Financial framework

We manage our businesses to deliver strong cash flows, sustain our strategy and create profitable growth. Management applies Shell's cash to support disciplined capital expenditure and maintain a resilient balance sheet; target AA credit metrics through the cycle; deliver a progressive dividend to shareholders with growth of around 4% annually (subject to Board approval); and target total distributions to shareholders of 30-40% of our cash flow from operating activities through the cycle.

The Board may choose to return cash to shareholders through a combination of dividends and share buybacks. When setting the level of shareholder distributions, the Board looks at a range of factors, including the macro environment, the underlying business earnings and cash flows of the Group, the current balance sheet, future investment, acquisition and divestment plans, and existing commitments.

Liquidity and capital resources

Shell generated free cash flow* of $36.5 billion in 2023, aided by disciplined capital management, portfolio simplification and operational performance improvements. Net debt* decreased to $43.5 billion at December 31, 2023 (December 31, 2022: $44.8 billion). Total debt reduced to 81.5 billion at December 31, 2023 (December 31, 2022: 83.8 billion), Gearing* decreased to 18.8% at December 31, 2023, compared with 18.9% at December 31, 2022.

Liquidity

We satisfy our funding, liquidity and working capital requirements by using cash generated from our operations, the issuance of debt and through divestments. In 2023, access to the international debt capital markets remained strong, with our debt principally financed from these markets through central debt programmes consisting of:

• a $10 billion global commercial paper (CP) programme, with maturities between 183 days and 364 days;
• a $10 billion US CP programme, with maturities not exceeding 397 days;
• an unlimited Euro medium-term note (EMTN) programme (also referred to as the Multi-Currency Debt Securities Programme); and
• an unlimited US universal shelf (US shelf) registration.

The CP, EMTN and US shelf debt is issued by Shell International Finance B.V., the issuance company for Shell, with its debt being guaranteed by Shell plc. In the future, Shell will also be able to issue debt through a new US subsidiary, Shell Finance US Inc., with its debt also being guaranteed by Shell plc.

We also maintain committed credit facilities. Of the $9.92 billion total facility, $1.92 billion matures in 2024 (with a one-year bank extension option, taking final maturity to 2025) and $8.0 billion in 2026. This remained fully undrawn at December 31, 2023. These core facilities and cash on balance sheet provide back-up coverage for our CP programmes. Other than certain borrowings by subsidiaries in their local jurisdictions, we do not have any other committed credit facilities.

Our total debt decreased by $2.3 billion to $81.5 billion at December 31, 2023. The total debt excluding lease liabilities matures as follows: 10% in 2024; 12% in 2025; 7% in 2026; and 71% in 2027 and beyond. The portion of debt maturing in 2024 is expected to be repaid from some combination of cash balances, cash generated from operations, divestments and the issuance of new debt. In 2023, we did not issue any bonds under our US shelf registration, EMTN programme or CP programmes. The Group had no CP outstanding at December 31, 2023. Management believes it has access to sufficient debt funding sources (capital markets) and to undrawn committed borrowing facilities to meet foreseeable requirements.

While our subsidiaries are subject to restrictions, such as foreign withholding taxes on the transfer of funds in the form of cash dividends, loans or advances, such restrictions are not expected to have a material impact on our ability to meet our cash obligations.

Market risk and credit risk

We are affected by the global macroeconomic environment, as well as financial and commodity market conditions. This exposes us to treasury and trading risks, including liquidity risk, credit risk, and market risk (interest rate risk, foreign exchange risk and commodity price risk). The size and scope of our businesses require a robust financial control framework and effective management of our various risk exposures.

We use various financial instruments for managing exposure to commodity price, foreign exchange and interest rate movements. Our treasury and trading operations are highly centralised and seek to manage credit exposures associated with our substantial cash, commodity, foreign exchange and interest rate positions. Our portfolio of cash investments is diversified to avoid concentrating risk in any one instrument, country or counterparty. The use of external derivative instruments is confined to specialist trading and central treasury organisations that have robust control and reporting systems, and employees with appropriate skills, experience and supervision. Credit risk policies are in place to ensure that sales of products are made to customers with appropriate creditworthiness, and include credit analysis and monitoring of customers against counterparty credit limits. Where appropriate, netting arrangements, credit insurance, prepayments and collateral are used to manage credit risk.

In effecting commodity trades and derivative contracts, we operate according to internal procedures and policies designed to ensure that market risks are managed within authorised limits and trading can only be performed by staff with the appropriate skills and experience. We closely monitor developments in sanctions and export controls to ensure compliance with applicable laws and regulatory guidance. Management regularly reviews mandated trading limits. A department that is independent from our traders monitors our market risk exposures daily, using value-at-risk techniques alongside other risk metrics as appropriate.

