Shell plc

Shell plc

Formerly	Royal Dutch Shell plc (2005-2022)
Type	Public
Traded as	LSE:SHEL EuronextAmsterdam:SHELL NYSE:SHEL FTSE 100 Component AEX Component
ISIN	GB00BP6MXD84
Industry	Energy Petroleum
Predecessor	Royal Dutch Petroleum Company (1890) The "Shell" Transport and Trading Company (1897)
Founded	April 1907 (1907-04) (original amalgamation) July 20, 2005 (2005-07-20) in Shell Centre, London (current entity)
Founder	Marcus & Samuel Samuel (Shell Transport and Trading Co.) Jean B.A. Kessler Henri Deterding Hugo Loudon (Royal Dutch Petroleum Co.)
Headquarters	Shell Centre, London , England
Area served	Worldwide
Key people	Wael Sawab (CEO) Andrew Mackenzie (Chairperson)
Products	LNG Lubricants Natural gas Petrochemicals Petroleum
Brands	Jiffy Lube Pennzoil Quaker State Shell Advance Shell Helix Shell Nautilus Shell Rimula Shell Rotella Shell V-Power
Revenue	US$381.3 billion (2022)
Operating income	US$68.0 billion (2022)
Net income	US$42.9 billion (2022)
Total assets	US$443.0 billion (2022)
Total equity	US$192.6 billion (2022)
Number of employees	86,000 (2022)
Divisions	Shell Chemicals Shell Gas & Power
Subsidiaries	Shell Australia Shell Canada Shell Chile Shell Hong Kong Shell India Shell Italia Shell Nigeria Shell Oman Shell Pakistan Shell Philippines Shell South Africa Shell Tunisia Shell US
Website	https://www.shell.com
Footnotes / references References:

Shell plc operates as an energy and petrochemical company Europe, Asia, Oceania, Africa, the United States, and Rest of the Americas. The company operates through Integrated Gas, Upstream, Marketing, Chemicals and Products, and Renewables and Energy Solutions segments. It explores for and extracts crude oil, natural gas, and natural gas liquids; markets and transports oil and gas; produces gas-to-liquids fuels and other products; and operates upstream and midstream infrastructure necessary to deliver gas to market. The company also markets and trades natural gas, liquefied natural gas (LNG), crude oil, electricity, carbon-emission rights; and markets and sells LNG as a fuel for heavy-duty vehicles and marine vessels. In addition, it trades in and refines crude oil and other feed stocks, such ase low-carbon fuels, lubricants, bitumen, sulphur, gasoline, diesel, heating oil, aviation fuel, and marine fuel; produces and sells petrochemicals for industrial use; and manages oil sands activities. Further, the company produces base chemicals comprising ethylene, propylene, and aromatics, as well as intermediate chemicals, such as styrene monomer, propylene oxide, solvents, detergent alcohols, ethylene oxide, and ethylene glycol. Additionally, it generates electricity through wind and solar resources; produces and sells hydrogen; and provides electric vehicle charging services, as well as electricity storage. The company was formerly known as Royal Dutch Shell plc and changed its name to Shell plc in January 2022. Shell plc was founded in 1907 and is headquartered in London, the United Kingdom.

Industry Overview & Market Opportunity

• Analyse the current energy market, including trends, demand-supply dynamics, and regulatory factors.
• Identify the specific segment that Shell operates in.
• Analyse the growth potential of the market segment.

Company Overview

• Overview of the company, including its history, business model, and key operations.
• Key financial metrics such as revenue growth, profit margins, return on investment, and cash flow generation.
• Provide an overview of Shell, including its history, business model, and key operations.
• Financial Analysis and assess the Shell's financial performance.

Operations

Shell operates in various segments of the energy industry, engaging in exploration, production, refining, and marketing activities. An overview of Shell's key operations is explained below:

