from the point of view of net of leases. So I hope that gives you a feel on our thinking around that.

Thanks, Christopher. Thanks, Sinead. Seymore, can we go to the next question, please?

Our next question is from Lucas Herrmann at BNP.

Two, if I might, one apologies is slightly philosophical. The first is straightforward per billion. Can you give us any better guidance as to when you actually expect that transaction to complete? And the second way is really to you and it's -- I'm just intrigued as to your own perception as to why it is that despite the very strong cash performance, earnings performance, you're essentially doing what you said you'd do. The shares continue to languish on I'd say, a pretty insulting multiple, but then that's my view, not necessarily yours. So -- yes, it's simply to get your perception of what it is needs to happen to drive the multiple ahead given the market increasingly seems to recognize what you are doing and the benefits are very clearly coming through in the numbers that you're presenting.

Lucas. I'll pick up the second one if you wanted to touch on the first one. Look, we -- I'll start with this as an engineer, I fundamentally believe in the forces of gravity. And I do believe that if you keep doing the right thing long enough, you will see that value coming through. You will see that re-rating coming through. If I reflect back on the last 2 years, it's the beginning of 2023, and I look at our performance share price-wise compared to all of our peers, American and European. I'm pleased with the momentum we have. Of course, we'd like more. But ultimately, the market will dictate what the fair share price is. What we can do and my own belief is focus on what we can control.

And what we can control is just making the right decisions, building the confidence that the investors have in this management team, demonstrating a strong track record of delivery. We recognize we have a lot to make up for, whether it was the dividend cut or whether it's the -- our ability to be able to deliver the returns on some of the capital investments we've made in the past. This is our opportunity now to be able to demonstrate that. And -- and I'm very pleased with the momentum. But as I said earlier, there is a lot more to do.

And while this discrepancy continues, what a fantastic opportunity for those who believe in our story to hold on or to buy more as we continue to buy back our own shares and really deliver the free cash flow per share accretion that I think is exciting and one of the sort of opportunities in the sector to really ride the wave. And so that's all my own view, Lucas. Sinead?

And on the first one on Pavilion, Lucas, waiting for regulatory approvals. Hoping and expecting them by the end of Q1, but we'll see what occurs. And of course, with Pavilion, giving timing of flows, et cetera, I expect it to really start having an impact in 2026, but we will see it come in, in the course of this year.

Thank you for that, Sinead, and Lucas. And maybe Seymore, if we can go to the next one, please.

Our next question is from Giacomo Romeo from Jefferies.

Yes. Just 2 remaining questions for me. And one, I'd like to go back to the discussion around the Canadian gas price and LNG Canada and trying to understand that what price condition in the AECO markets will you be looking to develop your own resources? Obviously, now you said, it doesn't make -- it wouldn't make sense at the moment. But I'm just trying to understand at what price level you think you'd consider start developing your own resources. And if I stay on LNG Canada, it's -- and you look at the potential for an FID on the second page, you talked about some indication from local governments. What are the key hurdles do you see in order for you to have enough visibility to take a final investment decision on this project in the coming month or so?

Yes. I'll touch on the second one and then Sinead can talk a bit about how we're proceeding with Phase 1. I think on the second one, firstly, appreciate the support that we are getting from the provincial government. I appreciate the support we are getting from the federal government. We appreciate the support we're getting from the indigenous people as well in the area there. And we appreciate the support we're getting by and large from many of our neighbors in Canada. So this -- I think the concept of an LNG development and the criticality of the role that it plays, not just for the economy in Canada but also in terms of what it does to support multiple different countries around the world as they go on their own energy journey, I think, is now well appreciated. If there was one thing that we will need to keep an eye on, it is going to be what is the capital that is going to be required to invest. And is this investable.

We know that the AECO advantage is one that is strategically interesting for us. We have offtake from -- on Henry Hub basis. So having more AECO linkage is good. LNG Canada is one of the cleanest plants in the world in terms of -- from an emissions perspective. Therefore, the carbon intensity will be advantaged versus anything out there in the market. And of course, you have the proximity to the Asian market being on the West Coast of Canada. So there are so many attractive things, but it needs to make commercial sense, and we'll need to see whether the price is one that the price of the EPC, but I mean it's one that we can essentially bank on to be able to pass our expectations of returns against the risk profile we take.

Thanks, Wael. And Giacomo, you're asking around when would we start to develop our own resources rather than buy from the market. It's actually a little bit more complex than that because when I look at Groundbirch specifically, what is very attractive about it is location and the subsurface. So we have an advantaged acreage at the end of the day because what we have there is quite prolific volumes. But beyond that, we also have many of them already discovered, developed and ready to go. So we have rigs there, we're producing at low rates at the moment. But more importantly, we also then have access to a plant where we can do the processing side of things and then access to transportation.

So the proximity to be able to get it into the main pipeline and be able to bring it over, of course, to LNG Canada is key. So when we look at it, it's actually about the integrated economics on this. It's not just the local price because whilst I find AECO prices coming down and very attractive in many locations, it's why then access to the pipeline and the transport element office, which in some cases is just not there or the distance is too big to be able to do that. And beyond that, some of the processing, of course, cleaning it up. So we continue to, as I say, produce at the moment, at small levels, and we have the ability to ramp up. And we have an A team there who know exactly when to pull when trading tells us to do so or not because of the difference and what they see in the differentials between the prices and the transportation. Hope that helps.

Thank you, Sinead. Thanks, Giacomo. And let's go to the next question, please.

Our next question is from Irene Himona from Bernstein.

