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Outlook for 2022 and beyond

We believe that our integrated business model is key to driving our strategy. Shell has a competitive portfolio and we are leading our peer group on cash generation. We intend to develop our portfolio of assets and the mix of energy that we sell to meet the cleaner energy needs of our customers, while delivering value for our shareholders.

Delivering our strategy will require clear and deliberate capital allocation choices. We approach capital allocation at three levels: enterprise, portfolio and project. The enterprise level is about how we make choices between increasing distributions to our shareholders, investing in our business and/or strengthening our balance sheet. The portfolio level is about how we allocate capital between our three business pillars – Growth, Transition and Upstream. The project level is about how we evaluate and prioritise investment opportunities.

For cash capital expenditure, the base capex to sustain our strategy is expected to be $19-22 billion per annum. To accelerate our strategy we expect our cash capital expenditure to grow to $23-27 billion per annum, once we have met our priority to distribute 20-30% of cash flow from operations to shareholders. For 2022 we expect our cash capex to be at the lower end of this range. More than half the additional capex (above the base capex) is expected to be spent on our Growth businesses. We remain committed to our progressive dividend policy and focused on targeting AA-equivalent credit metrics through the cycle.

Subject to Board approval, we aim to increase the dividend per share by around 4% every year. We target the distribution of 20-30% of cash flow from operations to shareholders, and may choose to return cash to shareholders through a combination of dividends and share buybacks.

After reaching this level of shareholder distributions, additional surplus cash is expected to be allocated between further disciplined capital investments to accelerate our strategy and further reduce debt to strengthen the balance sheet.

We support the most ambitious goal of the Paris Agreement, which is to limit the rise in global average temperature this century to 1.5 degrees Celsius above pre-industrial levels. We have a long-term target to become a net-zero emissions energy business by 2050, in step with society. To achieve this target, we will have to be net zero on all emissions from the manufacture of all our products and all our customers’ emissions from the use of the energy products we sell. This means the target covers our Scope 1 emissions, which come directly from our operations, our Scope 2 emissions, from the energy we buy to run our operations, and our Scope 3 emissions, which include the emissions from our customers’ use of the energy products we sell, regardless of whether they are produced by Shell or a third party.

We also have targets to reduce the net carbon intensity of the energy products we sell, as measured by Shell’s Net Carbon Footprint, using 2016 as our baseline year. These include short-term targets of a 3-4% reduction by the end of 2022 and 6-8% by 2023. Our medium- and longer-term targets are to reduce by 20% by 2030, by 45% by 2035 and 100% by 2050, in step with society. We achieved our target of a 2-3% reduction by the end of 2021. In October, we set an absolute emissions reduction target of 50% on all Scope 1 and 2 emissions under Shell’s operational control by 2030, compared with 2016 levels on a net basis.

We believe that our total carbon emissions from energy sold peaked in 2018 and will stay below 1.7 gigatonnes per annum (Gtpa). Further details are in the “Climate change and energy transition” section.

The statements in this “Strategy and outlook” section, including those related to our growth strategies and our expected or potential future cash flow from operations, organic free cash flow, share buybacks, capital investment, divestments, production and Net Carbon Footprint, are based on management’s current expectations and certain material assumptions and, accordingly, involve risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied herein. See “About this Report” and “Risk factors”.

On February 28, 2022, we announced our intention to exit our ventures with Gazprom. On March 8, 2022, we announced our intention to withdraw from our involvement in all Russian hydrocarbons in a phased manner. For more information, see Note 32.

Capital allocation: target shareholder distributions of 20-30% OF CFFO

Clear capital allocation framework

Putting the framework into operation

1st priority

Clear capital allocation framework

Base cash capex

Ordinary progressive dividend

Putting the framework into operation

  • $19-22 billion cash capex per annum to sustain our strategy
    • Inorganic capex included in the range
  • ~4% dividend per share growth annually, subject to Board approval

2nd priority

Clear capital allocation framework

AA credit metrics through the cycle

Putting the framework into operation

  • Net debt level to target AA credit metrics

3rd priority

Clear capital allocation framework

Additional shareholder distributions

Putting the framework into operation

  • Total shareholder distributions of 20-30% of CFFO comprise dividend and share buybacks
    • Amount based on cash generation, macro-outlook and balance sheet trajectory

4th priority

Clear capital allocation framework

Additional cash capex

Continued balance sheet strengthening

Putting the framework into operation

  • Measured, disciplined cash capex spend to execute our strategy at pace
  • Further reduce net debt to achieve firm long-term AA credit metrics

First cash priority also includes interest paid (CFFF).

Base cash capex includes spend on asset integrity and to sustain and grow value. Additional cash capex includes further growth.