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Royal Dutch Shell (A Shares) (NYSE:RDS.A)
Q3 2020 Earnings Call
Oct 29, 2020, 5:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Ben van Beurden

Ladies and gentlemen, welcome and thank you for being with us today. Today, we present the third-quarter results. And we want to give you an update on our strategic direction, ahead of our strategy day in February. You will see why we are a compelling investment case.

Because we have strong performance today and because we are setting ourselves to grow and deliver even stronger performance tomorrow. And we want to be clear on our investment proposition, on how we are going to translate the value that Shell generates into shareholder distributions. So, we will talk about the Shell of today. We will then talk about the Shell of tomorrow.

And we will talk about what this means to our shareholders. I will start this presentation by touching on the deep financial and operational resilience that we have shown this year. And then building on this financial resilience, I can, with confidence, offer further clarity on our strategic direction. This direction is still being worked into a full strategic update that we will present in February at our strategy day.

But today we can already provide clarity on our cash allocation framework. Jessica will then lay out the priorities for cash allocation and she will also cover the highlights of our third-quarter results. Lastly, I will give you a more detailed update on our businesses and how our strategic direction translates in our portfolio choices and our ability to thrive in the energy transition. Before we start, let me highlight the disclaimer statement.

So, let's look at what we have today, a portfolio that has shown impressive resilience during these remarkably challenging times. We have a competitive portfolio with a solid track record on cash generation, which is absolutely leading our peer group. And it is upon the firm foundations of this portfolio that we build our future and help make the future of energy. And we believe the future of energy is particularly bright for our marketing and our customer-facing businesses where we already have scale.

So, we will accelerate a growth plan that is already under way. For our upstream businesses, we will focus on our core competencies to maximize cash delivery and returns, which will fund the path to our future, while also continuing to provide vital energy supplies. Our integrated gas and chemicals businesses, too, will play a key role in that future as enablers of our strategy. And, as we make that future, we believe that our integrated business model makes the difference.

Through it we create additional value from trading and optimization. Through it, our portfolio is greater than the sum of its parts. Now, that portfolio will change over time. We will remain disciplined on capital and also relentlessly high-grade our portfolio through divestments.

Something that will not change, is our focus on targeting AA-equivalent credit metrics through the cycle. Another thing that will not change is our commitment to increasing shareholder distributions. That is why, today, we are starting a new era of dividend growth. As of this quarter we are increasing our dividend per share by 4%; and subject to board approvals, we plan to grow the dividend every year to come.

We will also work to reduce our net debt to $65 billion. And once we have reached that milestone, we will target further increasing distributions to our shareholders. We target to distribute, on aggregate, 20-30% of our cash flow from operations. So, we are reshaping our investment case, and we are reshaping Shell.

That means that we need to reshape our organization as well. We are redesigning Shell to put the customers at the center. That means setting ourselves up to help key sectors in the economy with their decarbonization journeys. We will also become simpler and more cost effective.

But that comes with some difficult choices. We will cut between 7,000 and 9,000 jobs. As I mentioned earlier, I will share more updates on each of our businesses later. Now, Jessica will give you more detail-on the cash allocation framework and insights into our third-quarter results, Jessica.

Jessica Uhl -- Chief Financial Officer and Executive Director

Thank you, Ben. As Ben said, ahead of our strategy update in 2021, we are further clarifying our strategic direction and what that means for our priorities for cash allocation for cash capex, we plan to spend between 19 and $22 billion in the near-term. At the same time, we remain committed to our progressive dividend policy. Earlier this year we rebased our dividend to protect our balance sheet in response to the profound impacts of the pandemic.

And we have taken other decisive actions to preserve cash this year. Those actions have made us stronger financially and operationally in a challenging environment. And now that we have more visibility on the pandemic's impact and the implications for Shell, along with a clear strategy, we can align our approach to shareholder distributions to underpin our investment case. So, as Ben said, we will grow the dividend per share by 4% this quarter and will grow the dividend per share annually thereafter, subject to board approval.

We continue to target AA credit metrics through the cycle. And for the near term, we will reduce our net debt to $65 billion, including leases, from $73.5 billion as at Q3 quarter end. We believe that the $65 billion net debt level is a milestone, that in the near-term, places us at the threshold of the AA credit metrics range. And once we have reduced our net debt to this level, we target to further increase total shareholder distributions to be in total, in the range of 20 to 30% of our cash flow from operations, through dividends and share buybacks.

Once we have achieved this level of shareholder distributions, additional surplus cash will be allocated between further, disciplined capital investments to deliver our strategy and further debt reduction to strengthen the balance sheet. We will share more details in February, but I wanted to be clear today on our priorities for cash and our near-term targets. This framework reflects the strong fundamentals from our strategy to our day-to-day performance, demonstrated at what we believe is the bottom of the cycle. And that brings me to our strong results for the quarter.

In the third quarter, we saw some recovery in our realized oil and gas prices as well as some improvements in demand from earlier in the year, but we also saw weaker realized LNG prices due to the time lag with the oil price built into many of our contracts. Lower volatility in the quarter left fewer opportunities for trading and optimization as well. Our volumes were reduced by OPEC+ restrictions and the impact of hurricanes in the US Gulf of Mexico. But despite these headwinds we performed remarkably well.

Our adjusted earnings were $1 billion in the third quarter. ROACE was almost 4%. We delivered $9 billion of cash flow from operations excluding working capital movements and our free cash flow was $7.6 billion in the quarter. This free cash flow enabled us to further strengthen our balance sheet and reduce net debt by more than $4 billion in the third quarter, bringing it to its lowest level in a year.

Our strong financial results demonstrated, once again, the quality of our portfolio. And this quarter I want to highlight the performance of our marketing business. This business has shown impressive resilience, with a steady growth trend. Marketing delivered over $1.6 billion in adjusted earnings in the third quarter, despite the impact of the pandemic on our sales volumes.

That record performance reflects growth in the sales of premium fuels such as Shell V-Power and our high-end lubricants. It also reflects a significant increase in our non-fuels sales per customer from our convenience retail shops. So, we are pleased with how our marketing business is performing today and excited about its growth potential for the future. And our cash conversion has again been strong.

The cash generated this quarter and so far this year shows our capacity to deliver strong cash flows even at the bottom of the cycle. This also demonstrates the quality of our operations and the value we add through integration as we optimize energy flows to create additional value from our assets. Our resilient and robust cash generation quarter after quarter is another indication of the quality and balance of our portfolio, which reflects the portfolio choices we've made and continue to make. This also reflects the integration with trading and optimization, bolstering our cash generation.

That is why we have consistently generated more operating cash than our peers. Now, I expect you will want to hear more on the strategic direction, so let me hand back to Ben.

Ben van Beurden

Thanks, Jessica. Now that we have talked about the Shell of today and our near-term proposition to shareholders, let me cover the heart of our investment case: the Shell of tomorrow. Our strategy is all about the customer. And it is about society.

We already provide energy to millions of customers every day. And that is what we intend to continue. In fact, we intend to grow, providing energy wherever and whenever our customers need it and in the form they need it. Over recent years, we have seen our customers and society demand low and zero carbon energy solutions and this is where the future of energy lies.

It was in 2017 that we started pivoting Shell to thrive in the energy transition. It was then that we announced our Net Carbon Footprint ambition. And in April 2020, we announced what is still a sector-leading climate ambition. We aim to be a net-zero emissions energy business by 2050, or sooner.

We will do this in step with society. We will do so by working with others. And yes, our business plans will have to change over time. And with this end-goal in mind, we have set our strategy to deliver value today and tomorrow.

