Shell

IThe business

Shell finds, makes, trades and sells oil, gas, power, fuels and chemicals. It reports six businesses. Integrated Gas produces natural gas, turns it into liquefied natural gas (LNG) and gas-to-liquids fuel, and trades LNG. Upstream produces oil and gas, mainly offshore. Marketing runs petrol stations, lubricants and fuels for airlines, shipping and farms. Chemicals and Products runs refineries, chemical plants and oil trading. Renewables and Energy Solutions trades power and pipeline gas and holds wind, solar and charging assets. Corporate holds the head office and the interest bill.² In 2025 Adjusted Earnings, Shell’s own profit measure, were $18.5B: Integrated Gas $8.0B, Upstream $7.4B, Marketing $4.0B, Chemicals and Products $1.1B, Renewables $0.2B and Corporate a cost of $1.9B R (reported).⁴ Adjusted Earnings strip out price effects on stock and one-off items such as impairments. Income to shareholders was $17.8B R (reported).⁵ So about two fifths of the segment profit came from gas and LNG, and a quarter from marketing and refining together.

A word on what you are buying. Shell plc is a British company. Its ordinary shares trade in London and Amsterdam and its American depositary shares, the ADSs, trade in New York. Each ADS stands for two ordinary shares.⁹ The price on this page is the New York price of one ADS in dollars, $104.94. In London the ordinary share closed at 3,921 pence, which at $1.339 a pound is $52.5 a share or $105.0 for two, within 0.1% of the New York close; the small gap is the 4.5 hours between the two closing times.¹⁸¹

Where the barrels and the gas come from

Production available for sale was 2.76 million barrels of oil equivalent a day in 2025, of which Integrated Gas made 0.93 million and Upstream 1.83 million.⁴ That is 13% less than the 3.18 million of 2021, because Shell has sold older assets, among them its Nigerian onshore business, and has left Russia.⁴²⁷ Proved reserves, the barrels the company can say with confidence it can produce at today’s prices, were 8,123 million at the end of 2025. That is down 1,497 million in a year: 1,070 million were produced, and sales and swaps took 1,203 million net, which new fields and revisions only partly made up, adding 776 million. At 2025 output they last 7.6 years C (calculated).² Shell has been selling older oil assets and buying gas: Pavilion Energy’s LNG business in 2025 and ARC in 2026.

Gas is where the strategy sits. Shell sold 72.9 million tonnes of LNG in 2025, up 11%, and made 28.4 million tonnes in plants it owns or shares in.⁴ It describes itself as supplying about 16% of the world’s LNG, from more than 10 countries to customers in more than 30.⁷ The difference between what it sells and what it makes is bought from others and resold, ahead of or behind the price, and that trading is a large part of the profit. About 80% of the LNG trading portfolio is contracted long term to 2029, mainly priced off Brent, and 30% to 40% of 2025 sales volumes were spot.⁷⁶ The jump in sales in 2025 came partly from buying Pavilion Energy’s LNG business in March.²

Two projects extend it. LNG Canada, in British Columbia, started up in 2025 and Shell has 40% of it. In September 2026 the partners took a final investment decision on Phase 2, which doubles the plant from 14 to 28 million tonnes a year and gives Shell nearly 6 million tonnes a year more, with start-up in the early 2030s.³² And on 2 September 2026 Shell completed the purchase of ARC Resources, a Montney shale gas and liquids producer that was making 374 thousand barrels of oil equivalent a day. Shell paid $13.9B: $3.3B in cash and 228 million new Shell shares, valued at £34.43 each.³¹⁰ It also took on $2.5B of net debt and leases and says it expects about $250M a year of savings.³¹⁰ ARC’s gas is meant to feed LNG Canada. The logic is clear. I cannot yet test the price, since Shell has owned ARC for one quarter.

One warning comes from Shell itself. Its March 2026 paper says the world LNG market is expected to grow by almost 40% by 2030 from 422 million tonnes a year, and that the industry consensus is a period of oversupply and weaker prices.⁷ A company that sells about a sixth of the world’s LNG is also one of the most exposed to that.

Refining and chemicals: a small business that had a great year

Chemicals and Products processed 1.22 million barrels of crude a day in 2025, down from 1.64 million in 2021 after asset sales, among them Singapore, and its refineries ran at 92% and its chemical plants at 78%.⁴ It earned $1.05B of Adjusted Earnings in 2025: a loss of $1.1B in chemicals and a profit of $2.2B in refining and trading R (reported).⁴⁶ Then the Gulf war changed refining. Shell’s indicative refining margin, a measure of what a typical barrel earns after crude cost, averaged $10.14 in 2025. It was $16.88 in the first quarter of 2026, $24.27 in the second and $41.57 in the third.⁶ The segment earned $8.7B in nine months, against $1.1B the year before, and $3.9B in the third quarter alone.³ Low water in the Rhine cut the Rheinland refinery’s run rate; utilisation was 96% in the third quarter, against 102% in the second.³ Chemicals made $0.1B in the quarter, and the CFO said it was free cash flow positive for a second quarter in a row.³¹⁹

Marketing and the rest

Marketing sold 2.75 million barrels a day of fuels and lubricants in 2025 through 42,700 branded locations, and earned $4.0B.⁴⁶ Shell says it is the world’s number one lubricants supplier, for a twentieth year in a row.¹⁹ The third quarter was weaker, $1.2B against $1.3B, and a $1.9B after-tax impairment on European biogas assets hit reported income.³ In the same quarter Shell agreed to dispose of its Sprng Energy group for $1.8B, and of its European onshore renewables portfolio.³ Renewables and Energy Solutions earned only $0.2B in 2025.⁴