1. Upstream Operations: Shell's upstream operations involve the exploration, development, and production of oil and natural gas reserves. The company actively explores for hydrocarbon resources worldwide, including both conventional and unconventional sources. Shell has significant upstream activities in various regions, such as North America, Europe, Africa, Asia, and the Middle East. The company employs advanced technologies and techniques to maximize the recovery of hydrocarbons while ensuring operational safety and environmental stewardship.
2. Integrated Gas Operations: Shell's integrated gas segment focuses on the liquefied natural gas (LNG) business. The company is a leading producer and marketer of LNG, providing cleaner-burning natural gas to customers globally. Shell has expertise in the entire LNG value chain, including production, liquefaction, transportation, regasification, and marketing. The company operates LNG facilities in different parts of the world, supplying LNG to power generation, industrial, and residential customers.
3. Refining and Chemicals Operations: Shell is involved in refining crude oil into petroleum products and manufacturing petrochemicals. The company operates refineries globally, processing crude oil to produce gasoline, diesel, jet fuel, and other refined products. Shell's petrochemical plants produce a wide range of chemicals used in various industries, including plastics, coatings, and detergents. The refining and chemicals operations are integrated to optimize production and maximize value from hydrocarbon resources.
4. Marketing and Retail: Shell has an extensive retail network, operating a global chain of service stations where customers can purchase fuels, lubricants, and convenience store items. The company's retail operations span multiple countries, and Shell-branded service stations are recognized worldwide. Shell's marketing activities also include the distribution of aviation fuels, marine fuels, and related services to the transportation sector.
5. Renewable Energy and Low-Carbon Initiatives: In line with the global transition to a low-carbon economy, Shell has been actively expanding its presence in renewable energy and low-carbon technologies. The company has made investments in renewable power generation, including wind and solar energy projects. Shell is also involved in electric vehicle charging infrastructure, biofuels production, and energy storage solutions. These initiatives reflect Shell's commitment to reducing carbon emissions and participating in the energy transition.

Shell's operations are characterized by a focus on technological innovation, operational efficiency, and sustainable practices. The company seeks to balance energy production with environmental responsibility, aiming to provide reliable and cleaner energy solutions to meet the world's growing energy demand.

Competitors

• Compare Shell's financial performance to industry benchmarks and competitors.
• Globally, Shell's key competitors are other Integrated Oil Companies such as BP, Chevron and Exxon Mobil
• Over the last few decades National Oil Companies (NOCs) having increased their size and now the major NOCs lead the production of Shell
• The three largest NOCs — Saudi Aramco, Gazprom and Iran — produce more than 25 percent of global hydrocarbon output.
• Furthermore, NOCs are now estimated to control over 85 percent of global oil reserves and much of the global oil and gas infrastructure.
• A major portion of the predicted undiscovered reserves in the world are in the countries where NOCs hace direct and priveleged access.
• In line with IOCs, the NOCs are looking for diversification of their existing portfolios away from hydrocarbons and into alternative energy. For instance, Saudi Aramco recently announced new plans to diversify its energy mix and produce 10 percent of its power from renewable sources in the next 6 years.

Risk

Strategic risks

The company is exposed to macroeconomic risks including fluctuating prices of crude oil, natural gas, oil products and chemicals.

The company's ability to deliver competitive returns and pursue commercial opportunities depends in part on the accuracy of its price assumptions.

Shell's ability to achieve its strategic objectives depends on how it reacts to competitive forces.

Rising concerns about climate change and effects of the energy transition could continue to lead to a fall in demand and potentially lower prices for fossil fuels. Climate change could also have a physical impact on its assets and supply chains. This risk may also lead to additional legal and/or regulatory measures, resulting in project delays or cancellations, potential additional litigation, operational restrictions and additional compliance obligations.

Investments in the company's low-carbon products and services may not achieve expected returns.

Shell operates in more than 70 countries that have differing degrees of political, legal and fiscal stability. This exposes the company to a wide range of political developments that could result in changes to contractual terms, laws and regulations. Shell and its joint arrangements and associates also face the risk of litigation and disputes worldwide.

The increasing adoption of renewable energy sources and policies promoting decarbonization may reduce the demand for fossil fuels, affecting Shell's traditional business and requiring a strategic shift towards cleaner energy solutions.

Operational risks

Russia’s invasion of Ukraine has affected the safety and security of its people and operations in these and neighbouring countries. The resulting sanctions and export controls and the evolving geopolitical situation have caused wide-ranging challenges to its operations which could continue in the medium to longer term.

The estimation of proved oil and gas reserves involves subjective judgements based on available information and the application of complex rules. This means subsequent downward adjustments are possible.

Shell's future hydrocarbon production depends on the delivery of large and integrated projects and its ability to replace proved oil and gas reserves.

The nature of Shell's operations exposes it, and the communities in which it works, to a wide range of health, safety, security and environment risks.

A further erosion of the business and operating environment in Nigeria could have a material adverse effect on the company.