So, this is how our strategy translates to each one of our businesses. As you can see on the slide, we like to think of Shell as three types of businesses. Our upstream business represents the way we generate value from resources. Transition businesses look to efficiently utilize our assets to create trading and optimization opportunities.

And we see growth businesses building on our unmatched presence in markets across geographies and sectors to serve our customers. For our upstream business, we will focus on our highly cash-generative assets. This means we will simplify and high-grade the portfolio to core positions. Our transition businesses will enable our strategy.

We believe that LNG will continue to play a key role as we move through the energy transition. We already have a market-leading position in LNG. But we will build on that to grow with the market and further capitalize on our existing strengths. Chemicals will be another key business through the energy transition.

Demand will increase as the world population grows. And for refining we will further high-grade our footprint and maximize the integration with chemicals. That takes me to our growth businesses. This is where we see the long-term future of Shell.

We will accelerate our growth in marketing and mobility. We are already in a very good position. In fact, what we already are today, is what others aspire to be in the future. We will also increase our focus on future energy businesses.

This means making the most of the capabilities we already have, and building out the ones we need. It means establishing new business models in power, in hydrogen and in biofuels. Across these three business types we are building our future. We are building with prudence, yes, and also with confidence and with conviction.

I will now cover each business in a bit more detail, starting with Upstream. Let me first take a moment here to say that we are proud of our upstream business and how it has already transformed in recent years. Tier 1 assets combined with a relentless focus on resilience and cash generation truly sets us apart in our sector. And this journey is not over yet.

We plan to drive further unit cost reductions to get more value out of our barrels. To do so, we will focus on nine core positions that are resilient on both commodity price and carbon. These positions already generate more than 80% of the operating cash flow in upstream. The rest of the portfolio will be managed under a new lean operating model, under which we either develop, manage for cash or divest.

This model will bring the additional focus and resiliency that upstream will need to sustainably generate cash over the coming decades. In Refining, we also see the opportunity to high-grade our portfolio. For us, the strategic value of refining is in its integration. That means integration with trading and optimization of course.

But it also means integration with chemicals and increasingly with low carbon fuels, like biofuels, hydrogen and synfuels. And, to that end, we will concentrate our portfolio in six positions that we call energy and chemicals parks, mainly around the US Gulf Coast, North West Europe and Singapore. Another of our transition businesses is integrated gas. As you all know, this is an area of great strength for Shell one that marks us out from the crowd.

As the world moves to low carbon and later to zero-carbon energy supplies, natural gas will play a key role as a source of energy. LNG is the bridge from coal or even oil to renewables and other carbon neutral energy solutions. But LNG also has a role to play in dealing with the intermittence of renewable power generation. Gas fired power can be used when there is no wind or when the sun is not shining.

It can ensure a secure, continuous supply of power to our customers. And it is not just in power generation that LNG can play a role. We are opening up new markets for LNG as a fuel for ships, for example, or trucks. LNG is already being used for both more and more.

In fact, globally, we expect LNG demand growth to outpace the growth in total demand for energy. But we will remain selective in our investments in LNG and we don't expect to develop new greenfield gas to liquid projects anymore. We already are the market leader in LNG and have an unmatched LNG supply portfolio and a large, diverse customer base. That gives us solid competitive advantages which will allow us to grow the value of this business.

And our trading and optimization capabilities in LNG have been built up over decades of experience. We are uniquely placed in this market and this market is uniquely placed for the energy transition. Moving on, now, to our growth businesses. The energy transition is bringing major change and our customers, too, are changing their preferences.

This is true of mobility and it is also true of the demand for convenience. Both these major trends provide opportunities for our marketing business. And our position here is also very strong. We have more retail sites than our competitors.

And we serve more than 30 million customers every day across around 80 markets providing fuels, lubricants, electric vehicle charging points, food and even groceries. This gives us scale. And it also gives us powerful insights into our customers' preferences and future profitable propositions. Through all of this we are leading the industry by a significant distance.

Our marketing business has doubled its profitability in the last few years and delivered nearly $5 billion of adjusted earnings in 2019. It has also shown impressive resilience through the global pandemic. So, our strategy for marketing is to use our leading position to grow even further as the demand for mobility and convenience will only grow. But we also intend to make the most of cross-selling opportunities with our power business.

And, of course, power is another growth business for Shell. Also, here we start, with the customer. Customers want convenience, mobility, competitive prices and security of supply and increasingly they want to decarbonize. Customers-both businesses and consumers-are looking to simplify the complexity of decarbonization.

What they want is a simple solution from a trusted brand. And here, again, Shell's integrated business model gives us an advantage. Our integrated power strategy fundamentally works back from the customers to solve their energy transition needs. This is an important difference in mindset from our peers in the power market who focus on an asset centric portfolio and the incremental returns from optimizing such assets.

So, we are not building a power generating business to sell a commodity in the same way as a stand-alone independent power producer. We are building an integrated business that absolutely prioritizes customer needs through the energy transition. Integration in our customer offering, with the ability to cross-sell products and integration across a whole spectrum of power businesses to maximize value. But you may ask: why is Shell the right company to capture these opportunities? I will tell you why.

We are not starting from scratch in Power. We have unique customer access. We serve millions of customers every day, which gives us insights and in-house expertise in understanding customers' needs and wants. And we have solid trading and optimization capabilities and scale that we have built up over decades, which are central to our ability to understand markets and optimize value chains.

We are already one of the largest power wholesalers in North America. And as to our positions in renewable power generation I can tell you we will be selective, and we will enhance returns through dilution and competitive financing. Looking further into the future, we also see significant growth opportunities for biofuels and hydrogen. And, once more, we start from a strong position.

Today, we already rank among the largest blenders and distributors of biofuels in the world. We continue to invest in new ways of producing biofuels from sustainable feedstocks, such as waste products or cellulosic biomass. And through our joint-venture Raizen in Brazil, we produce and sell billions of liters of ethanol every year. In fact, if Raizen were a country, it would be the fifth largest biofuels producing nation in the world.

And in hydrogen, we have already built an industry-leading position in what is still a small market. Around 50 hydrogen retail sites in Europe and North America. Building the largest PEM electrolyzer in the world in Germany. And working on plans for an electrolyzer in the Netherlands that would be 20 times bigger than the one we are building in Germany today.

So, we are uniquely positioned to serve the needs of our customers whether they need electrons, biofuels, or hydrogen. Let me now wrap up before we close out. There are three things I would like you to take away. First, that our portfolio and operations have shown remarkable resilience in incredibly challenging times.

Second, that Shell is very well positioned to capture value in the energy transition with the strong position we start from and the strategic direction that we have. We are ahead. We have a portfolio today that others aspire to have in years from now. Third, that we have a clear framework for our investment case, not only offering the promise of future growth, but also increasing shareholder distributions today.

We will have a further update for you at our next strategy day on the 11th of February 2021. But for now. Thank you for being with us today.

Questions & Answers:


Welcome to the Royal Dutch Shell 2020 Q3 live Q&A session. [Operator instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to our first speaker, Mr. Ben Van Beurden.

Please go ahead, sir.

Ben Van Beurden

Thank you very much, Anna, and ladies and gentlemen, welcome, and thank you very much for joining us today. I really hope that you like the flexibility of being able to -- listening to the video of the results presentation ahead of this call. And please also provide your feedback to the IR team on this new format that we have for you. But now it's a time to focus on questions and answers in this particular session.