The year the Strait closed

2026 is not a normal year. On 2 March QatarEnergy shut all its LNG production and declared force majeure, a legal notice that it cannot deliver. On 18 March an attack on Ras Laffan fire-damaged Shell’s Pearl gas-to-liquids plant, which makes 140 thousand barrels a day from two equal trains, and Shell said repairing the second train would take about a year.²⁰ Shell has 30% of a Qatari LNG plant, QatarEnergy LNG N(4), worth 2.4 million tonnes a year of its own LNG, and buys more LNG from other Qatari plants.²⁰ Shell’s own notice says Pearl’s exports were already held back by a blockage of the Strait of Hormuz before the attack.²⁰ Brent, the world oil benchmark, averaged $93 over the first nine months of 2026 on the EIA’s series, and $125 in October to the 27th, against $69 for all of 2025 C (calculated).¹² Integrated Gas production fell 17% in nine months, mainly because of Qatar.³

The profit rose anyway. Nine-month Adjusted Earnings were $27.6B against $15.3B a year before, cash flow from operations $48.5B against $33.4B, and free cash flow $36.8B.³ Third-quarter Adjusted Earnings were $10.8B and cash flow from operations $21.0B. That cash flow includes a $3.4B inflow from derivatives and a $2.4B outflow that is only a matter of timing, the German fuel-emissions payment that Shell normally makes in the fourth quarter. Tax paid was $3.2B.⁸³ Net debt was $39.7B, but about $8B of that is a non-cash rise in the value of long-term index-linked shipping leases; net debt without leases is $5.6B.⁸ Gearing, net debt over net debt plus equity, was 16.6%.⁸ I do not carry the windfall forward. The ten-year table in Section V shows what the company earned when oil sat near $70.

What oil does to the cash flow

Shell publishes how its cash flow moves with prices. A $10 rise in Brent adds about $4.0B a year, $1.5B in Integrated Gas and $2.5B in Upstream.⁶ That is $0.40B for each $1, which is the number I use in the model. A $1 change in the refining margin is worth $0.32B of earnings a year and $30 on the chemical margin $0.575B.⁶ Set the third-quarter prices against 2025 and the pattern appears. Brent was $97 against $69, refining $42 against $10 and the European gas price $21.5 against more than $10 in 2025 C (calculated).²¹⁶⁷ On Shell’s own sensitivities that is a rise of about $11B from Brent, $10B from refining and $6B from gas, at an annual rate. I treat 2026 as one-off for that reason.

Capital, dividend and buyback

Shell pays out 40% to 50% of cash flow from operations over a cycle, through a dividend that rises 4% a year and buybacks. The CFO calls the policy sacrosanct.¹⁹¹³ In 2025 it paid $22.4B, 52% of cash flow from operations, with $8.5B in dividends and $13.9B in buybacks R (reported).⁴ In the third quarter of 2026 it paid $5.3B, $3.2B in buybacks and $2.2B in dividends, and announced a further $5.0B buyback that it expects to finish by the fourth-quarter results on 4 February 2027.⁸³ The quarterly dividend is $0.3906 a share, 9% above a year ago, which is $0.7812 a quarter for an ADS, or $3.12 a year, 3.0% of the price C (calculated).⁹¹⁹ Cash capital spending was $20.9B in 2025 and the 2026 outlook is $23B to $25B, which includes about $4B for ARC, with $20B to $22B planned for 2027 and 2028.¹³³¹⁹ Structural cost cuts reached $5.1B against 2022 by the end of 2025, three years ahead of target, and the new target is $5B to $7B by 2028.¹³

The company’s headline target is to grow normalised free cash flow per share, free cash flow with price swings, working capital and deals stripped out, by more than 10% a year to 2030. It was $4.60 a share in 2025, up 4.5%.¹³⁴ Notice what that target leans on. At today’s price the current $5.0B-a-quarter pace retires about 6.7% of the company a year, and the 40% to 50% policy implies nearer 4.6% in a normal year. Even with flat total cash flow, the per-share figure would rise about 4.8% a year on that. I come back to this in Section IV.

One more item for anyone reading the fourth-quarter report. Shell will move its Dutch pension fund from a defined benefit plan to a defined contribution plan on 1 January 2027. At 30 September it calculated a one-off, non-cash loss of $6.4B, to be booked in the fourth quarter, so reported income in that quarter will look poor and cash will not.³

IIThe moat

For an oil and gas company the first test is whether it can make money at prices it does not set. The second is whether it keeps the profit when prices fall. The third is whether the profit gets to the owner after governments, lenders and landlords have been paid. Shell does better on the first than on the other two.

LNG scale and trading

The clearest advantage is the LNG business. Shell sold about 16% of the world’s LNG in 2025, from more than ten source countries, with one of the biggest shipping fleets and import terminals in the business.⁷ When Russia invaded Ukraine in 2022 it redirected almost 200 cargoes to Europe at short notice and kept term customers supplied.⁷ A seller who can choose where a cargo goes earns a higher margin than one who cannot. The evidence is in the profit. Integrated Gas earned $9.0B of Adjusted Earnings in 2021, $16.1B in 2022, $13.9B in 2023, $11.4B in 2024 and $8.0B in 2025, and Shell publishes that its quarterly gas cash flow per tonne held up through the low prices of the last five years while rising in high ones.⁴⁷ I cannot measure the trading edge from outside, and Shell does not split trading profit out. It is the least visible and the most valuable part of the franchise.