My first question on mobility earnings. Your margin per barrel last year was the highest since the pandemic, I think. But of course, the strategy is to dispose of lower margin assets. So in trying to think ahead about '25 mobility earnings, do you anticipate that disposal process can support further margin improvement? .

And then my second question, you said Wael, there's a lot more to do. I was just looking at your Slide 13, which plots the asset availability for upstream and LNG. And I must admit, I was a bit surprised by upstream. It's below 90%, below your LNG assets and definitely below one peer who reports the metric. Do you think there's an issue to be fixed there? And if so, what is the issue?

Irene, thank you for those 2 questions. I'll take the second one and if you want to touch on the first one, Sinead. Look, I think I'll firstly start by saying we have really, really been driving what we call the brilliant basics. So just getting back to fundamentals all across our Upstream and Integrated Gas businesses. And you're seeing the benefits of that. I mean, Prelude's performance last year was very strong. The Gulf of Mexico was very strong. You see it in our nonoperated ventures as well. Typically, what -- it's important to sort of differentiate some of our peers report reliability, and that sort of ends up -- ends up being in the 95-plus percent, which is roughly where we end up seeing it. We report very much availability. .

And the reason is because when you get into areas like, for example, turnarounds, that's just time where you can be very reliable when you're up and running. But when you're in the middle of a turnaround, that's the asset is down. So one of the key levers for us is how to manage the turnaround cycles in the optimal way. Having said all that, there is more to do, which is back to your earlier sort of comment around what I said earlier. There is more to do in terms of how we deploy, for example, technology. We now have centers of excellence that support our availability efforts globally rather than each one have each asset having its own, which doesn't allow you to optimize to the full potential. We have a lot more data understanding now of where our weaknesses and vulnerabilities are, and we're investing in them.

So there is a lot of work that we know we can and should do. And that's where when I talk about more to do, I mean it across the board, and to me, that's a fantastic opportunity rather than a concern because what I have seen is when we put our mind to it as we have done over the last 2 years, we will improve.

Yes. And thanks, Irene. As you say, around marketing, well, first and foremost, $3.9 billion of earnings just off the CMD target. And of course, that was due at the end of 2025. And of course, we've set it from the perspective of a $65 real term. And of course, you know the price is certainly way more detrimental to them than that. So just immense pride in the team and well done to Huibert and the team one way to go on it. It's just fantastic on that. So going to mobility, as you say, so 70% higher year-on-year despite detrimental price, which is what you're talking about, the margin per barrel that's coming through there. .

So what do we expect? We're seeing high grading coming through without a doubt. So you've already seen some of the divestments. You saw Pakistan coming through. So it's not just about portfolio management. And we've got a couple more in the -- in the works as well. We've talked about Indonesia before. And of course, there will be a few others as well. But it's also by expanding our high-margin retail. You know at the start of the year, we actually bought Brewer oils 45 sites. So it's like making the most of the things that we buy using our capital very specifically to drive that high margin. And of course, for us, it's the differentiated fuels that we get. And that's where we see the big difference. That differentiated fuel brings the footfall into the sites, of course, which means that we get our convenience margins up as well.

So we're focusing really on the strict cost discipline. You'll see a bit more coming through in terms of the portfolio high grading, and you'll see more in terms of cost efficiencies as well. So I really look forward to seeing what this team can do in 2025 that are off to a great start.

Thanks, Sinead. And Seymore, let's take the final question, please.

Our final question is from Michele Della Vigna from Goldman.

And again, congratulations on what has been a very strong year. I would like to focus on the Renewable and Energy Solutions business, which has been loss-making for most of this year. You are making significant strategic changes there, but I was just wondering, in order for the division to turn back into profit, what do you think is needed? Is this an issue of portfolio or better integration with trading? Or is this also impacted by market conditions?

Thank you very much. You want to take that?

Yes, sure. Thank you for that, Michele. Indeed, what you saw this quarter, of course, was loss-making, and that's more about returning to sort of more normal volatility because there's 2 parts, remember to the renewables portfolio, which I think I talked about with Lucas last quarter as well. So we've got the underlying assets, the renewable assets that are being built out. and those are loss-making at the moment and will be for the foreseeable future. But what we're doing there, of course, is trying to high-grade our portfolio. So you see us make changes. You saw some of that in terms of the impairment and some of the offshore wind walking away from early on at some hydrogen projects, et cetera, which we're very, very early stage.

There's real discipline there. And of course, you then have the trading side of things where we are seeing less volatility because this is a blend of both sorry, both gas and power coming together, so less volatility coming through that, and that really hit this quarter, along with the deferred tax number that sort of just crept in, which isn't quite as transparent in there, of course, which added to it. What we're doing is we're moving much more towards a trading led strategy, and you see that focus on particularly those flexible assets. And when we talk flexible assets, we talk about batteries and some of the combined cycle gas plants and things like that, that come through.

So we're changing that portfolio mix. And you saw it particularly with the acquisition, of course, that we did this quarter, which also pushed up our CapEx, which was around the Rhode Island plant that we bought. So we're looking forward to seeing that coming through. But at the moment, yes, indeed, it is loss-making.

Thank you, Sinead. Michele, thank you for the question. And let me thank -- thank you all for your questions and for joining the call. I'm proud that we've delivered a strong performance in 2024. And today, we announced 4% dividend increase and another $3.5 billion of share buybacks, making this 13 quarters in a row in which we have announced buybacks of at least $3 billion. As we continue to build a track record of delivery and as we aim to be the investment case through the energy transition. We wanted to wish everyone a pleasant end of the week. Look forward to further engaging many of you at our Capital Markets Day in New York in March. Thank you, everyone.