Pension commitments

We have substantial pension commitments, the funding of which is subject to capital market risks. We address key pension risks in a number of ways. A pensions forum, chaired by the Chief Financial Officer, oversees Shell's input to pension strategy, policy and operation. A risk committee supports the forum in reviewing the results of assurance processes with respect to pension risks. Local trustees manage the funded defined benefit pension plans and set the strategic asset allocation for the plan, including the extent to which currency, interest rate and inflation risks are hedged. The contributions paid are based on independent actuarial valuations that align with applicable local regulations. Pension fund liquidity is managed by holding appropriate liquid assets and maintaining credit facilities. Where appropriate, transactions to transfer pension liabilities to third parties are also considered. Our total employer contributions were $0.7 billion in 2023 and are estimated to be $0.5 billion in 2024.

Guarantees and other off-balance sheet arrangements

There were no guarantees or other off-balance sheet arrangements at December 31, 2023, or December 31, 2022, that were reasonably likely to have a material effect on Shell.

Consolidated Statement of Cash Flows

Cash flow from operating activities in 2023 was $54.2 billion, compared with $68.4 billion in 2022. The cash flow from operating activities in 2023 was primarily driven by Adjusted EBITDA, and working capital inflow of $7.8 billion (compared with working capital outflow of $5.4 billion in 2022), partly offset by tax payments of $13.7 billion (compared with tax payments of $13.1 billion in 2022), and derivatives outflow of $6.1 billion (compared with derivatives inflow of $0.6 billion in 2022).

Cash flow from investing activities in 2023 was an outflow of $17.7 billion, compared with an outflow of $22.4 billion in 2022. The cash flow from investing activities in 2023 included cash capital expenditure* of $24.4 billion (compared with cash capital expenditure of $24.8 billion in 2022), divestment proceeds* of $3.1 billion (compared with divestment proceeds of $2.1 billion in 2022), interest received of $2.1 billion (compared with interest received of $0.9 billion in 2022), and net other investing cash inflows of $1.4 billion (compared with net other investing cash outflows of $0.6 billion in 2022).

Cash flow from financing activities in 2023 was an outflow of $38.2 billion, compared with outflows of $42.0 billion in 2022, mainly due to lower repurchases of shares of $14.6 billion (2022: $18.4 billion) and Derivative financial instruments favourable movement of $0.7 billion (2022: $1.8 billion unfavourable movement), partly offset by higher net repayment of debt of $9.8 billion (2022: $7.9 billion net repayment).

Cash and cash equivalents were $38.8 billion at December 31, 2023 (December 31, 2022: $40.2 billion).

Prior year Consolidated Statement of Cash Flows

Our Consolidated Statement of Cash Flows for the financial year ended December 31, 2022, compared with the financial year ended December 31, 2021, can be found in the Annual Report and Accounts (page 241) and Form 20-F (page 219) for the year ended December 31, 2022, as filed with the Registrar of Companies for England and Wales and the US Securities and Exchange Commission, respectively.

Cash flow from operating activities

The most significant factors affecting our cash flow from operating activities are earnings, which are mainly impacted by: realised prices for crude oil, natural gas and LNG; production levels of crude oil, natural gas and LNG; chemicals, refining and marketing margins; and movements in working capital and derivative financial instruments.

The impact on earnings from changes in market prices depends on: the extent to which contractual arrangements are tied to market prices; the dynamics of production-sharing contracts; the existence of agreements with governments or state-owned oil and gas companies that have limited sensitivity to crude oil and natural gas prices; tax impacts; and the extent to which changes in commodity prices flow through into operating expenses. Changes in benchmark prices of crude oil and natural gas in any particular period provide only a broad indicator of changes in our Integrated Gas and Upstream earnings in that period. Changes in any factors, from within the industry or the broader economic environment, can influence refining and marketing margins. The precise impact of any changes depends on how the oil markets respond to them. The market response is affected by factors such as: whether the change affects all crude oil types or only a specific grade; regional and global crude oil and refined products inventories; and the collective speed of response of refiners and product marketers in adjusting their operations. As a result, margins fluctuate from region to region and from period to period.

Divestment and cash capital expenditure

The levels of divestment proceeds and cash capital expenditure in 2023 and 2022 reflect our discipline and focus as we implement our Powering Progress strategy. Proceeds from sale of property, plant and equipment and businesses were $2.6 billion for 2023, compared with $1.4 billion in 2022 and divestment proceeds* for 2023 were $3.1 billion, compared with $2.1 billion in 2022. Cash capital expenditure split per segment is presented in the table below:

Contractual obligations

The table below summarises our principal contractual obligations at December 31, 2023, by expected settlement period. The amounts presented have not been offset by any committed third-party revenue in relation to these obligations.

Dividends

Subject to Board approval, Shell aims to grow the dividend per share by around 4% every year. In total, Shell targets the distribution of 30--40% of our cash flow from operations through the cycle to shareholders. Shell may choose to return cash to shareholders through a combination of dividends and share buybacks.