Brands and cost

Marketing is the quiet half. Adjusted Earnings were $3.6B in 2021, $2.9B in 2022, $3.3B in 2023, $3.9B in 2024 and $4.0B in 2025 R (reported).⁴ It sells lubricants and premium fuels under a brand that customers know, in a business where Shell says it is the number one lubricants supplier.² Cost is the other source. Underlying operating costs fell from $39.5B in 2022 to $35.0B in 2025, and Shell counts $5.1B of lasting savings against 2022.⁴¹³ Headcount fell from 98 thousand in 2024 to 88 thousand in 2025.⁴ The nine-month cost line for 2026 is $25.9B against $25.6B a year earlier, which includes ARC for one month.³

Through the cycle

Net income was positive in nine of the last ten years. The tenth, 2020, was a loss of $21.7B after write-downs, with Brent at $42.⁵¹² It cut the cash dividend by 51%, from $15.2B in 2019 to $7.4B in 2020, ran debt up to $108.0B at the end of 2020, and bought back $1.7B of shares, against $10.2B the year before C (calculated).⁵ The company stayed solvent and the owners took the hit.

That chart also shows what the protection does not do. It does not shield profit from the oil price. Net income went from $42.3B in 2022 to $17.8B in 2025, a fall of 58%, while Brent fell 32%, from $100.9 to $69.1. Cash flow from operations fell 37% over the same years, from $68.4B to $42.9B C (calculated).⁵¹² Depreciation and impairments were $25.3B in 2025 and cash capital spending was $20.9B.⁵⁴

What reaches the owner

Shell’s cash flow statement under international accounting rules puts interest and lease payments in financing, so the headline cash flow and free cash flow look bigger than the cash an owner can use. Lease payments alone were $5.3B in 2025, and interest paid $4.1B.⁴⁵ I deal with this in Sections V and VI. Return on capital is the cleaner view. Shell’s own measure, return on average capital employed, was 18.0% in 2022, 12.8% in 2023, 11.3% in 2024 and 9.4% in 2025 on $219B, and 14.4% for the nine months of 2026 at the peak of refining margins R (reported).⁴³ Management targets at least 10% across the segments.¹³

Evidence it is widening

Lasting cost cuts. A bigger LNG book: sales up 11% in 2025, LNG Canada running, ARC’s gas to feed it, and Phase 2 for the early 2030s. Free cash flow of $26.1B in 2025 even at Brent $69 R (reported).⁴³ And the company has room to do more deals: gearing was 16.6% after paying for ARC.⁸

Evidence it is narrowing

Proved reserves fell 15% in 2025 and last 7.6 years at 2025 output, against 10.7 years for Exxon Mobil on its page.²²² Production is 13% below 2021. Chemicals lost money, and impairments added up to $23.0B over 2021 to 2025, $3.2B of it in 2025, with $3.3B more in the first nine months of 2026 against $1.9B of reversals.⁵³ Capital employed grew to $239B at 30 September 2026 from $221B at the end of 2025, mostly ARC.⁶ And Shell warns itself of an LNG glut after 2027.⁷

My judgement: LNG trading, lubricants and a lean cost base make this a better business than a plain producer. The protection is wide in gas and narrow in chemicals, and it does not stop the profit moving with oil. It is worth a lower discount rate than a state company deserves, and not a lower one than Exxon’s.

IIIThe competitive advantage

Shell has four large rivals in the West: Exxon Mobil and Chevron in the United States, and BP and TotalEnergies in Europe. I have written up Exxon Mobil on this site, so I compare with it by name. The table measures what a buyer of the shares gets, and not the size of the operation.

The table needs one warning before it is read. Shell, BP and TotalEnergies report under international accounting rules, where the interest on debt and the payments on leases are in the financing section, below free cash flow. Exxon Mobil and Chevron report under American rules, where interest is deducted in operating cash flow, and where the cost of most leases is in operating cash flow too. So a free cash flow yield of 12.5% for Shell and 5.9% for Exxon Mobil is not like for like.²¹⁵ Shell paid $4.1B in interest and $5.3B in lease principal in 2025 against free cash flow of $26.1B.⁴⁵ Put them back, net of the interest Shell receives, and the 2025 figure drops by more than a quarter. I do that in the next two sections, and the result is that Shell still yields more than Exxon, but by a smaller margin.

Shell and TotalEnergies are the cheapest of the five on trailing earnings, at 9.1 and 9.3 times, and Shell pays a lower yield than the two European rivals. It carries more net debt than any US name, but $8B of it is a rise in lease value that is not cash. The thing it does that none of the others does is supply about a sixth of the world’s LNG. The thing it lacks, on the numbers, is reserve growth: its proved reserves fell 15% in 2025. Exxon Mobil sits 39% above its base on its page, Shell sits 4% below its base here, on the same oil deck and the same discount rate. That is the main difference between the two prices.