An erosion of Shell's business reputation could have a material adverse effect on its brand, its ability to secure new resources or access capital markets, and on its licence to operate.

Shell relies heavily on information technology systems in its operations.

Shell's business exposes it to risks of social instability, criminality, civil unrest, terrorism, piracy, cyber disruption and acts of war that could have a material adverse effect on the company operations.

Production from the Groningen field in the Netherlands causes earthquakes that affect local communities.

Shell is exposed to treasury and trading risks, including liquidity risk, interest rate risk, foreign exchange risk and credit risk. The company is affected by the global macroeconomic environment and the conditions of financial and commodity markets.

The company's future performance depends on the successful development and deployment of new technologies that provide new products and solutions.

Shell has substantial pension commitments, the funding of which is subject to capital market risks and other factors.

The company mainly self-insure its hazard risk exposures. Consequently, the company could incur significant financial losses from different types of risks that are not insured with third-party insurers.

Many of the company's major projects and operations are conducted in joint arrangements or with associates. This could reduce Shell's degree of control and its ability to identify and manage risks.

Shell undertakes large-scale projects, such as oil and gas field development or refinery expansions. Delays or cost overruns in these projects can impact profitability and investor confidence.

Conduct and culture risks

Shell is exposed to regulatory and conduct risk in its trading operations.

Violations of antitrust and competition laws carry fines and exposes the company and/or its employees to criminal sanctions and civil suits.

Violations of anti-bribery, tax-evasion and anti-money laundering laws carry fines and exposes the company and/or its employees to criminal sanctions and civil suits.

Violations of data protection laws carry fines and exposes the company and/or its employees to criminal sanctions and civil suits.

Violations of trade compliance laws and regulations, including sanctions, carry fines and exposes the company and its employees to criminal proceedings and civil suits.

As a multinational company operating in multiple jurisdictions and with multiple governments, Shell must comply with a multitude of anti-corruption laws, such as the Foreign Corrupt Practices Act (FCPA) in the US and the UK Bribery Act. Non-compliance or unethical practices can lead to significant legal and reputational risks, which can have long lasting effects on the company. The increase in regulation of greenhouse gas emissions worldwide is an important policy that Shell must follow closely.

Operating in dangerous sectors such as the petroleum industry means that Shell may face lawsuits or regulatory investigations focused on different aspects of its business/operations, including environmental impact, safety incidents, or antitrust violations. This can result in financial penalties, damage in reputation and disruptions in worldwide operations.

The recent incidents in its Nigeria-based operation where there is not only added such as: security issues surrounding the safety of its people, host communities and operations; sabotage and theft; and the company's ability to enforce existing contractual rights. Further, the risks include litigation; limited infrastructure; potential legislation that could increase the company's taxes or costs of operations; the impact of lower oil and gas prices on the government budget; and regional instability created by militant activities. Moreover, the Nigerian government is contemplating new legislation to govern the petroleum industry which, if passed into law, could likely have a significant adverse impact on Shell's existing and future activities in Nigeria.

Other risks

The company’s Articles of Association determine the jurisdiction for shareholder disputes. This could limit shareholder remedies.

Valuation

The following is an absolute valuation of Shell plc, by using a 10 year discounted cash flow (DCF) model.

