BofA update shows where active managers are putting money
Investing.com -- Fitch Ratings has affirmed Shell Plc’s Long-Term Issuer Default Rating at ’AA-’ with a Stable Outlook and assigned it a Short-Term IDR of ’F1+’ on Thursday.
The rating agency also assigned ’F1+’ short-term ratings to Shell’s $10 billion global commercial paper program and $10 billion US commercial paper program issued by Shell and Shell International Finance BV.
Fitch stated that Shell’s rating reflects its large scale of global operations, broad business model across energy and petrochemicals markets, large hydrocarbon reserves, and low leverage. The company’s management is working to strengthen its portfolio while preparing for energy transition changes.
Shell’s business profile is supported by upstream production of 2.56 million barrels of oil equivalent per day, excluding joint ventures and affiliates. The company benefits from integration across the value chain and holds a leading position in LNG.
Fitch expects Shell’s EBITDA net leverage to increase to around 0.5x by 2027 from 0.2x at the end of 2024, based on its price assumptions for oil and gas. This projection includes shareholder distributions at 50% of cash flow from operations for 2025 and 45% for subsequent years.
At its capital markets day in March 2025, Shell increased its target range for shareholder distributions to 40-50% of cash flow from operations. The company has indicated it may use debt capacity or divestments to support shareholder returns during periods of lower hydrocarbon prices.
Shell’s updated strategy focuses on value creation of more than 10% organic free cash flow per share annually through 2030. The company plans disciplined capital allocation across upstream ($12-14 billion yearly) and downstream and renewables (around $8 billion yearly).
Fitch noted that Shell has invested in key energy transition technologies including carbon capture, renewable hydrogen, biofuels, renewable power, and electric charging. However, due to weak returns across many of these businesses, Shell will be more selective with investments over 2025-2027, with a 10% cap on capital expenditure for low carbon options and power.
The rating agency expects oil prices to be lower in 2025 due to weaker global economic growth and higher-than-anticipated output from OPEC+, though these pressures are partly offset by security risks in the Middle East.
Among EMEA oil and gas majors, Shell has the largest production profile with 2024 production of 2.6 million barrels of oil equivalent per day, compared to 2.1 million for TotalEnergies (EPA:TTEF) and 2.0 million for BP (NYSE:BP).
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