Where Shell wins, and where it loses

It wins on LNG, on lubricants, on cost savings delivered three years early, and on a balance sheet with room: gearing of 16.6% against an aim of a strong investment-grade rating.⁸¹³ It loses on reserves, at 7.6 years against Exxon’s 10.7, on chemicals, on write-downs in new energies, and on returns, 9.4% in 2025 against the 10% floor management itself set for each segment. It also faces tax risk at home: in July 2026 the UK government published draft law that would exempt foreign permanent establishments from UK tax and may limit how Shell uses foreign tax attributes against UK profits, and Shell says it is watching it.³ And one structural point cuts against a buyer. A share bought at $104.94 gets a 3.0% dividend and a buyback worth about 6.7% of the price a year at the current $5.0B-a-quarter pace, or about 4.3% on my base owner cash, and the earnings behind both are at a peak for refining and trading that the war created C (calculated).⁹⁸

The next best use of the same money

The simplest alternative is the 10-year US Treasury, which yielded 4.94% on 30 October.²⁶ At the price, Shell pays 3.0% in dividend and, at the current $5.0B-a-quarter pace, a buyback worth 6.7%, about 9.7% in all. On my base owner cash the buyback is nearer 4.3%, about 7.3% in all. Either is well above the bond, but the bond does not need oil to stay above $69. In my base the cash an owner can take is $22B in 2028 and $24B in 2036, and the 2030 figure is 7.4% of today’s market value. On the same oil deck, Exxon Mobil’s base owner cash of about $40B a year is 5.2% of its market value at the 30 October close.²²¹⁵ BP and TotalEnergies yield 4.3% each in dividends, but I have not valued them. Shell is the cheapest of the large names I can price, and its cheapness depends on the windfall year not being repeated.

IVManagement

Wael Sawan is chief executive. He is 51, joined Shell in 1997 as an engineer in Oman, ran Shell’s business in Qatar, then deep water, then Integrated Gas, and has been chief executive since 1 January 2023.¹⁶ Sinead Gorman, 48, has been chief financial officer since April 2022, having joined Shell in 1999 and worked in finance, trading, mergers and treasury.¹⁶ The chair is Sir Andrew Mackenzie, 69, who spent 22 years at BP and ran BHP, and has chaired Shell since May 2021.¹⁶ The roles are split, unlike at Exxon Mobil. At the May 2026 meeting the shareholders re-elected Sawan with 98.9% of votes and Mackenzie with 94.1%, the lowest of the board.¹⁷

How they are paid, and what it pays them to do

Sawan’s single figure of pay for 2025, the sum the report adds up, was £13.8M ($18.1M), against £8.6M in 2024 and £7.9M in 2023. Of the £13.8M, £1.5M was salary and £0.3M pension, £2.7M annual bonus and £9.1M a share award that vested at 75% of its maximum. Gorman’s was £8.5M.¹⁶ Most of it is variable, 86%, and most of that is shares.¹⁶ The bonus is paid half in cash and half in shares. The long-term award is a performance share award. For awards made in 2025, a quarter depends on Shell’s total return to shareholders against peers, a quarter on cash flow from operations over average capital employed against peers, a quarter on absolute organic free cash flow and a quarter on the energy transition.¹⁶ From 2026 the target to grow normalised free cash flow per share becomes a condition of the executives’ pay.¹³ The remuneration policy was approved at the May 2026 meeting with 95.96% of votes cast, and raises the top share award for the first time since 2013.¹⁶¹⁷

What does that pay them to do? To push cash flow up, to beat peers on return, and to keep the share price rising. Two things need a plain reading. First, the cash flow measures are Shell’s own, counted before interest and before lease payments, which together took $9.4B in 2025 against free cash flow of $26.1B.⁴⁵ They are not the owner’s cash. Second, a target stated per share rewards buybacks as well as business growth. At the 40% to 50% payout policy a normal year’s buyback is about 4.6% of the company at today’s price, so even flat total cash would lift cash per share about 4.8% a year. The 10% target then needs about 5% more total cash a year, which is modest. I cannot tell from the filings how much of the target the board expects to come from fewer shares.

The stakes are real. Sawan’s own shares are worth about $29M at the close, about 14 times his salary and twice the 700% guideline, and he holds 550 thousand more in awards that can vest.¹⁶ The policy approved in May raises the guideline to 900% of salary. It is not a large share of the company. All the directors and senior managers together own less than 1%.¹⁶ Institutions own about two thirds of the shares.¹⁴

What they did with capital over a cycle

Judge the managers by what they did with the money. In 2016 Shell issued shares to pay for BG Group, which took the weighted average share count from 6.3 billion to 7.8 billion in a year, while cash flow from operations was $20.6B and investing took $31.0B.⁵³ Debt fell from $92.5B at the end of 2016 to $76.8B at the end of 2018, helped by asset sales of $8.8B in 2017 and $4.4B in 2018.⁵ The dividend was cut in 2020. From 2018 to 2019 it spent $14.1B on buybacks, then stopped. From 2021 to 2025 it bought back $63.7B of stock and paid $39.2B in cash dividends C (calculated).⁵⁴ Shares outstanding fell from 6,971 million at the end of 2022 to 5,690 million at the end of 2025, down 18%.⁴ That is the sound record. Management cut the share count, and dividends paid per share rose from $0.82 in 2021 to $1.43 in 2025.⁵

The mixed part is the use of the shares and the acquisitions. In 2026 Shell has bought back 217 million of its own shares for $9.4B, an average of $43.1 a share, and issued 228 million new shares to pay for ARC, valued at $46.5 each C (calculated).³ The share count at 30 September 2026, 5,729 million, is therefore 0.2% above where it began the year.³ The buyback this year bought back the shares that ARC issued. That was a choice, and a reasonable one at those prices. But it means the per-share growth target has to be met from next year’s buybacks, not this year’s. Beyond that, inorganic spending was $4.2B in 2022, $2.5B in 2023 and $1.8B in 2025, and impairments have run at $2.3B to $8.9B a year before tax.⁴⁵ I count a good part of those as the cost of the earlier energy-transition spending. Cash capital spending in Renewables and Energy Solutions fell from $3.5B in 2022 to $1.9B in 2025.⁴

Governance

Shell has had a single line of ordinary shares since January 2022, listed in London, New York and Amsterdam.¹⁶⁹ The main outside risk is litigation. Dutch campaigners have appealed to the Supreme Court against the 2024 ruling that overturned an order for Shell to cut emissions faster.² I do not try to price a ruling. I note it because such a case can restrict the company’s plans and not only cost money.

