Christopher Kuplent

Christopher Kuplent noted that the Marketing segment is outperforming on significantly less CapEx than budgeted and asked for the reasoning. He also posed a hypothetical question about whether Shell would maintain its stance on buyback comfort if the payout ratio were to exceed the 50% CFFO target.

Answer

CFO Sinead Gorman explained the lower Marketing CapEx is intentional, as the team has been asked to focus on maximizing returns from past investments before more capital is released. Regarding the payout ratio, she stated that exceeding 50% would require a board-level decision that it is the best capital allocation choice for the company at that time, based on a value vs. risk assessment. CEO Wael Sawan reinforced that the 40-50% range is 'sacrosanct' and will be delivered through the cycle.

Christopher Kuplent asked why the Marketing segment is outperforming on lower-than-budgeted CapEx and posed a hypothetical question about whether Shell would be comfortable with a payout ratio exceeding 50% of CFFO.

Answer

CFO Sinead Gorman explained the Marketing team is focused on maximizing returns from past investments, hence the lighter CapEx. On the payout, CEO Wael Sawan and CFO Gorman both stressed the 40-50% range is "sacrosanct" and the core commitment, with any deviation being a significant capital allocation decision based on value and the macro outlook.

Christopher Kuplent questioned if Shell's past weakness was 'hubris' rather than 'mediocrity,' asking for an update on the paused Rotterdam biofuels project, and queried the very low Q1 CapEx in the Marketing segment.

Answer

CEO Wael Sawan acknowledged past projects took on logarithmic risk and that the company is now more forensic, which led to pausing the Rotterdam project due to changing market conditions. Executive Sinead Gorman explained that Marketing CapEx is seasonally low in Q1 and reflects a higher bar for spending and dynamic capital allocation, where funds are deployed to the best opportunities across the group, not just within a specific business.

Christopher Kuplent of Bank of America asked where Shell is most tempted to increase capital deployment, despite the focus on discipline, and questioned if the 30-40% of CFFO payout target is outdated given recent performance.

Answer

Executive Wael Sawan stated that while opportunities exist in areas like Integrated Gas and Upstream, any new investment must clear a very high hurdle rate, especially when compared to share buybacks. Executive Sinead Gorman defended the financial framework, highlighting the consistency of distributions and the strength of the balance sheet as underpinning shareholder returns.

Christopher Kuplent of Bank of America asked about the internal company mood amid the ongoing transformation and how management maintains cost discipline with a growing cash balance. He also sought more detail on the sources of non-portfolio OpEx savings and whether a segment-level breakdown would be provided in the future.

Answer

CEO Wael Sawan described the internal mood as positive, driven by being on a 'winning team,' but noted no one is complacent. He emphasized that cost reduction is an outcome of a broader cultural transformation focused on competitiveness, simplification, and prioritization, citing examples like reduced travel and IT contractor consolidation. CFO Sinead Gorman added that there is still 'so much more to go,' indicating further potential for savings.

Christopher Kuplent of Bank of America Merrill Lynch asked how the TANAP pipeline disposal proceeds are structured to affect net debt and whether the UK North Sea is a focus for portfolio changes, similar to the Aker BP joint venture in Norway.

Answer

EVP Gordon Birrell stated that BP is awaiting clarity on the UK's fiscal situation before making any decisions on its North Sea portfolio structure. CFO Kate Thomson explained that the TANAP transaction is structured so the cash proceeds directly reduce net debt, with the ongoing accounting impact flowing through the non-controlling interest line.

Christopher Kuplent of Bank of America Merrill Lynch asked for clarification on how disposal proceeds, like the structured TANAP deal, impact net debt. He also inquired if the UK North Sea is a focus for portfolio changes, similar to the Aker BP model.

Answer

EVP - Production & Operations Gordon Birrell stated that BP is awaiting clarity on the UK's fiscal situation before making major portfolio decisions in the North Sea. CFO Kate Thomson explained that the TANAP transaction is structured to provide cash proceeds but is accounted for through non-controlling interest, rather than as a direct reduction of reported net debt.

Christopher Kuplent of Bank of America requested details on the restatement of Archaea Energy into the Gas and Low Carbon segment and its expected EBITDA contribution. He also asked for more numerical details on the recently signed Cook agreement in Iraq, such as CapEx, production, or IRR metrics.