Financials

Units ($m)	2017	2018	2019	2020	2021	2022
Total Revenue	305,179.00	388,379.00	344,877.00	180,543.00	261,504.00	381,314.00
% Growth		27.3%	-11.2%	-47.7%	44.8%	45.8%
Purchases	-    223,447.00	- 294,399.00	- 252,983.00	- 117,093.00	-  174,912.00	-  258,488.00
Production and Manufacturing Expenses	-      26,652.00	-   26,970.00	-   26,438.00	-   24,001.00	-    23,822.00	-    25,518.00
Selling, Distribution and Admin Expenses	-      10,509.00	-   11,360.00	-   10,493.00	-    9,881.00	-    11,328.00	-    12,883.00
R&D Expenses	-           922.00	-       986.00	-       962.00	-       907.00	-         815.00	-      1,075.00
Exploration Expenses	-        1,945.00	-    1,340.00	-    2,354.00	-    1,747.00	-      1,423.00	-      1,712.00
EBIT	41,704.00	53,324.00	51,647.00	26,914.00	49,204.00	81,638.00
Depreciation & Amortisation	26,223.00	22,135.00	28,701.00	52,444.00	26,921.00	18,529.00
CapEx	-      20,845.00	-   23,011.00	-   22,971.00	-   16,585.00	-    19,000.00	-    22,600.00
Current Assets	95,404.00	97,482.00	92,689.00	90,695.00	128,765.00	165,938.00
Cash	20,312.00	26,741.00	18,055.00	31,830.00	36,970.00	40,246.00
Current Liabilities	77,813.00	79,767.00	79,624.00	73,951.00	94,294.00	119,916.00
Net Change in Working Capital	-        2,721.00	-    9,026.00	-    4,990.00	-   15,086.00	-      2,499.00	5,776.00
Net Change in Working Capital (increasing/decreasing)		6,305.00	-    4,036.00	10,096.00	-    12,587.00	-      8,275.00
Other information
Growth	-	27.3%	-11.2%	-47.7%	44.8%	45.8%
Purchases % of revenue	73.2%	75.8%	73.4%	64.9%	66.9%	67.8%
P&M Expenses % of revenue	8.7%	6.9%	7.7%	13.3%	9.1%	6.7%
SD&A Expenses % of revenue	3.4%	2.9%	3.0%	5.5%	4.3%	3.4%
R&D Expenses % of revenue	0.3%	0.3%	0.3%	0.5%	0.3%	0.3%
Exploration Expenses % of revenue	0.6%	0.3%	0.7%	1.0%	0.5%	0.4%
Depreciation % of revenue	8.6%	5.7%	8.3%	29.0%	10.3%	4.9%
CapEx % of revenue	6.8%	5.9%	6.7%	9.2%	7.3%	5.9%
Assets % of revenue	31.3%	25.1%	26.9%	50.2%	49.2%	43.5%
Cash % of revenue	6.7%	6.9%	5.2%	17.6%	14.1%	10.6%
Liabilities % of revenue	25.5%	20.5%	23.1%	41.0%	36.1%	31.4%

Model Assumptions

	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032	Explanations
Growth	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	1
Purchases % of revenue	66.7%	65.6%	64.5%	63.4%	62.3%	61.2%	60.1%	59.0%	57.9%	56.8%	2
P&M Expenses % of revenue	6.3%	5.9%	5.5%	5.1%	4.6%	4.2%	3.8%	3.4%	3.0%	2.6%	3
SD&A Expenses % of revenue	3.8%	3.8%	3.8%	3.8%	3.8%	3.8%	3.8%	3.8%	3.8%	3.8%	4
R&D Expenses % of revenue	0.3%	0.3%	0.3%	0.3%	0.3%	0.3%	0.3%	0.3%	0.3%	0.3%	5
Exploration Expenses % of revenue	0.4%	0.4%	0.3%	0.3%	0.2%	0.2%	0.2%	0.1%	0.1%	0.0%	6
Depreciation % of revenue	4.1%	3.4%	2.6%	1.9%	1.1%	0.4%	-0.4%	-1.1%	-1.9%	-2.6%	7
CapEx % of revenue	6.5%	6.5%	6.5%	6.5%	6.5%	6.5%	6.5%	6.5%	6.5%	6.5%	8
Assets % of revenue	45.5%	47.5%	49.5%	51.5%	53.5%	55.5%	57.5%	59.5%	61.5%	63.5%	9
Cash % of revenue	11.2%	11.8%	12.4%	13.0%	13.6%	14.2%	14.8%	15.4%	16.0%	16.6%	10
Liabilities % of revenue	32.4%	33.4%	34.4%	35.4%	36.4%	37.4%	38.4%	39.4%	40.4%	41.4%	11

1 - Average revenue growth is 4.2% per year from 2017 to 2022. The same revenue growth is forecast.

2 - Average decrease in purchasing expenses is 1.1% per year from 2017 to 2022, the same decrease in purchasing is forecast.

3 - Average decrease in production and manufacturing expenses is 0.41% per year from 2017 to 2022, the same decrease is forecast.

4 - Average selling, distribution and admin expense is 3.8% per year from 2017 to 2022, this average is forecast.

5 - Average research and development expense is 0.3% per year from 2017 to 2022, this average is forecast.

6 - Average decrease in exploration expenses is 0.04% per year from 2017 to 2022, the same decrease is forecast.

7 - Average decrease in depreciation and amortisation is 0.75% per year from 2017 to 2022, the same decrease is forecast.

8 - Average CapEx is 6.5% per year from 2017 to 2022, this average is forecast.

