Shell Sticks With Payouts, Spending Plans Despite Oil’s Drop: A Bold Gamble or Strategic Masterstroke?

TheStreet’s Action Alert: Shell (SHEL) has decided to keep its dividend and shareholder buybacks flowing even as oil prices slump—a move that’s sparking heated debate on Wall Street. Let’s dive into the data to see if this is a risky bet or a shrewd play for long-term gains.

The Dividend Dilemma: Staying the Course

Shell’s Q1 2025 interim dividend of $0.358 per share and $3.5 billion buyback program signal unwavering confidence in its cash flow resilience. Despite crude prices averaging just $71 per barrel in Q1—down from $85 in 2023—the company is sticking to its 40–50% payout ratio, distributing nearly half its cash flow to shareholders.

But here’s the catch: Adjusted Earnings dropped to $5.6 billion in Q1, a far cry from the $13.16 billion in operational cash flow seen in the same period last year. This raises the question: Can Shell sustain payouts if oil prices stay depressed?

The CapEx Tightrope: Cutting Costs Without Sacrificing Growth

Shell isn’t just clinging to dividends—it’s also recalibrating its spending. The company slashed its annual capital expenditure (capex) target to $20–22 billion through 2028, down from its earlier $22–25 billion range. This shift reflects a focus on cash flow discipline, but it’s a delicate balancing act.

While rivals like BP and TotalEnergies are slashing capex aggressively, Shell is choosing to preserve investments in high-margin LNG and oil production. Its goal? Maintain 1.4 million barrels of oil equivalent per day through 2030 while growing LNG sales by 4–5% annually. The strategy? Leverage its position as the world’s largest LNG trader to weather oil price storms.

The LNG Lifeline: Why Natural Gas Could Save the Day

Shell’s $7.4 per thousand scf average gas price in Q1—though slightly lower than the prior quarter—hints at a hidden strength. Its recent acquisition of Pavilion Energy and focus on LNG trading positions it to capitalize on rising global demand for cleaner energy.

CEO Wael Sawan isn’t just hedging bets—he’s doubling down. By targeting $5–7 billion in cumulative cost savings by 2028 (up from $2–3 billion), Shell aims to offset lower oil prices while funding dividends. The company’s net debt climbed to $41.52 billion, but its 19% gearing ratio still leaves room for maneuver.

The Risk: Debt, Delays, and the Oil Price Abyss

Here’s the rub: If crude prices sink below $60 per barrel, Shell’s cash flow could crumble. A prolonged slump would test its 40–50% payout ratio, forcing cuts to dividends or buybacks. Unplanned disruptions—like the Australian LNG maintenance delays—add to the uncertainty.

Analysts are split. Bulls point to Shell’s $9.28 billion Q1 cash flow and LNG dominance; bears highlight the $3.8 billion debt increase from 2023 and the fragile oil market.

The Bottom Line: A High-Stakes Gamble with High Potential

Shell’s decision to prioritize dividends and LNG growth over aggressive cost-cutting is bold, but it’s far from reckless. With 4–5% annual LNG sales growth and a disciplined $20 billion/year capex ceiling, the company is betting that its LNG moat will offset oil price volatility.

Investors should note:
- Stock Performance: Shell’s shares rose 2% in early 2025 on its guidance, outperforming peers like BP (-1%) and TotalEnergies (-0.5%).
- Debt Management: Its 19% gearing ratio leaves a cushion, but further debt increases could spook ratings agencies.
- Cash Flow Resilience: Even with lower oil prices, Shell’s $5.6 billion adjusted earnings in Q1 suggest it can survive a mild downturn.

Final Verdict: Shell’s strategy is a calculated risk—one that could pay off handsomely if LNG demand surges and oil prices stabilize. For income investors, the $0.358 dividend offers a 4.2% yield, but keep an eye on oil’s next move. If WTI stays above $65, Shell’s gamble looks genius. Below that? Buckle up.

Investor Takeaway: Shell is a buy for those betting on LNG growth and oil price stability, but prepare for volatility. Monitor cash flow trends and LNG sales data closely—this could be the next big energy play, or a cautionary tale.