So, let's, first of all, take another look at the disclaimer. And then, before we move to questions, I actually would like to have a few key messages brought across. First, the Shell of today is resilient. Our portfolio and our operations have shown remarkable resilience in incredibly challenging times.

The measures that we took to preserve cash have paid off and made it stronger, both operationally as well as financially. We have been consistently generating more operating cash flow than our peers. Secondly, the Shell of tomorrow is growing. We are very well positioned to capture value in the energy transition with the strong position we start from and the strategic direction that we have chosen.

Our portfolio delivers strong performance today and is advantageously positioned to deliver strong performance also into the future. We already are market leaders in businesses that are key for the energy transition. We lead the market in LNG. We're also the market leader in our customer-facing marketing businesses.

So, we are ahead. We have a portfolio here today that others aspire to have in years from now. And third, we offer a compelling investment case, today and tomorrow. We have a clear framework for our investment case.

Today, we have given you more insights in our priorities for cash allocation. So, we are announcing an increase of 4% in our dividends this quarter, but we're also announcing a target milestone for our net debt of $65 billion for the near term. And once we have achieved this milestone, we target to further increase shareholder distribution. So, we are not offering the promise of future growth, but also increasing shareholder distributions for the near term.

And with that, let's go to your questions. So, please, can we have one or two of each, so that everyone will have the opportunity to ask a question. Anna, back to you.


[Operator instructions] We take our first question from Clint, Oswald from Bernstein. Please go ahead.

Oswald Clint -- Bernstein -- Analyst

Thank you very much, Ben and Jessica. The first question, please. I mean, I like your new message today around shareholders having first dibs on cash flow before the growth capex and especially the kind of new energy capex. But I think it's an incredible shift in confidence in just six months when you talked about significant mid- and long-term uncertainty in a potentially changed world just six months ago.

So, I'd love to hear a little bit more about what supports this really 180-degree turnaround, which has fed into your dividend decision, or has it just been the cash flow generation has genuinely surprised you over the last six months across the group? And then secondly, please, I had a specific question around the other message on customer-focused businesses and aiming to reduce the emission. So, I received my Shell Go offer this week to pay a little bit more for each liter of fuel over here in the U.K. So, I can see what you're up to. But I wanted to ask about carbon-neutral LNG.

So, on a scope three basis, and I can see what you've been up to, but with the carbon price assumptions I'm using, it feels relatively expensive to offer these. So, question is, I mean, could you talk around the appetite for these products? Are you receiving any type of premium pricing yet or some cost pass-through, or perhaps the carbon offset price I'm using is just way too high and you could offer me a more realistic number, please? Thank you.

Ben Van Beurden

Thank you. That's all great questions to start off with. And let me take them both, actually. So, first of all, the six months, what has happened in the interim.

I think it is fair to say that we acted with good prudence six months ago. We did not see the clarity of the way forward in the way that we can see now. So, indeed, six months does make a difference to understand how this pandemic is playing out. And we all know, of course, we are not yet out of the woods when it comes to the economy and the damage that the pandemic can still cause to it.

But what we do know is that the measures that we took six months ago indeed to reset the dividend, which was very painful, but also to bring down our capital cost, to bring down our operating costs, these measures have really stabilized the company in terms of financial resilience. We also know how the company operates in very, very difficult circumstances. And as you will have seen, two quarters in a row, it operates very well under very difficult circumstances. So, it's a different level of confidence that we have in the resilience of the company going forward.

And then, we said, let's be very clear, even though we reset the dividend, we offered a progressive dividend. And even though we have set the dividend lower, we are also looking at what this means for the future. So, at this point in time, I think we can say with confidence, not only how we go forward in terms of the direction, but also what it means for the payout that we can give to shareholders. And if you have a progressive dividend, you better have a progressive dividend, and that is what we are confirming today.

On the carbon neutrality, yes, indeed. First of all, thank you very much for stepping into our Go program, which indeed means in the U.K. that we will offset the carbon emissions of your car. But indeed, also, increasingly, we see this taking up in other parts of our business, not only countries.

It's very successfully launched, by the way, in Germany and Austria and Switzerland. And we are doing it also in Canada next month, but indeed also in LNG. And we have, I think by now, sold six cargoes, carbon neutral. And we combine that with our nature-based solutions portfolio that we have, and customers want it.

And that is another reason why we have confidence that there is money to be made in the energy transition also in the more traditional parts of our business. Thanks for that first opening question. Anna, can I have the next question, please.


Thank you. The next question comes from Thomas Adolff from Credit Suisse. Please go ahead.

Thomas Adolff -- Credit Suisse -- Analyst

Good afternoon, Ben, Jessica. Two questions from me as well. Just firstly, on your net debt target, what is so magical about this $65 billion, does it allow you to keep a AA in a reasonable oil price environment? And then linked to that, the new distribution policy, is the idea also to keep the cash dividend burden largely unchanged as the buyback is playing in an increasingly important role? And secondly, your comment on LNG. You obviously are already the largest player among the publicly listed companies.

And if we assume LNG demand growth, I'd say, 5% per annum in the next 10 years, which is obviously slower than the 10% we've seen over the period 2017, 2019, and you want to grow in line with the market, that essentially means doubling your business because you need 40 million tonnes of new capacity and you still have about 20 million of expiries. And I was just wondering whether that's even feasible with the opportunities that you have.

Ben Van Beurden

Thanks very much, Thomas. Let me take the second question. Jessica will take the first one, which, by the way, was a question we anticipated. We said we will grow with the market.

We see the market for LNG growth. We probably are a little bit less sort of conservative in our growth outlook. We've been talking about 4%, or 3 to 4%, depending a little bit what time frame you look at. And we want to participate in that growth.

It doesn't necessarily mean that we match it percent for percent. But in a growing market, you will want to continue to invest. On the other hand, LNG are very long-dated assets, so you want to make sure that the investment decisions you take can stand the test of time. And the test of time in LNG decisions are many decades, unlike, for instance, a deepwater investment. So, we will grow with the market, not necessarily matching the market, but we believe, indeed, this is a good proposition for us to continue to invest in.

Jessica, on the 65 billion?

Jessica Uhl -- Chief Financial Officer and Executive Director

Great. Thanks, Thomas, for your question. So, the 65 billion net debt target is, as you said, a threshold number for us to indicate when we're comfortably within AA metrics. We've not changed our position.

We're looking to strengthen our balance sheet. That's been unchanged for the last several years. We found gearing was a little bit messy because there are a number of accounting elements that come into play, both on the numerator and the denominator. So, we wanted to have a more clear and simple target to communicate with the market.

But of course, we look at a variety of metrics and ways of considering our balance sheet. The $65 billion is the threshold number that we think we need to achieve to be comfortable in the AA metrics.

Ben Van Beurden

Thanks, Jessica. Thanks, Thomas. Anna, can I have the next question, please?


Thank you. The next question comes from Christyan Malek from JP Morgan. Please go ahead.

Christyan Malek -- J.P. Morgan -- Analyst

First of all, thank you for some positive news flow in the midst of everything going on. A few questions from me. First, on the fixed variable cash return, so to speak. Once the 65 billion net debt threshold is delivered, what will determine how the variable distribution component up to 20 to 30% of cash flow's fulfilled between buybacks and additional special dividends? Secondly, on capital allocation and capex, is the 19 to $22 billion per annum primarily orientated to 2021? I assume it is.