VFinancials

Ten years, 2016 to 2025, from the company’s annual reports, with the first nine months of 2026 from the 29 October release. The numbers are in US dollars. The 2016 to 2025 figures come from the 20-Fs and the tagged data the SEC publishes from them.⁵² Adjusted Earnings, production and a few other lines are shown only from 2021, because that is as far back as Shell’s databook and my reading go; the rest I did not open. Earnings per share before 2022 are as reported at the time, per ordinary share of the old A and B classes. Net debt is Shell’s own measure and includes lease liabilities.⁴

The pattern is a business whose cash moves with prices, and a share count that has come down a long way. Net income was $42.3B in 2022 and $17.8B in 2025, 58% lower, while Brent averaged $100.9 and $69.1 C (calculated).⁵¹² Debt peaked at $108.0B in 2020 and net debt at $79.0B in 2019. By 2025 net debt was $45.7B, of which $28.9B was leases.⁵⁴ The average share count went from 8.3 billion in 2018 to 5.9 billion in 2025 and was 5.6 billion in the third quarter of 2026 C (calculated).⁵³

Over the ten years the company produced $451B of operating cash flow, earned $151B of net income, and paid $98B in dividends and $80B in buybacks C (calculated).⁵ Cash flow from operations was three times net income, because depreciation and impairments are large and non-cash, and that alone overstates what an owner keeps, as I show next.

Spending

Cash capital spending was $19.7B in 2021, $24.8B in 2022, $24.4B in 2023, $21.1B in 2024 and $20.9B in 2025, including acquisitions of $1.7B, $4.2B, $2.5B, $0.8B and $1.8B R (reported).⁴ On top of the $20.9B, leases cost $5.3B of principal. Under the accounting Shell uses, a leased ship is charged through depreciation and interest, but for an owner a lease payment is money that goes out to keep the fleet running, so I add them together below. I test what happens if spending moves by $2B a year, and the effect is about $9 an ADS either way E (estimate).

What an owner can take out

Operating cash flow is not the number an owner can spend. Capital goes out first. Then the interest on the debt, and the payments on the leases, both of which Shell’s cash flow statement puts below the line in financing. Then dividends to minority holders in subsidiaries, a small line. And then the cash used to purchase shares for staff plans: Shell says no dilution has come from its share plans. It buys the shares on the market and holds them in trust, and in 2025 that cost $1.3B net.¹⁶⁴ I subtract all of them. Working capital I show before the change, because the year-end receivables and payables are the result of a price and not of the business.

The picture is this. In 2021 and 2022, years of recovery and then of high prices, owner cash was $26.5B and $40.5B and the company paid out $9.1B and $25.8B. In 2023 owner cash was $12.9B, because capital spending was high and operating cash flow before working capital was only $47.1B, and it paid out $23.0B. In 2024 owner cash was $23.1B against $22.6B. In 2025 it was $14.9B against $22.4B, a gap of $7.5B C (calculated).⁴⁶ The gap was met from cash, which fell from $39.1B to $30.2B in 2025, and from the working capital that came back in 2023 and 2024 C (calculated).⁵ Over five years owner cash was $118B, against $116B of net income, and 87% of it went out as dividends and buybacks C (calculated). Over the five years the company paid out almost all it could take, but over the last three it paid out $17B more than it took.

The last twelve months look much better, at $33.5B, 57% above a payout of $21.3B, and that is with ARC’s $3.3B cash price inside capital spending C (calculated).⁶ That is a windfall year. It includes a $2.6B derivative inflow in nine months, a nine-month refining margin of $28 a barrel against about $9 a year earlier, and Brent at $93 against $71, and I do not treat it as normal.

2026 so far

The first quarter was weak: cash flow from operations $6.1B after an $11.2B working capital outflow, and net debt rose to $52.6B. It fell to $39.7B by September.⁸ Working capital absorbed $8.4B in nine months, as receivables rose from $44.6B to $58.9B and inventories from $22.2B to $29.8B, partly offset by higher payables.³ That money comes back when prices fall, which flatters later years, so I show everything before it. Since 30 September the buyback has gone on: the 2 November filing lists at least 27.6 million shares bought in London, Amsterdam and other venues in October, about 0.5% of the company, which my share count does not take off.²⁷

Look at where the windfall is. Chemicals and Products made $8.7B of Adjusted Earnings in nine months against $1.1B, on a refining margin that went from $17 to $24 to $42 a barrel quarter by quarter.³⁶ Upstream added $3.2B on prices.³ And Integrated Gas rose only $1.2B even with Brent and gas at highs, because lost Qatari volumes, higher tax and higher costs took back most of the price gain, which is the point of Section VIII.³ My base has refining margins back near their 2025 level from 2029 and Brent at $84 for 2027.

VIValuation

First, how this goes badly wrong

Before any number, I ask what would most likely destroy the value of a share, and work backward. For Shell I see three.