Answer

Executive Katherine Thomson explained that Archaea was moved from the Customer and Products segment and that its EBITDA will be disclosed annually, with the business on track to be free cash flow positive by 2026. Executive Murray Auchincloss addressed the Cook agreement, stating he was limited in what he could share until the PSA is published by the Iraqi government. He highlighted it will be a capital-light JV with much-improved terms, including rights to both oil and gas and price upside, making it a highly profitable venture.

Christopher Kuplent of BofA Securities asked about the value proposition of issuing more hybrid bonds at a relatively high cost to lower net debt.

Answer

CFO Katherine Thomson explained the issuance was a 'value play' to take advantage of an all-time low in senior-sub spreads, allowing them to pre-fund upcoming maturities in a strong market. She reiterated that hybrids are an important, tax-deductible part of the capital structure.

Christopher Kuplent asked for an assessment of the M&A environment and whether current market uncertainty is creating opportunities, and also inquired about the expected evolution of net working capital.

Answer

Chairman & CEO Paolo Rocca stated that while consolidation is important, finding suitable targets is challenging, but the company remains watchful for opportunities. CFO Carlos Gómez Álzaga explained that after generating cash from working capital in H1, the company expects to build some inventory in Q3 for new projects before releasing some again in Q4.

Christopher Kuplent of Bank of America Merrill Lynch asked how the stronger euro, which makes the dividend more expensive in dollar terms, affects the company's overall payout view, and whether the Exxon/Hess arbitration outcome has changed TotalEnergies' perspective on rights of first refusal.

Answer

Patrick Pouyanné, Chairman & CEO, explained that while the FX impact on the 2025 dividend is limited, a systemic shift to a stronger euro would be considered by the Board in the overall shareholder return framework. On the arbitration, he stated the outcome was 'good for the industry' as it provides clarity on standard industry clauses, and noted he generally dislikes such rights as they can lower asset value and create complexity.

Christopher Kuplent asked for factors that could improve cash conversion later in the year and questioned TotalEnergies' competitive positioning for renewable growth as competitors face pressure to slow down.

Answer

CFO Jean-Pierre Sbraire and CEO Patrick Pouyanné noted that while the downstream segment is challenged, a recent spike in refining margins could provide a boost, showcasing the benefit of their integrated model. On renewables, Pouyanné stated their strategy is driven by the strong growth in electricity demand (4% in 2024), fueled by data centers and AI. He sees the pressure on competitors as a potential opportunity to acquire assets more easily, reinforcing their integrated power strategy which combines renewables with flexible gas assets.

Christopher Kuplent of Bank of America asked about the competitiveness of green hydrogen, the attractiveness of company shares for U.S. M&A, and the potential for shareholder returns to exceed 40% of CFFO.

Answer

CEO Patrick Pouyanné explained the green hydrogen strategy involves exploring various models (tolling, investing, purchasing) to create value within Europe's regulated FNBO framework. He clarified the U.S. listing change aims to boost share value and liquidity, not to facilitate M&A with shares. He confirmed the shareholder return policy remains 'more than 40%' of CFFO, noting the Q2 payout was 45%, and that the gearing target of 7-8% does not constrain this policy.

Christopher Kuplent of BofA Securities inquired about the political climate in Europe concerning potential windfall taxes, fuel price caps, and taxes on share buybacks, asking if policymakers have learned from the recent energy crisis.

Answer

CEO Patrick Pouyanné stated that while European leaders want to avoid another energy crisis, he does not foresee a windfall tax due to fundamental tax principles. However, he acknowledged that a tax on share buybacks, similar to the one in the U.S., could be considered in Europe. He affirmed that such a tax would not alter TotalEnergies' buyback policy, which is designed to share additional profits with shareholders.

Christopher Kuplent questioned the discrepancy between the recent trading update and the weak reported results for the MMP segment. He also asked why Equinor would not increase its investment in Ørsted given the current lower share price.

Answer

Torgrim Reitan, an Equinor executive, explained that some transactions impacting the MMP result occurred very late in the quarter, after the trading update was issued. Bård Pedersen added that the update did flag expected weakness from CCS wells and LNG trading. Regarding Ørsted, Reitan reiterated that Equinor is a long-term, industrial owner and sees it as a quality company, despite the share price reflecting current industry-wide challenges.

Christopher Kuplent of BofA Securities asked for the macroeconomic assumptions, particularly commodity prices, that were used to set the new, lower NCS tax installments for the second half of the year.

Answer

Executive Torgrim Reitan explained that the tax installments were based on forward prices from earlier in the spring. While not providing a specific number, he suggested that looking at forward prices from early June would provide a good estimate of the assumptions used in the calculation.