But -- based on executing on net debt reduction targets. But how should we think about allocation priorities and drivers of medium-term capex beyond that, including potential upward pressure on new energy spend as energy transition accelerates, especially on the lower debt, higher macro conditions? And the third and final question, apologies, is you've identified nine core upstream regions and disposal implications. Based on full-year '20 upstream production of around 2.45 million BOE a day, how much of that volume base is accounted for by the nine identified core regions? In other words, what portion of the remaining asset base becomes directly non-core? And what parameters could determine the disposal strategy around those residual positions?

Ben Van Beurden

OK. Thanks very much, Christyan. I will take the questions in reverse order and do three and two, and Jessica will talk about one. So, first of all, on the core and lean.

So, for us, core and lean is indeed a very important distinction to make sure that we pay the attention and look after the most important assets with the biggest running room and the most advantageous positions, but indeed, the most capex and the most attention. So, 80% of our cash flow comes from these nine core positions. More than 80% of our investment will go in there as well, including, by the way, exploration expense. So, the other ventures that are in the lean model are there for three reasons.

They could be there, for instance, because they are still in almost incubation mode. So, like the Surinames of this world. We just want to make sure that we can develop it, which may well be unsuccessful, by the way. But if we do, indeed, it might become core.

It may be that assets are without running room, but we are still quite happy with them. And therefore, we just run them for cash. Or it could well be that we want to ready them for divestment. So, don't think for a moment that all the other non-line positions are immediately divestment candidates.

That may be, by the way. But it also means that we can flip between core and lean. At some point in time, core assets will go into a twilight zone and will go into the lean portfolio as well. And as I said, the other way around.

The production associated with it, I don't have that number to heart. For us, it's indeed more value than volume. But please get back to the IR team who I'm sure can fill you in on that. In terms of the capital, so indeed, 19 to 22 is the sort of near-term spend that we have.

About a quarter of that will go into what we consider now our growth portfolio, so marketing power, bio, hydrogen. That was, by the way, 11% in the last three years. So, a significant step-up toward growth. What we will do with capital in the medium to longer term, well, that depends.

I think first of all, we have to get to the $65 billion, then we have to increase shareholder distributions. And then, indeed, time will come and we will start with a very measured and disciplined increase in capital, because after all, you want us to grow the value of the company as well. The way that will play out, we will have to ask you to be a bit more patient until February and we can give a bit more update on all of this as well. Jessica?

Jessica Uhl -- Chief Financial Officer and Executive Director

Great. Christyan, thanks for the question. So, what we're offering today in terms of our investment case is growing distributions starting today as well as upside and future shareholder distributions once we increase cash flow from operations. When we reach that milestone of 65 billion of net debt, and we're looking to increase shareholder distributions of 20 to 30%, we continue today to have a bias, if you will, or a belief that share buybacks should play an important part in how we distribute to our shareholders, and to an earlier point made today, ensure that our total distributions are -- remain affordable and do not continue to kind of grow exponentially through time.

So, that's important for us. However, we're going to see where we are at that moment in time, what is appropriate for our shareholders, and we certainly continue to give ourselves the opportunity, the space to look at different dividend levels if that seems more appropriate at that moment in time. So, we've retained the optionality, if you will, so that we can be responsive to what the market needs. But share buybacks, I believe, will continue to be an important part of the overall investment case.

Ben Van Beurden

Great. Thanks very much, Jessica. Next question.


Thank you. The next question comes from Biraj Borkhataria from RBC. Please go ahead.

Biraj Borkhataria -- RBC Capital Markets -- Analyst

Thanks for taking my questions and appreciate the more condensed format. So, I have one question on the downstream business. If I look at the move you mad in the last decade or so as to concentrate refining and focus on these kind of three core hubs. So, I'm looking at Slide 17, and the one thing that does stand out is Scotford.

And I appreciate that's an attractive asset in the sense that it has some very regional specific dynamics. But I imagine if you wanted to sell, there will be good demand for that kind of asset. So, it's not really clear to me if that fits in with your longer-term vision for the company. So, could you talk a little bit about your commitment to that asset specifically? And then the second question is just on the job reductions for 2021, 7 to 9,000 people leaving.

Is there any -- or can you give a magnitude of the kind of severance payment on a cash basis that we should expect to come out in 2021? Any help on that would be appreciated.

Ben Van Beurden

Great. Yes. Thanks, Biraj, for these two questions. I'll take the Scotford one.

Jessica will take the second one on severance. So, indeed, Scotford is a high-quality asset. First of all, it is a very advantaged asset in the way it's configured in terms of both the upstream value chain, but also the downstream value chain. It plays very well into what we consider to be an advantaged envelope in that part of Canada.

By the way, an envelope where we have also a strong branded position. And then, the other thing is you have to bear in mind, Scotford is integrated with chemicals. We do have a MEG and styrene position that is fully integrated with the refinery, which in turn, by the way, is still integrated with the integrator, with the upgrader. So, it is a high-quality asset.

There is no need for us to despair about the future of that asset. We can trade around it in reasonable positions as well, even though it has no access to open water. So, therefore, there is -- it fits within the portfolio that we see for the future. Jessica, on the redundancies?

Jessica Uhl -- Chief Financial Officer and Executive Director

Raj, thanks for the question. We are finalizing the complete design of the organization over the coming months. So, we'll have better insight on that final number in the coming months. We're expecting somewhere between 1.5 and $2 billion in severance costs.

That will be between 2021 and 2022, just depending in terms of the timing of how it's ultimately implemented, but that's the number.

Ben Van Beurden

OK. Thanks, Biraj. Next question.


Thank you. The next question comes from Ryan Todd from Simmons Energy. Please go ahead.

Ryan Todd -- Simmons Energy -- Analyst

Thanks. Maybe the first one. I mean, marketing was very strong in the quarter. Can you maybe talk about some of the near-term drivers of that? And longer term, you've grown the marketing earnings at almost 10% a year over the last eight years.

Any thoughts on how you see underlying growth over the next five-plus years and where you see that as a normalized share of Shell earnings going forward? And then maybe for a second question, you have multiple refining assets for sale, and obviously, you have a long-term strategy. You said here to focus on a smaller number of large-scale parts. The outlook is particularly challenging right now for refining, with increasing pressure on rationalization of capacity and not a lot of obvious buyers out there. So, how do you think about divestment versus rationalization and how you may approach that over the next couple of years?

Ben Van Beurden

OK. Two very good questions. I'll take the first. Jessica will take the second.

So, yes, indeed, you're right, good observation. We have been growing the performance of our marketing business, which includes retail, our B2B sales, our lubricant sales, but also things like bitumen, sulfur and other products that come out of refining base, if you like. We have been growing it very consistently year after year. As a matter of fact, if you look at the last month, we made in a month what we used to make in a year 15 years ago.

And that is not because it just happens to be a very good month, it is because we have continuously upgraded that business by, first of all, growing it in size, growing it in scope, bringing in things like non-fuel retailing, but also better margin management, better value propositions, etc., etc.. And we have high-graded quite a bit by getting out of markets where we could not be No. 1 or No. 2, and in some cases, even getting out of No.

two market. So, does that trend continue? Well, I think so. I can't predict at what clip it will continue, but we see marketing very much as a platform for growth into the future, upon which we can also build our biofuels business, which relies on the fact that we are the largest marketer of jet fuel in the world as well. Or our hydrogen business, where we are also in a leading position, small, but nevertheless, leading in the industry.

So, marketing, for us, is more than just the traditional fuels retailing. It is actually a transition into the future for us. I think it will continue for some time to come, but it will change in its makeup. The near-term drivers are indeed, first of all, better margin management that we have seen, higher penetration of premium fuels, more than 20%.