The first is that oil, gas and refining all fall back at once while the payout stays. The 2026 profit rests on Brent near $93, European gas at $21 and a refining margin of $28 a barrel. If Brent sits near $58 from 2028, which is my bear, the gas glut that Shell itself expects arrives, and refining and trading earn what they did in a middling year, owner cash drops to about $9B a year, which is 31% of a $29B payout of dividends and buybacks at the current pace E (estimate). Shell would have to cut buybacks, as it did in 2020, or borrow. The payout the market sees today, about 9.7% of the price a year, would be about 3%.

The second is capital spent at the top of the cycle. Shell paid $13.9B for ARC with Brent above $100, and has just committed to a second LNG Canada train that comes on in the early 2030s, when its own paper expects the market to be oversupplied.³⁷ A buyer of the shares is also a buyer of those decisions. I cannot price an overrun I have not seen, and the record here is mixed: the 2025 return on capital of 9.4%, and $23B of impairments in five years.⁴⁵

The third is a physical or political break in a place that matters. Qatar’s LNG was shut in from March, Shell gives no restart date, and one train of Pearl is damaged. The Strait of Hormuz is the route out. The UK has published draft tax law that could limit Shell’s use of foreign tax attributes. A Dutch ruling could limit its plans. I price each of these in Section VIII. None cuts the base by more than about $10 an ADS on its own, but together with a lower oil price they are the ways it goes wrong, and they do not need a recession.

What I can and cannot judge

I can read a cash flow statement, run the sensitivities Shell itself publishes, and tell you what a $1 move in Brent does to cash flow. I cannot say when the Strait reopens, how fast Qatar’s trains return, where oil trades after 2028, or when the new LNG supply arrives and what it does to gas prices. I cannot see how much of Shell’s profit is trading, and how much of that repeats. Shell does not split capital spending into the part that holds production flat and the part that grows it, so I tested moving the total by $2B a year: about $9 an ADS either way E (estimate). These inputs matter most, so I give a range and not a point.

Cash after standing still

The cash that matters is owner cash: operating cash flow before working capital, less capital spending, net interest, lease payments, dividends to minority holders and the cash spent on shares for staff. In 2025 it was $14.9B, against Adjusted Earnings of $18.5B, net income of $17.8B and free cash flow of $26.1B C (calculated).⁴⁵ That is 43% below the free cash flow that Shell reports. The gap is interest paid, $4.1B, lease principal, $5.3B, staff share purchases, $1.3B and minority dividends, $0.1B, plus $2.4B of divestment proceeds that Shell’s free cash flow counts and I do not, less $1.8B of working capital outflow that I add back C (calculated).⁴⁵ Capital spending is the real question. Net of deals, it was $19.1B in 2025 and depreciation $22.2B. If the extra spending is all growth, owner cash is understated. If it is the cost of keeping 2.8 million barrels a day flowing, it is not.

The method, in plain words

The model has five parts. First, a baseline: operating cash flow before working capital at a Brent price of $69.1, the 2025 average, which was $44.7B in 2025. I move that baseline by case, from $44.5B to $50.5B in 2027 and from $45B to $56.5B by 2030. That is where ARC, the LNG Canada ramp, the cost savings and the volumes that come back from Qatar go. Second, the oil price effect. Shell’s guidance says a $10 rise in Brent adds $1.5B to Integrated Gas cash flow and $2.5B to Upstream, so I use $0.40B per $1.⁶ Third, a windfall from refining and trading that fades by 2029, and a cut to gas profit as new LNG supply arrives, $0.5B for each $1 that European and Asian gas prices fall: $1.2B in the base, which is gas about $2.40 lower than in 2025, $2.0B in the bear and $0.4B in the bull. Fourth, capital spending of $20B to $22B, the plan range, and fixed charges of $9.2B for interest, leases, minority holders and staff shares. Fifth, the discount rate and the growth after 2036.

I discount at 8.4%. That is the 10-year Treasury at 4.94% on 30 October plus 3.5% for owning a large oil and gas producer whose profit swings with prices, the same rate I use for Exxon Mobil.²⁶²² I subtract no net debt, because interest and lease payments are already deducted in owner cash. I assume the debt is rolled over, which is cautious. I do not subtract the $8B rise in shipping lease value, which Shell says may not reflect future payments. After 2036 cash grows at 0.5%, 1.5% and 2.5% in the three cases. Cash for November and December 2026 comes first, set from the third quarter’s operating cash flow before working capital of $21.7B, less the $3.4B derivative inflow and plus the $2.4B emissions timing, and then moved for the oil price. Each later year arrives at year end. Per-ADS values divide by 5,700.5 million ordinary shares and multiply by two.³⁸ The weighted value is $108 using 25%, 50% and 25%, which I do not use for the three values.

This is a test of whether the baseline is stable. It is not. It was $55B in 2021, $61B in 2022, $42B in 2023, $48B in 2024 and $45B in 2025 C (calculated). That is the range any cash flow forecast for this company has to sit inside, and it is why I give three cases. My base starts at $48.0B in 2027, above 2025 and level with the five-year average of $50B. It reaches $52.5B by 2030. Shell’s own targets imply more. It aims to grow normalised free cash flow per share, $4.60 in 2025, by more than 10% a year, and if the buyback keeps cutting the share count by about 4.6% a year, as the 40% to 50% payout policy implies at current prices, that needs about 5% a year growth in total normalised free cash flow, which with ARC’s $1.6B puts it near $35B in 2030, against $26.4B in 2025 E (estimate).¹³⁴¹⁰ My base reaches $33B on that definition, 76% of the way, my bull $36B, 110%, and my bear $26B, 1% E (estimate). Why not all of the plan? Because plans are made after a strong run, and a target at constant prices assumes every business holds its margin. I believe cost most, with $5.1B already done.¹³ I discount production growth most, since reserves fell 15% in a year, and margins.

