Shell CEO’s Next Test Is Turning Cash Windfall Into Growth

Welcome to our guide to the commodities driving the global economy. Today, reporter Mitchell Ferman looks at the next big test for Shell’s CEO after bumper earnings.

Shell Plc has shown it knows how to make money when energy markets go haywire. Chief Executive Officer Wael Sawan’s next act is turning that cash into sustainable growth.

The CEO spent his first three years in the job tightening spending, cutting costs and strengthening the balance sheet while returning billions of dollars to investors. As a result, Shell has outperformed its biggest peers on total shareholder returns since he took over.

Now, war and supply disruptions are supercharging Shell. The company just posted its second-highest quarterly profit ever, allowing it to lift its share buyback to $5 billion, on par with industry leader ExxonMobil Holdings Corp.

With cash pouring in and net debt falling, Sawan has more financial firepower than ever to pursue what has become a key challenge for Shell — growth. For all its recent gains, the company still trades at a hefty valuation discount to faster-growing US rivals Chevron Corp. and ExxonMobil.

Some large investors have told Bloomberg they want Sawan to drive sustainable growth, but not chase extra barrels just for the sake of it. Financial discipline should be paired with a clearer plan for the next phase of capital deployment and long-term expansion, they said.

Investors should get a clearer idea of the CEO’s plan when Shell holds its first capital markets day update for two years in February.

Shell has laid some groundwork for growth and shown an appetite to spend for it. The company’s $13.6 billion purchase of ARC Resources Ltd. adds about 370,000 barrels of oil equivalent a day of production, while it recently approved with partners a $23 billion expansion of a liquefied natural gas project in Canada.

But the purse strings aren’t loosening too much.

Shell wants normalized free cash flow per share — a measure of the cash its business generates after spending, adjusted for commodity-price swings and other short-term factors — to grow by more than 10% through 2030. It also wants to keep annual investment around $20 billion to $22 billion for the next two years.

The question is how much further Sawan can deliver growth and narrow the gap with American rivals without losing the spending discipline investors have rewarded.

—Mitchell Ferman, Bloomberg News

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