MAGGIE PAGANO: Shell boss bets on the black stuff

Green is out and black is back. It’s a comeback that’s been bubbling in the oil industry for a while, but Shell boss Wael Sawan is now big on supporting the shift.

In a seismic turn of events, the CEO who took office in January is abandoning plans to cut oil production.

Instead, Sawan wants to keep fossil fuel production stable for the rest of the decade, promising it will only invest in the “models that work – those with the highest returns that capitalize on our strengths.”

He means focusing on the black stuff – for now. This is a big deal from Shell.

In addition to easing its predecessor’s plans to cut production by about 1 to 2 percent a year, Shell promises to deliver much higher returns to shareholders and close the valuation gap with industry peers such as Exxon Mobil and Chevron.

To make his point, the Lebanese-Canadian chief was in New York yesterday to talk to investors about his strategy, which he hopes will lead to a revaluation of the stock.

Sawan has said it will focus on better cost control and a stronger capital base. There is also the promise of a £3.9 billion share buyback.

His goal is to return up to 40 percent of trading cash flow to shareholders, up from between 20 and 30 percent previously.

But they may need more evidence of Sawan’s new strategy before they’re convinced he can keep his word: Dividends are still much lower than those paid before the pandemic, when earnings collapsed.

Oil and gas may be back in demand, but what about the green projects? Under the leadership of Ben van Beurden, Shell set a target of carbon neutrality by 2050, a target that surprised even the most active activists.

It is prudent for Sawan to be more cautious: while reiterating the goal, he also warns that such a commitment is unlikely to be met if society is not net zero by then.

At the same time, Shell isn’t giving up on its renewable technology – it aims to invest between £7.9bn and £11.8bn between 2023 and 2025 in low-carbon products, including biofuels, hydrogen, electric vehicle charging and carbon capture and storage.

Even more sensibly, Sawan raises the most pertinent point, which is that Shell needs to maximize profits to support investments in the transition from hydrocarbons to cleaner sources.

And the need for fossil fuels will continue for some time, especially in the developing world, as there are no serious viable alternatives so far.

Even on a sunny day like yesterday, solar energy supplied less than a third of our electricity needs: gas and nuclear energy made up the largest part.

Investors welcomed Sawan’s strong no-nonsense words – and the 15 percent increase in dividend this quarter – and shares rose 0.4 percent to close at 2,305.4 pence.

He has made an impressive start.

New broom

Another new broom making big moves is Margherita Della Valle.

Vodafone’s Italian chief executive, who took over in January, has wasted no time in pushing through the merger with Three UK, part of CK Hutchison.

Combining the UK operations of both mobile operators will make it the largest in the country with around 27 million customers, overtaking Virgin Media’s O2 with 24 million and BT-owned EE with 20 million.

The big test will be whether the Competition and Markets Authority, which makes much tougher decisions — such as Microsoft’s bid for Activision Blizzard — decides that a merger hurts competition and reduces choice.

Della Valle says no, but will have to work hard to convince the regulator that consumers will ultimately benefit because the need to fund three networks is less than four. Similar deals abroad have not led to price increases.

Labor problems

The US Federal Reserve’s decision to suspend rate hikes is a relief. But it won’t stop the Bank of England next Thursday – and beyond.

Nick Macpherson, former Permanent Secretary of the Treasury, is probably right when he warns that the Bank will have to raise interest rates to a level where a recession next year is inevitable.

If the government does not speed up labor reforms and cut taxes to make work more attractive again, it will enter the election in a recession, with potentially thousands of homeowners in negative equity. Not a good look.