Three cases

The oil prices are the ones on my Exxon Mobil and Saudi Aramco pages: $84 in 2027, which is the EIA’s October outlook,²⁸ then $76 in 2028 and $72 from 2029 in the base. The bear is $66, then $58. The bull is $100, $90, then $85. One oil deck for the whole site is the only fair way to compare the companies. The table gives the other inputs. One thing it shows: base owner cash of about $22B does not fund the current pace. After the dividend of $8.9B it leaves about $13B for buybacks, about 4.3% of the company a year.

Look at where the value sits. In the base, 50% comes after 2036. That is ordinary for a business with a long-lived LNG book. A point of discount rate matters more than a year of oil. The base is worth $96 at 9.4% and $128 at 7.4% E (estimate).

What the price needs

Of these, the oil line is the most telling. A long-run Brent price of $69 with my base cash is the price. That is the 2025 average, and below the $72 I use. In other words the market is paying for a Shell that earns what it did last year with the windfall removed, plus the ARC and cost gains, and no more. That is not an extreme view. A buyer who thinks oil settles near $60 would pay about $91 an ADS on my cash flows, and one who thinks $85 about $130 E (estimate). The price is within the error of my base, and the reverse tests say so: it takes only a $1B smaller baseline, or a discount rate 0.3 points higher.

The price against the range

The price is 4% below my base and 139% above my bear. The margin-of-safety price is $58, where my $44 bear value equals three quarters of the price paid, so that the downside I can see is about a quarter of the price. It is 44% below the market. The ADS last had a month-end close below that line in May 2023.¹¹ The price is a long way above my margin of safety and a modest way under my base. At this price there is no margin of safety by my rule. I count the discount to the base value as small enough to be inside my error, and the range from $44 to $170 as the real message.

Quality and price are separate questions. Shell is a good large business, with an LNG position few can match and a lubricants brand, but its return on capital is middling at 9.4% in 2025, its reserves are shrinking, and its cash flow moves with the oil price. At $104.94 the price already pays for a good business at a normal oil price, and it does not pay for the 2026 windfall. For a buyer at this level it looks like a fairly priced cyclical with a high payout, one that needs oil to stay near $69 or better. I do not mean the price is cheap. Against Exxon Mobil on the same deck, Shell looks less expensive because the Exxon price already includes a higher oil price and a higher return.

Where this could be in 5 and 10 years

Value in a later year is my model rolled forward. It is the present value at that date, at 8.4%, of the owner cash still to come and the terminal value, per today’s share count and in that year’s dollars. Owner cash is assumed paid out.

For the base to stand at five years, Brent has to sit near $72, the baseline cash flow has to reach about $53B by 2031, and capital spending has to stay near $21B. Owner cash is then about $23B a year E (estimate). The cases differ on oil, the baseline and capital spending, as the table shows.

The most likely way the base is wrong is the baseline. Every $3B a year on it moves today’s value by about $14 an ADS, and the baseline moved $19B in one year, between 2022 and 2023. Every $10 off the long-run oil price takes about $16 off. The base returns 9.1% a year from today’s price, of which owner cash paid out averages about 7.8% of the price a year. The base value in 2036 is $125. These are estimates of value, not forecasts of the share price, and the market can sit above or below value for years.

VIIThe case for the price

What most people miss

Three facts cut in the company’s favour. First, cost. Underlying operating costs fell from $39.5B in 2022 to $35.0B in 2025, and $5.1B of lasting savings were reached three years early C (calculated).⁴¹³ Second, even after I put interest and leases back, Shell’s owner cash on my base, about $22B a year, is about 7% of its market value, against about 5% for Exxon Mobil on its page C (calculated).²²⁴ Third, the balance sheet: net debt without leases was $5.6B at 30 September, and gearing was 16.6% after paying for ARC.⁸ Two facts cut against it. Shell’s free cash flow is counted before $9.4B of interest and lease payments, so the 12.5% yield on the data site is not what an owner gets.¹⁴⁴ And in 2026 the $9.4B buyback only offset the 228 million shares issued for ARC, so the share count is 0.2% higher than at the start of the year C (calculated).³

The bull case

The argument: Shell has the biggest LNG book, a cost base that is shrinking, a balance sheet with room, and a payout policy of 40% to 50% of cash flow that retires about 4.6% of the company a year at today’s price, or 6.7% at the current $5.0B-a-quarter pace. Wael Sawan, the chief executive, said on 29 October that “relentless focus on operational performance” had delivered very strong results, and that ARC and LNG Canada Phase 2 support long-term cash flow growth.⁸ Sinead Gorman, the chief financial officer, called the distribution policy sacrosanct and pointed to a 9% rise in the dividend over twelve months.¹⁹ The 27 April ARC release says the deal is expected to add to free cash flow per share from 2027.¹⁰ The 2025 targets are more than 10% a year growth in normalised free cash flow per share to 2030 and cumulative cost savings of $5B to $7B by 2028, with $5.1B done.¹³ Sixteen analysts, whom the data provider does not name, average a target of $108.81, 4% above the price, which I can cite only secondhand.¹⁴ I did not check holder filings, so I name no fund.

