Shell chief sets ‘ruthless’ new course to catch up with US rivals

Shell’s new chief executive has promised to be “ruthless” in his pursuit of higher returns for shareholders as he seeks to chart a new path for the company through the energy transition.

Addressing investors in New York last week, Wael Sawan, who was appointed in January, laid out a plan for Europe’s largest energy company to cut costs, boost shareholder payouts and devote a higher proportion of spending to oil and gas.

While the pitch was welcomed by some investors, others questioned whether Sawan was abandoning a strategy launched just two years ago by his predecessor, Ben van Beurden, to achieve net zero emissions by 2050 by increasing investment in clean energy.

In an interview with the Financial Times after the investor day, Sawan insisted the 2021 strategy to cut emissions by gradually overhauling the business remained in place. But he was also clear that his was a new regime.

“While the destination is unchanged . . . the way we are getting there is indeed different,” Sawan said.

In a set of commitments seemingly designed to appeal to many of the US investors gathered at the New York Stock Exchange, Shell emphasised plans to maintain oil production at current levels of 1.4mn barrels a day until 2030 and expand its giant liquefied natural gas business. It will also be more selective about the types of clean energy project it backs.

“Ultimately what we need to do is to be able to generate long-term value for our shareholders,” Sawan told the FT. “The answer cannot be, ‘I am going to invest [in clean energy projects] and have poor returns and that’s going to vindicate my conscience’. That’s wrong.”

Since taking the top job Sawan has focused on how to close a yawning valuation gap with US rivals, which have remained more committed to oil and gas production and are valued at much higher multiples of their cash flow.

Under Shell’s new plans, $40bn of investment over the next three years will help it add 500,000 barrels of oil equivalent a day of new oil and gas production by 2025.

In the same period, $10bn to $15bn — or about 20 per cent of total spending — will be invested in low-carbon technology, such as hydrogen, biofuels and vehicle charging.

“In the past few years we have been testing different models and different concepts,” Sawan said. “As we grow in confidence in some, like in biofuels and EV charging, we’ll look to go further. In others where we have seen significant headwinds, like in consumer home energy retailing, we are taking a pause and reflecting.”

He highlighted the Indian renewables group Sprng, the US-based solar developer Savion and the European bio-gas company Nature Energy — all acquired since 2021 — as the “foundations” of Shell’s clean energy plans. Other, less profitable parts of the business, such as the UK, Germany and Dutch household energy divisions, will be offloaded.

Sawan, who has spent his entire career at Shell, said he has no qualms about cutting parts of the business that do not deliver enough value.

“The strength of our company is the level of engagement we have with staff . . . but we are at risk when we confuse the concept of caring about people, with the decisiveness around how do we actually allocate capital.”

Such moves are intended to help Shell cut group-wide annual operating costs by $2bn-$3bn by the end of 2025, while capital spending will also fall
to $22bn-$25bn a year in 2024 and 2025, down from a planned $23bn-$27bn this year.

As a student at Harvard Business School, Sawan said he was told to be “kind-hearted but tough-minded”, advice he claimed to have carried through to today. “I don’t tend to get emotional around business decisions,” he said.

That approach may have helped Sawan when he moved quickly in his first month as chief executive to cut his executive committee from nine to seven. As part of those changes, Sawan discontinued the role of strategy director, held by Ed Daniels, who will step down from the senior team next month and leave Shell thereafter.

“It is very strange to have a strategy person that is divorced from the CFO because ultimately the choices that you are making around where you want to deploy your capital strategically have to also….[fit] with your financial framework,” he said.

Strategy now sits under chief financial officer Sinead Gorman, who also used the world “ruthless” when presenting on Wednesday.

Gorman, upstream director Zoë Yujnovich and downstream director Huibert Vigeveno, have emerged as Sawan’s key team over the past six months.

Sawan said: “It’s about having around the leadership table a handful of people who can then become really accountable for bigger chunks of responsibility . . . rather than everything having to be debated.”

Vigeveno, a Dutch national who joined Shell in 1995, two years before Sawan, was a rival candidate for chief executive. His portfolio will expand with the addition of the renewables and energy solutions business to the downstream division from next month.

Australian Yujnovich joined Shell from Rio Tinto in 2014 and has risen quickly through different positions in the oil, downstream and integrated gas businesses.

All three executives were key architects of Shell’s new direction, Sawan said.

Bernstein analysts described the investor day as “the most obvious cultural reset and upside potential inside Shell in decades”. Other investors were more circumspect.

Legal & General Investment Management, the UK’s largest asset manager, questioned whether Shell was on course to achieve net zero emissions by 2050. “In our engagements with Shell following its recent announcements we will be assessing how it matches with our expectations,” it said.

Shell shares closed the week up 2 per cent.

For Sawan, a simpler Shell can be a more effective Shell.

“Shell can play in multiple different areas but actually our strength is when we focus on a handful of things and really mobilise the organisational strength to deliver.”