And we are also seeing an increase in the basket size in our average retail customer visit in our site. So, multiple number of drivers, some of which will indeed be specific for the pandemic, but many of which will turn into longer-term trends into the future.

Jessica Uhl -- Chief Financial Officer and Executive Director

Great. So, in terms of the refining portfolio and how we're going to manage the transition of that portfolio, there's a number of different levers that will be pulled. The first one is retaining the refinery capacity in the key markets tied to our chemical business, and that's where the six energy and chemical parks will be created. For those that don't make it into the parts, either they're not the right asset or not in the right location, we're going to look to divest.

We recognize the market is not great at the moment in terms of divesting assets. We've had success in the past in difficult markets, so I wouldn't say that's not possible. We certainly believe that can be possible, but we recognize it's difficult. If it's not possible, we'll consider closing and shutting down.

That's, ultimately, the last option we'd like to pull. And then, there's another piece as well in the portfolio where we'll be shifting those to different types of operations, which we're doing in the Philippines today, and moving that to a terminal operation. So, there's a number of levers we'll pull. In all cases, we're looking to maximize value.

We think we've got a lot of optionality in terms of how we manage over the next couple of years. We're not dependent on divestment proceeds over the next couple of years to deliver our strategy. So, I think we're well-placed to do this in a managed way and a strategic way to end up with the position that we want with our energy and chemical parks in the future.

Ben Van Beurden

Great. Thanks. Can we have the next question please, Anna?


The next question comes from Michele Della Vigna from Goldman Sachs. Please go ahead.

Michele Della Vigna -- Goldman Sachs -- Analyst

Thank you, Ben and Jessica. It's Michele. Thank you for your time. I'm sorry for asking one more question on your cash distribution.

I very clearly see the benefit of building a conservative balance sheet. But I'm wondering, at the time when bonds are very, very highly valued and the decades low yield, and your equity holders are suffering an unprecedented crisis of confidence and low valuation, I wonder whether from a technical standpoint, it wouldn't be better to fast forward the start of the buyback program versus financial de-gearing. And again, my question is very much tactical. It's not driven by the priorities, which I think are fair for the long term in terms of balance sheet, dividends and buyback.

But with this level of share price, wouldn't it be better to effectively start earlier? And then my second question, if I may, also related to cash distribution is the range of 20 to 30% is actually quite wide for cash distribution. Could you perhaps shed a bit more light on what would be the key elements that would drive you to the top or to the bottom of that range?

Ben Van Beurden

Yes. Thanks very much. Let me take the second question, Michele, and then Jessica will talk about the first one. It's debatable whether 20 to 30% is wide or narrow.

As a matter of fact, as you can imagine, we had a good debate about it in the board. But ultimately, we very clearly also settled on this range. The bottom of the range, obviously, is roughly where we are today or a little bit higher. The top of the range, of course, we will probably want to reach also at a time when we have a significantly better cash flow performance as well.

How we will make the determination. First of all, the cash flow that we will use in the determination of the buybacks will be the cash flow that we will have delivered over the, say, four quarters rolling past. And the percentage where we end up, will, of course, be a determination of the confidence into the future. That gives us indeed, arguably, a range of flexibilities.

But bear in mind also, Michele, by the time we are in the mode of, indeed, stepping up our distributions to shareholders beyond the progressive dividend, we also still want to be in a mode of further deleveraging the balance sheet. And that brings me to your first question, which Jessica will answer.

Jessica Uhl -- Chief Financial Officer and Executive Director

Excellent. Good. So, Michele, your tactical representation, I think, is entirely fair, and it's a reasonable question to ask. However, we're here to lead and thrive in the energy transition.

And we have a very clear strategy. We believe we have an important role to play. To some extent, the success of the energy transition will depend, I think, to a large extent, on companies such as ourselves with our capacity, our intellectual capacity, our assets, our knowledge and our experience in energy markets to play a meaningful role in the energy transition. And we can only do that if we're a strong company.

And for us, that means having a strong balance sheet, which I think, this year, has really proven to be a very important piece as we go through the energy transition. The volatility that we're exposed to from a commodity perspective, the volatility we've been exposed to from a pandemic perspective, to a large extent, we're able to manage because we're a strong company. And if you look at the level of change that needs to happen and the risks that we'll be exposed to, I firmly believe having a strong balance sheet is fundamental to our ability to deliver our strategy. And I think that's what we're here to do.


Next question comes from Irene Himona from Societe General. Please go ahead.

Irene Himona -- Societe Generale -- Analyst

Thank you very much. Good afternoon and congratulations on the cash flow performance in the quarter. Ben, you have said yourself in the past that the oil majors are a little bit like big black boxes. And clearly, there's no bigger black box than integration trading optimization.

And today, in your presentation, you highlighted that integration as an advantage as you drive the strategy through energy transition. One of your peers has tried to quantify the value to them of trading. Are you prepared either today or in the February strategy presentation to give us some concrete quantification of that value-added through your integration and your ability to make the value of the portfolio much bigger than the sum of the parts?

Ben Van Beurden

Thank you, Irene, and thank you for acknowledgment, and thank you for what is indeed a particularly important, but also tough to answer question. So, indeed, our trading and optimization and our supply function, if you like, or business, whatever you like to call it, is absolutely core to the success of our company. It actually makes the magic, in many cases. And quite often, it's very hard to show how that works without disclosing an awful lot of commercially sensitive information.

But just two points. First of all, bear in mind, this is not a speculative trading business, where lots of people take punts on the market and then either turn lucky or unlucky, and we tend to be lucky, clearly, from our track record. That's not the way it works. Basically, what we do is we give our traders and optimizers and schedulers and operational people, the mandate to work together to understand how you can add value, working our molecules and electrons through our assets, through our contracts into our markets.

And that gives us opportunities to do things that others can't do. I'm happy to try again to explain a little bit more anecdotally how these things work. But take, for instance, our LNG business. Everybody understands, if you run a baseload trend line LNG business, you can't get to the results that we make.

You get to those results if you are able to continuously reoptimize, reschedule, rearbitrage cargoes in different parts of the world. It is impossible to show exactly what we are doing, unless we want to completely open up our entire trading book, which is something we simply cannot do even if we wanted to. But I take your point, we have to tell a better story how trading and optimization adds value that is clearly visible, but not necessarily always understood in its intricate details. Thanks, Irene.

Anna, can we have the next question, please?


The next question comes from Paul Cheng from Scotia. Please go ahead.

Paul Cheng -- Scotiabank -- Analyst

Thank you. Good afternoon. Two questions, please. You indicated that 25% of future investment is going to be in the growth area.

Can you break down between marketing and the rest of the new future energy business. Over the next five years, how does that going to look like? And in the marketing, how big is the contribution of the lubricant in the -- for the sequential improvement that we see in the third quarter from the second quarter? And also, therefore, your renewable business, the future business, how important is the inorganic acquisition is going to be a part of your strategy to achieve your target over the next five years? And are you concerned? Seems like asset price are being bid up. The second question is on the cost reduction, the 2 to $2.5 billion. Is there any of that part is already achieved in the third quarter? And can you break down by segment or by the type of expense related to that 2, $2.5 billion?

Ben Van Beurden

Thank you very much, Paul, and welcome to the call. I like the way you managed to get five questions into two, but we will take them all. So, first of all, talking about marketing, so yes, indeed, 25%, a step-up from where we -- sorry, growth, a step-up from where we used to be. And marketing is a significant part of it.