Against reality

If oil holds near $72 from 2029, the baseline reaches $52.5B by 2030, and Qatar returns, my model gives $110 and the price is a little below it. If the plan arrives in full and oil sits at $85, it gives $170. Today is some way from that. The baseline was $44.7B in 2025 and the best of the last five years was $61B. The 2026 refining margin of $28 a barrel is nearly three times 2025’s $10, and Shell’s own paper expects a gas glut.⁴⁶⁷ Multiply the steps for the bull. Oil at $85 or more from 2029, 20%. The baseline reaches $56.5B, 35%. Capital at $22B or less, 80%. Qatar back and no other major setback, 70%. No gas glut, 30%. Together 1.2% E (estimate). They are not independent, so I put the bull nearer 5%. The price needs far less: oil near $69 with my base cash, or a discount rate of 8.8%.

What a 10x would take. Ten times $104.94 is $1,049 an ADS, a market value of $3.0 trillion, four times Exxon Mobil’s $733B at the data site’s count.¹⁵ At 9 times earnings, about where Shell trades now, that needs net income of about $332B, against $42.3B in 2022, the best of the ten years I read, and $28.6B in nine months of 2026 C (calculated).⁵³ At the 2025 net margin of 6.7% that is revenue of $5.0 trillion, 19 times the $267B of 2025; at a 12% margin it is $2.8 trillion. At Brent $150 from 2029 my model gives $232 an ADS, 2.2 times the price and not ten. A tenfold gain in ten years is 26% a year. This ADS rose 1.9 times in the last ten years, from $54.38 in December 2016, through a war-driven oil price.¹¹ For a company worth $300 billion I think a tenfold gain is close to impossible. I know of no company that grew tenfold in ten years from a value near $300 billion outside a few technology names, but I did not run a screen, so that is my impression and not a finding.

Where I come down

What moved me most is how much of the free cash flow Shell reports is counted before interest and leases, and how little of the 2026 share-count reduction there was. What did not move me is the third-quarter profit, because a refining margin of $42 a barrel is not a business. Oil held above my deck, the Qatar plants back early, ARC beating its price, or spending below $21B would raise my values. So would a lower discount rate, which is a judgement about how steady this profit is. With the price a little under my base, I would say the market has priced Shell for last year, not for this year.

VIIIRisks, and what would change my view

The three ways this goes badly wrong are at the start of Valuation. These are the rest.

• A windfall that goes away. Nine-month Adjusted Earnings of $27.6B include $8.7B from Chemicals and Products at a refining margin of $28 a barrel. If capacity returns, that falls to a fraction.³⁶ My base takes $2.0B of it into 2027 and none after 2028.
• Reserves. Proved reserves fell 15% in 2025 to 8.1 billion barrels, 7.6 years of output.² ARC and LNG Canada add resource, but a company that has to acquire to stand still pays the cycle price for it.
• ARC. Shell has owned it for one quarter. The purchase price allocation is provisional and goodwill of $2.2B may change.³ The $250M of savings and double-digit return are Shell’s targets.¹⁰
• Returns on capital. The company earned 9.4% in 2025 and has written off $23B of assets since 2021.⁴⁵ If the next dollars earn the same, owner cash will not rise as my base needs.
• Tax. The UK draft law, Pillar Two top-up taxes of $571M in nine months, and possible new levies on energy profits.³
• Leases and shipping. Lease liabilities rose $7.7B in nine months on freight-index remeasurement, which Shell says may not reflect future payments. If it does, fixed charges rise.³
• Climate and demand. The Dutch case is before the Supreme Court. Governments could restrict oil and gas faster than I expect, and the company’s own risk factors say so.² The long-run oil price after 2030 is the input I know least.
• Reporting. The fourth-quarter income will include a $6.4B non-cash loss on the Dutch pension transition, so it will look poor.³ Adjusted Earnings exclude impairments and other identified items, which were a net loss of $1.2B in nine months.³ Cash flow from operations in the third quarter was lifted by a $3.4B derivative inflow.⁸
• Buybacks. If cash flow falls, Shell cut buybacks in 2020 and could again.⁵ If the price rises 30%, the same dollars retire fewer shares.

Geopolitical risk, and what it means for the value

Shell sells everywhere, but its gas comes from a few places, and several are in play now. Qatar supplies LNG through the Strait of Hormuz and hosts Pearl.²⁰ Australia, with 13.3 million tonnes of LNG in 2025, is Shell’s biggest LNG source, ahead of Nigeria, Trinidad and Oman.⁴ Russia is gone except one long-term LNG trading contract.⁷ In 2026 the Strait was blocked, QatarEnergy shut in its LNG, and one Pearl train was damaged.²⁰ On 2 November Brent futures fell about 11% to $104.77 and the ADS fell 3.5%.²⁹¹ I do not know why, and I will not guess.

The result surprised me. A Strait closure through 2027 raises the base from $110 to $113, because oil, refining and trading pay for the lost gas. Damage that lasts longer costs only a few dollars an ADS, because one or two years of cash is a small part of a value that sits half after 2036. What costs more is something permanent: a lower long-run oil price, a lasting tax, or a gas glut. A price of $55 in the long run takes the base to $83, and a permanent $2B-a-year tax takes it to $101. Taxes and prices move the value more than damage does. Who decides is in the table, and so are my odds. The odds are my judgement, with the basis given.

What is in the price: roughly the 2025 oil price with no windfall. At $104.94 the market is paying for oil near $69 for years, or a discount rate near 8.8%. A quick peace and a lower oil price are the risk to the price. The war has added a year or two of cash. It has not changed my view of the business.