9 - Average asset growth is 2% per year from 2017 to 2022, the same increase is forecast.

10 - Average cash growth is 0.6% per year from 2017 to 2022, the same increase is forecast.

11 - Average liabilities increase is 1% per year from 2017 to 2022, the same increase is forecast.

WACC Calculation (units $ m)

Risk Free Rate of Return	4.4%
Beta	1.21
Market Rate of Return	7.4%
Cost of Equity	8.0%
Credit Spread	0.85%
Cost of Debt	3.5%
Shares Outstanding	7,345.31
Share Price	30.28
Equity	222,416.06
Short Term Debt	88,358.00
Long Term Debt	78,226.00
Cash and Cash Equivalents	40,246.00
Debt	126,338.00
E/D+E	63.8%
D/D+E	36.2%
WACC	6.0%

Forecast Financials

Units ($m)	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032
Total Revenue	397,168.82	413,682.87	430,883.56	448,799.45	467,460.27	486,897.00	507,141.90	528,228.56	550,192.00	573,068.67
% Growth	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%
Purchases	-264,866.92	-271,329.43	-277,871.43	-284,488.37	-291,175.17	-297,926.20	-304,735.23	-311,595.44	-318,499.28	-325,438.54
P&M Expenses	- 24,950.63	- 24,291.96	- 23,535.39	- 22,673.90	- 21,700.08	- 20,606.08	- 19,383.58	- 18,023.81	-16,517.44	- 14,854.64
SD&A Expenses	- 14,956.35	- 15,578.22	- 16,225.96	- 16,900.62	- 17,603.34	- 18,335.28	- 19,097.65	- 19,891.72	-  20,718.80	- 21,580.28
R&D Expenses	- 1,191.51	- 1,241.05	-1,292.65	-1,346.40	-1,402.38	-1,460.69	-1,521.43	-1,584.69	-1,650.58	-1,719.21
Exploration Expenses	- 1,624.32	-1,526.38	- 1,417.49	- 1,296.91	- 1,163.85	-1,017.49	- 856.94	- 681.28	- 489.53	- 280.65
EBIT	89,579.09	99,715.82	110,540.64	122,093.25	134,415.45	147,551.27	161,547.07	176,451.64	192,316.38	209,195.34
Tax Rate	34.0%	34.0%	34.0%	34.0%	34.0%	34.0%	34.0%	34.0%	34.0%	34.0%
Depreciation & Amortisation	16,320.66	13,896.64	11,242.83	8,344.30	5,185.30	1,749.18	-1,981.66	- 6,025.77	-10,402.76	-     15,133.31
CapEx	- 25,815.97	- 26,889.39	- 28,007.43	- 29,171.96	- 30,384.92	- 31,648.31	- 32,964.22	- 34,334.86	- 35,762.48	-     37,249.46
Current Assets	180,780.98	196,571.41	213,362.41	231,209.88	250,172.66	270,312.63	291,694.92	314,387.99	338,463.90	363,998.41
Cash	44,302.42	48,626.58	53,233.75	58,139.98	63,362.16	68,918.11	74,826.54	81,107.15	87,780.69	94,868.97
Current Liabilities	128,873.73	138,369.05	148,431.19	159,090.87	170,380.38	182,333.67	194,986.41	208,376.12	222,542.20	237,526.06
NCWC	7,604.84	9,575.77	11,697.46	13,979.04	16,430.12	19,060.86	21,881.97	24,904.72	28,141.01	31,603.37
NCWC (inc/dec)	-  1,828.84	- 1,970.94	- 2,121.69	- 2,281.57	-  2,451.08	- 2,630.74	- 2,821.11	- 3,022.75	- 3,236.29	-    3,462.36
FCF	47,798.05	50,848.76	54,070.53	57,472.31	61,063.50	64,853.97	68,854.08	73,074.71	77,527.28	82,223.79
Growth Rate										0%
Terminal Value										1,381,910.32
Discount Factor	0.97213908	0.91754506	0.86601697	0.81738263	0.77147953	0.72815428	0.68726212	0.64866641	0.612238184	0.577855716
Present Value of FCF	46,466.35	46,656.03	46,826.00	46,976.87	47,109.24	47,223.69	47,320.80	47,401.11	47,465.16	47,513.49
Present Value of Terminal Value										798,544.78
Enterprise Value										1,269,503.51
Equity Value										1,183,411.51
Share Price										$       161.11