So, 11 to 25. The breakdown of that 25% into what is retail, what is lubricants, what is some of the other businesses, how much bio, hydrogen, etc., I will have to ask you to be patient and hope to see you back again in February. Let me share a little bit more on how that all works. That's not for today.

But what we can say today is that indeed, our customer-facing businesses, so our retail business and our lubricants businesses that you both referred to, have had a very strong third quarter. If you take at retail, as an example, quarter three to quarter 3, we have seen 25% growth on a clean basis. Take lubricants, 40% growth. So, very significant increases quarter-to-quarter in what are arguably very difficult market circumstances.

Now the other questions on inorganic growth, power, hydrogen, Jessica?

Jessica Uhl -- Chief Financial Officer and Executive Director

Good. So, on the inorganic growth for power and hydrogen, in the near term, we're not expecting material inorganic growth. So, when we talk about the 19 to 22 billion of capex, that includes inorganic growth. So, clearly, we're not expecting to do anything material in the near term.

However, there will be a role for inorganic activity. There already has been for the last couple of years. We were making a number of acquisitions, but relatively small for a company our size. And that will continue to feature as we build out our capabilities, bring in different pieces of the value chain so that we can create truly integrated business models.

So, that will be an important piece. There was also, I thought, another question, but perhaps not. I'm not seeing it up on the screen.

Ben Van Beurden

OK. Thanks, Jessica. Thanks, Paul. If the IR team picked up the other question, then we'll come back to it in a moment.

Jessica Uhl -- Chief Financial Officer and Executive Director

I'm sorry, Ben, I do remember.

Ben Van Beurden

OK. Good.

Jessica Uhl -- Chief Financial Officer and Executive Director

This is live, guys, so -- it was on cost.

Ben Van Beurden

Oh, yes, cost.

Jessica Uhl -- Chief Financial Officer and Executive Director

That's an important one. So, I wanted to talk to it, so that's why. So, it's good that I have my paper here for backup. So, on opex, there's a lot happening.

So, let me just hopefully quickly, but comprehensively cover it. We set an ambition to reduce our opex by 3 to $4 billion in 2020 in response to the pandemic. We are well on track on delivering that. You can see that in our opex costs this quarter.

And in last quarter, we're trending down to levels that we haven't seen for years and pulling all levers we can. A number of the levers that we're pulling aren't necessarily sustainable. There's reduced travel. We do expect at some point in time, that travel will pick up.

We've stopped nonessential project works in places like our IT department, etc.. Again, when things normalize, we'll expect those costs to come back into opex. In response to that, that's where reshape comes in, and reshape is about how do we structurally change our cost base. And so, it's a different set of numbers, that 2 to $2.5 billion is a structural reduction in our human resources cost in the company, and that will be coming through into the P&L starting in 2021 and into 2022.

Ben Van Beurden

OK, great. Thanks for remembering that question because it is indeed important.


Next question comes from Jon Rigby from UBS. Please go ahead.

Jon Rigby -- UBS -- Analyst

Oh, yeah. Hi, Ben. Hi, Jessica. Can I ask, just sort of linking capex and this -- the new dividend.

So, you've talked about 4% increase in the dividend. Are you trying to signal there the sort of what you would expect medium-term growth or the perimeter of growth of the business to be, presumably, you want the dividend to sort of grow with the business. And to that point, I think Jessica has talked about a capex number that preserves the perimeter of the business, and you've also talked about a capex number of 30 billion aspirationally, I think, from management day 2019. So, given all the moving parts on inflation and your kind of outlook.

Where does the current sort of 19 to 22 sit? And how does that relate to what you said before, particularly around growth? And then just on the upstream, it's a struggle this one because, I guess, you're saying you're going to invest for value, not volume. But value probably in the upstream is going to be one of the highest returning businesses potentially for dollar into that business and particularly competitive with renewables. So, how do you go about controlling how much capital you want to allocate to that business?

Ben Van Beurden

OK. Two good questions. Would you care to take the second one, Jessica? I'll talk a little bit to the first one. So, what we want to signal with the 4% DPS growth is, first of all, we are growing our current returns above inflation.

So, we want it to be a still a meaningful dividend per share growth. And the reason why we want to do this, Jon, is because we want to signal that our investment case is, first of all, resilience of the company, which I hope is on display certainly this quarter, but also through the measures that we have taken. And on that foundation of resilience and performance, we can not only offer growth into the future with our strategy that very much leans into the energy transition and finds value much more at the customer end of things, but at the same time, it is jam today. So, a meaningful increase in dividend.

That's our investment case. Resilience, jam today, jam tomorrow. And I hope that indeed over time, we will be able to demonstrate not only the resilience and the 4% and etc., but we will also be able to demonstrate that the growth investments that we are making are really meaningful investments that actually can outperform many other parts of our portfolio. So, in terms of how we allocate capital to upstream, Jessica?

Jessica Uhl -- Chief Financial Officer and Executive Director

Great. Jon, a really important question. And to answer it completely, I would need to provide you a complete capital allocation framework. And we're looking to do that in our February update, our strategy day.

So, we'll go into that in more depth in February. But just to give a few pieces of that story now. Of course, we're doing this at the group level. What's it going to take to -- what capital do we need to deploy to deliver the complete strategy.

And there's a combination of things that we need to achieve. Of course, we need to provide the highest level of return with that capital. What I'll say is upstream absolutely can provide compelling returns. It doesn't always.

In certain conditions, if you look at 2020, it hasn't necessarily been a great year for returns for the upstream business. Whereas if you look at our marketing business, we are still able to achieve returns of 15, 20, 25%. So, we do have other options for our capital. And importantly, increasing amounts of our capital as we think about the growth portion of our business and where marketing sits.

It is about reorienting our capital to a place where actually there are very compelling returns. The other piece is, given the business we're in and the energy transition, we are going to have to make bets. We're going to have to build new business models in hydrogen, biofuels, power, etc.. We'll need to deploy capital to do that.

And the challenge there is how do you derisk those business models with the right level of prudence, but with the right level of ambition. And that's the balance we're trying to achieve as we manage capital.

Ben Van Beurden

OK. Thanks very much, Jon. Thanks, Jessica. Anna, can I have the next question, please?


Thank you. The next question comes from Roger Read from Wells Fargo. Please go ahead.

Roger Read -- Wells Fargo Securities -- Analyst

Good morning, I guess, good afternoon to you. I just want to put my comments on, I thought the set up this time around with the presentation upfront and then the Q&A is an improved way to go about it, especially on a busy day of earnings for a lot of us. With that, my question's really focused on a couple of things, and I recognize some of this may come out more in February. But it seemed like Australia was a notable omission in your nine core areas.

I was just wanting to make sure if that was true. And if so, kind of what you think. Does that signal dispositions, or is that a lean area? And then my other question was in the presentation, you talked about in the integrated power business -- and these are just my notes, so if I get a little off, I apologize. But that you could build an integrated customer-focused business here, not a commodity business.

I was wondering if you could go into a little more detail of what maybe that is and how we should think about it. Does it kind of mean higher returns because it's a little asset-light, or it's trading kind of in the conventional way on top of an integrated power solution. I was just curious what exactly you were trying to get as a message there.

Ben Van Beurden

Yes. Great. Thanks very much for your questions, Roger, and very important questions to talk to. First of all, indeed, an important clarification.

The nine core areas, so the nine core positions that we talk about, are in upstream. So, on top of that, of course, we have other positions also in integrated gas. And Australia for us is an integrated gas company -- integrated gas country, sorry. Of course, there are other places that are indeed in integrated gas that are not counted.