When setting the level of shareholder distributions, the Board looks at a range of factors, including the macro environment, the earnings and cash flows of the Group, the current balance sheet, future investment, acquisition and divestment plans and existing commitments. We returned $8.4 billion to our shareholders through dividends and $14.6 billion through share buybacks in 2023. Total shareholder distributions represented 42% of cash flow from operating activities*.

The fourth quarter 2023 dividend of $0.344 per share will be paid on March 25, 2024, to shareholders on the register at February 16, 2024, and represents an increase of 4% compared with the third quarter of 2023.

Purchases of securities

The intent to purchase shares was announced alongside the quarterly results during 2023, and covered the period up until the next quarterly announcement. In 2023, share buybacks of $4 billion were announced on February 2, $4 billion on May 4, $3 billion on July 27 and $3.5 billion on November 2 (finalised in the first quarter of 2024). In addition, on February 1, 2024, a further buyback of $3.5 billion was announced along with the fourth quarter 2023 results; it is intended that this will be completed by the announcement date of the first quarter 2024 results.

During 2023, 479.4 million ordinary shares were purchased and cancelled. Overall, a total nominal share value of €34 million ($40 million), 6.8% of the Company's total issued share capital at December 31, 2022, was purchased and cancelled during 2023 for a total cost of $14.6 billion, including expenses, at an average price of $30.43 per share.

The buybacks completed in the first half of 2023 were in accordance with the authorities granted by shareholders at the 2022 Annual General Meeting (AGM). The buybacks completed in the second half of 2023 were in accordance with the authorities granted by shareholders at the 2023 AGM. At the 2023 AGM, authority was granted for the Company to repurchase up to a maximum of 10% of its issued ordinary shares, excluding treasury shares, (692 million ordinary shares), both on and off market, allowing purchases on Amsterdam as well as London exchanges. As at December 31, 2023, 512 million ordinary shares could still be repurchased under the current AGM authorities. The purpose of the share repurchases in 2023 was to reduce the issued share capital of the Company.

New resolutions will be proposed at the 2024 AGM to renew the authority for the Company to purchase its own share capital, up to specified limits, for a further year. These proposals will be described in more detail in the 2024 Notice of Annual General Meeting.

Shares are also purchased by the employee share ownership trusts and trust-like entities (see Note 27 to the "Consolidated Financial Statements") to meet delivery commitments under employee share plans. All share purchases are made in open-market transactions.

The table below provides information on purchases of shares in 2023 and January 2024 by the Company and affiliated purchasers. Purchases in euros and sterling are converted into dollars using the exchange rate on each transaction date.

Financial information relating to the Royal Dutch Shell Dividend Access Trust

The results of the Royal Dutch Shell Dividend Access Trust (the Trust) are included in the consolidated results of operations and financial position of Shell. Certain condensed financial information in respect of the Trust is given below.

The Shell Transport and Trading Company Limited and BG Group Limited have each issued a dividend access share to Computershare Trustees (Jersey) Limited (the Trustee). For the years 2023, 2022 and 2021, the Trust recorded income before tax of £nil, £nil, and £2.2 billion respectively. In each period, this reflected the amount of dividends payable on the dividend access shares. Dividends are also classified as unclaimed where amounts have not cleared recipient bank accounts.

At December 31, 2023, the Trust had total equity of £nil (December 31, 2022: £nil; December 31, 2021: £nil), reflecting assets of £4 million (December 31, 2022: £6 million; December 31, 2021: £7 million) and unclaimed dividends of £4 million (December 31, 2022: £6 million; December 31, 2021: £7 million). The Trust only records a liability for an unclaimed dividend to the extent that dividend cheque payments have not been presented within 12 months, have expired or have been returned unpresented. As these unclaimed dividends relate to dividends that were announced by the Company during the period the Company was still named Royal Dutch Shell plc, and it is expected that the Company will not announce any further dividends on the dividend access shares, the Trust continues to be named the Royal Dutch Shell Dividend Access Trust.

On January 29, 2022, one line of shares was established through assimilation of each A share and each B share into one ordinary share of the Company. This assimilation had no impact on voting rights or dividend entitlements. Dutch withholding tax, applied previously on dividends on A shares, no longer applies on dividends paid on the ordinary shares following the assimilation.

In relation to the assimilation of the Company's A and B shares, the Trust will continue in existence for the foreseeable future to facilitate the payment of unclaimed dividend liabilities for shareholders of the former B shares until these are either claimed or forfeited in line with the terms outlined. Dividends which are unclaimed after six years will be forfeited and unconditionally revert to The Shell Transport and Trading Company Limited and BG Group Limited, as appropriate.

* Non-GAAP measure (see Non-GAAP measures reconciliations).