Think of Trinidad and Tobago, for instance. So, that's an important clarification to make. In terms of Power, indeed, it is important to think of our integrated power strategy as one that is as much as our marketing business, if you like, working from the customer back. So, what does that mean? It doesn't mean that we just want to build wind farms and solar farms and then see whether we can add some value to it with some trading or whatever else.

It is actually working back from customer value propositions that may well be a cross-selling proposition or that will maybe a global proposition that we will take, for instance, with a global player who needs more than just power, maybe some other things as well in multiple places around the world. And then, indeed, providing the electrons that are going to be needed to satisfy that particular customer. Now that may mean and will mean, by the way, that we will indeed also be involved in the generating business. But it doesn't mean necessarily that we will build -- generating assets, we're looking for customers.

It's rather the other way around. So, that also means then, of course, Roger, that from time to time, we will find that once we have a generating asset build, take, for instance, the wind farm that we are currently building in the North Sea, we're perfectly OK to sell that down, to a large extent, provided we keep control over the electrons that come from it. And in that way, we can actually have a generating asset on our books with a 12%-plus return on it, partly because of the successful sell-down and financial transaction around it. So, think of it in that way.

But indeed, you're also right, we will be able to go into a lot more detail in our February update. Thanks, Roger.

Anna, can I have the next question, please?


The next question comes from Lydia Rainforth from Barclays. Please go ahead.

Lydia Rainforth -- Barclays -- Analyst

Thanks, and good afternoon to you. Two questions, if I could. The first one, just coming back to project reshape. I like -- I certainly don't want to say a lot of people are leaving and some vacancies will be leaving at that period.

But if I think about it, at 2 billion to 2.5 billion of your current cost base, it doesn't seem like very much in the context of how much you're seeming to want to simplify Shell and also the digital work that's going on in that whole idea if I think about the deal with Microsoft. So, can you just talk through as to how that -- whether you think that number is something that, over time, you'll get more benefit from simplifying Shell and that's just an early phase part it. And then, the second part is, if I go back to the prepared presentation earlier, and thank you again for that. You do mention in the low carbon part and Silicon Ranch generating 8 to 12% returns in terms of all the projects that's done.

Can you just remind us how big Silicon Ranch is? And over time, is that your preferred solar investment as well?

Ben Van Beurden

OK. Thanks very much, Lydia. Let me start with the second question. Jessica will take the first one.

But as we also say, unless Jessica knows the answer by heart, it's probably one that you also have to get back to our IR team for. So, Silicon Ranch was an investment that we made into an established developer of solar projects in Tennessee Valley that has been very successful, and that we took a minority share bit of view to understand how we could participate in the build-out of solar electricity in the United States and to see whether that could indeed turn into a platform business for us. It has been very, very successful, and we now considering the next steps, what to do with that business, and indeed, with our general capability when it comes to solar build-out. We have an equivalent of this, by the way, Lydia in the -- in Southeast Asia.

How large it exactly is in terms of its pipeline, everything else, the IR team will get back to you. Jessica, would you mind taking the first one on reshape and the 2 to 2.5 billion?

Jessica Uhl -- Chief Financial Officer and Executive Director

Good. A couple of things to say on the opex piece. So, the 2, 2.5 billion is solely the human cost piece. Of course, there are a number of other initiatives that are happening across the company to reduce our cost base and simplify the company that aren't part of that 2, 2.5 billion number.

This is where we're looking to reduce the total cost by some 3 to 4 billion on a sustainable basis. So, indeed, there are a number of other initiatives that add on to that 2 to 2.5 billion number. It is important to note though that our growth businesses tend to be opex-heavy. So, particularly our marketing business, they're relatively capex-light and more opex-heavy.

So, we will see our opex grow in the future in associate with the -- with our growth assets. So, that's important to keep in mind.

Ben Van Beurden

And Lydia, just to add a few numbers, which I just got sight of. So, we have, at this point in time, 43.11% in Silicon Ranch. Silicon Ranch has 930 megawatts of capacity operational and a pipeline of 1.2 gigawatts.

Jessica Uhl -- Chief Financial Officer and Executive Director

Ben, there's also -- I'm sorry, one other point, Lydia, on -- you'd mentioned digital. And indeed, digital is an important part of our overall story as a company in terms of how we're trying to improve and be not only more cost effective, but more value creative because of the work in digital. And a number of partnerships have been announced in recent months around that. We take a relatively conservative approach on how we embed those numbers into our plans.

So, it's in there, but we really look to have very clear line of sight to delivery and execution before we put those numbers out into the market. So, I think there is continued upside on the digital front, and that is not fully baked in into 3 to 4 billion, and I would see that as being incremental.


The next question comes from Alastair Syme of Citi. Please go ahead.

Alastair Syme -- Citi -- Analyst

Hi, Ben. Hi, Jessica. Today, you are giving us a new branding. So, a compelling investment thesis.

And we've got a new financial framework for how we should think about capital allocation. But I don't feel like we're really getting anything new or incremental on how you're going to get to higher returns. Does this all really just come in February? Look, I hope I'm not asking a rhetorical question, but I'm just trying to reflect here that your shares are at 24-year lows.

Ben Van Beurden

Yes. Thank you very much, Alastair. Indeed, we have noted that as well. And we believe that for our shares are a fantastic buying opportunity because, of course, the net asset value of the company is a whole lot higher than what we currently see represented in the market cap.

Of course, in February, indeed, there will be more detail on what the plans are. We're not going to be able to tell you that today. And we will have to lay out a pathway of how indeed the different parts of the business will develop. A little bit more on capital, a little bit more on our capital allocation framework and what that means in the path for the future.

But I hope you will also understand, Alastair, that a lot of the performance of the company today, but also in the future, will depend on the macro environment that we will be enjoying or suffering as the case may be. What we intend to do though is to make sure that despite the tough macro that we are experiencing and may continue to experience going forward, we have a strong performance. That means that the company can do what it intends to do and promises -- and what it promises, but also, that it's clearly ahead of our competition. I cannot outrun the macro.

The macro is what it is. But we can make the most of it. And what we also can do is to make sure that we gradually position the company much more for the future of energy rather than the current state of the energy markets. But I'm sure we'll talk again in February.

Thanks, Alastair. Anna, can have the next question, please?


Next question comes from Lucas Herrmann of Exane. Please go ahead.

Lucas Herrmann -- Exane BNP Paribas -- Analyst

Thanks very much, Ben, Jessica. Good afternoon. And also, thanks for the welcome addition of a cleaner framework. Two or three , if I might.

Two are relatively simple. Ben, I just wondered if somebody could comment on chemicals in Pennsylvania and progress and when you think that will actually start producing. Secondly, I wondered whether you could care to make any comments on exploration in Mexico, given the leases that you acquired, where your thoughts are there? And third and probably more challenging, I'm trying to understand how you think the earnings power of your business has changed since your management day 2019? If I go back to that time, clearly, you had an assumption on debt. But I think the indication was that you felt that the business was capable in a 60-ish environment of 55 to 60 billion or so of operating cash flow as we move through the period.

If you were to run your eye across the business today, Ben, where do you think the earnings power resides? Where does it -- where have you seeded? And I guess to some good degree, that ties back to the framework you're establishing today, where you're capex, at this time anyway, is lower. You're talking of a range of returns to shareholders, well it depends on the operating cash flow, but my sense would be where you've been indicating 20 to $25 billion of return to shareholders historically, that number at the moment looks as though it's probably nearing the order of 10 to 15. So, how much is it -- how much of that is other priorities, balance sheet, etc., how much of it, to a degree, is the earnings power of Shell is not what you thought it was or what it was going to be a year ago, perhaps just because the world is different? Sorry, it's so convoluted.

Ben Van Beurden

No, no. I think it's perfectly clear, Lucas. And maybe, Jessica can deal with the question first on what has changed. If the macro would spring back, what would happen to our cash flows, but also what wouldn't happen.

And then, I will take after that, the other two questions on Mexico and Pennsylvania.

Jessica Uhl -- Chief Financial Officer and Executive Director

Really good question, Lucas. So, thank you for that. The fundamentals of the company remains strong, and that is a message we've been trying to get across over the last year, year and a half since MD 19 and particularly during the last few quarters with the pandemic. So, in terms of the fundamentals of the company and the earnings capability in terms of the operational capability, the quality of our assets, I would hope that Q3 would be a way of demonstrating that there continues to be considerable strength in our earnings and cash flow potential of the company.

What's changed, obviously, the macro is fundamentally different. Both in the near term, and I'd say, to some extent, to the medium term. It's going to take a few years for things to normalize. That does put more time on the clock in terms of getting our balance sheet back to where we wanted it to be.

So, it's going to take us a little bit more time in terms of allocating capital to the balance sheet than certainly we anticipated a couple of years ago, which is, I think, one of the points that you raised. So, fundamentals are strong. Pandemic's had a pretty profound effect. And there's also a piece around our strategy in terms of accelerating our strategy a bit.

But I think it's more a story about the macro and the impact on the balance sheet and making sure we're getting the balance right.

Ben Van Beurden

On the two sites that you mentioned. So, Pennsylvania chemicals has, as you can imagine, been impacted by the pandemic. I can't quite remember the statistics, but I think at some point in time, just before the pandemic, we had over 6,000 people on site and then -- and rapid succession that actually came back to dozens, simply because we needed to preserve the safety, health and well-being of our employees. And bear in mind, of course, we are building this cracker in a relatively small community.

Also, in terms of medical facilities, something you have to take into account as well. So, it's back up again. We have a very strict and stringent testing protocol for people coming back to site. We're taking it in a very measured way.

And indeed, we are, again, in the thousands of employees working on the site. And I believe, soon enough, we will be back on sort of maximum capacity that you can imagine for a construction site like this. It will mean that the project is delayed. There is no doubt about it, but not massively so.

So, we are still talking about starting it up in the next few years. We said at the beginning of the decade, we probably have to think about this 2022, I would say, Lucas. The Mexico is very much in the -- of course, in the upstream sort of promising areas. We have, in deepwater, still very much a focus on delivering growth that will offset some of the decline that we will have in other areas.

Mexico is, of course, one of these areas that have to prove itself. But if it does, then the Mexican part of the Gulf of Mexico, we hope, we can count as one of the core areas going forward as well. The program there is on track. So, we are in the process of drilling our first wells.

When exactly we have results, you will have to be a little bit more patient on that, I'm afraid, Lucas. Let me move on to the next question. Anna, who can we bring in?


Thank you. The next question comes from Christopher Kuplent, Bank of America. Please go ahead.

Christopher Kuplent -- Bank of America Merrill Lynch -- Analyst

Thank you. And thanks, Ben and Jessica for this format. Just two follow-ups, I think. Both on capex.

Similar to what Lucas just mentioned, that $30 billion figure still looms large. How much do you regret not being able to spend that much in the next few years, or in other words, what are you willing to sacrifice? What is going slower, and hopefully not just because of COVID restrictions and slowdowns. So, just want a feel, without asking for a new number or an updated guidance that you might give us in February, what you've decided to sacrifice for the coming years compared to the plan you presented last year? And second comment quickly, if I may, on capex for 2020. The run rate suggests you are going to do an awful lot in Q4 with lockdowns more or less still being with us around the world.

So, is there a chance that, on the one hand, 2020 capex might well be pretty much below 20 billion. But at the other end, that you need to catch up in 2021 if conditions allow. Just again, some sort of qualitative commentary as well would be great.

Ben Van Beurden

Fully understood, Chris, and let me just be brief on both of them, but hopefully clear. You're absolutely right. So, we are, at the moment, running at a run rate that is not just at the bottom end of the $19 billion to 22 billion range that we mentioned, but it may well be that we even get below $19 billion. That is not because we have been ultra disciplined.

We have been doing that as well. But it's also because, in some cases, we simply have not been able to continue with our projects. We just mentioned Pennsylvania. There's others where we had to stop work.

That, of course, is not a disciplined way of bringing your capex down. So, indeed, some of it will indeed come back as part of a mini bow wave. But we're very clear, we stay within the 19 to $22 billion spend. Of course, there are regrets, you talk about the $30 billion.

But listen, we were not going to spend $30 billion this year, not even next year in the original idea. The original idea was that if we were going to spend 25 billion this year, and we were going to ramp that up to be in the range of 27 to 32%. Now that's out of the window. It doesn't happen anymore.

At this point in time. Indeed, we have to be much more parsimonious with our capital. And indeed, that means that we have to make regrets. To give you an idea, where the regrets are, they're not in our growth category.

So, where we now spend about 25% of our capex in what we call growth that used to be 11. But it does mean that in areas like, for instance, upstream, where we used to spend close to 50% of our capex, it's now more going to be 35 to 40%. So, indeed, regrets have been made, but choices had to be made simply because of affordability. Anna, can I have the next question, please?


Next question comes from Henry Tarr from Berenberg. Please go ahead.

Henry Tarr -- Berenberg -- Analyst

Hi, there, and thanks for thanks for taking my questions. Two really. One was, when do you expect to hit the 65 billion net debt threshold, given your current environment outlook? And then the second, just on the customer focus that you're talking about. So, how are you aiming to build up customers? And what type of customers are you pursuing? I saw sort of Shell was bidding on a broadband business in the U.K.

recently. I guess that it might be a very small part of the strategy, but are we likely to see more of this type of activity?

Ben Van Beurden

Thanks very much, Henry. And why don't you take the first one, Jessica? I'll talk to customers. And that will, by the way, be our last question as well.

Jessica Uhl -- Chief Financial Officer and Executive Director

In terms of the 65 billion net debt and when -- our expectation around it, I think the best way to consider that question is in the context of how we're currently performing and the actual performance of the company and what we believe is a low moment in the cycle. If I were to try and give you a number or a date one or two years down the road, I'd have to give you a whole suite of assumptions on the macro, on the performance of the company. All of that, of course, is relevant for a company such as ourselves. But what you see in the third quarter is some $9 billion of cash flow from operations, excluding working capital, when oil prices are low, LNG prices are low, where there's very little volatility in trading.

There is a strong marketing business, but a number of our businesses being impacted by the macro environment. So, I think that's a good indication of -- going back to an earlier question, the fundamental earnings and cash flow capability of the company at a low point in the cycle. And so, that, I think, is a good indication. That being said, working capital matters, margining matters.

So, we should expect some fluctuation quarter on quarter. But kind of steady state in terms of the capability of the company. I think Q3 is a good indication.

Ben Van Beurden

OK. Thanks, Jessica. And yes, on customers, let me say the broadband news that I saw as well. Don't consider that to be sort of the mainstay of our growth plans going forward.

But indeed, working from the customer bank is a very important aspect of our growth strategy, and I think a very important aspect to really increasingly clearly get across as a differentiator for our company. We have been a customer-focused company for many, many years, decades. But at some point in time, I think we all know that the appeal of the upstream very much overtook the appeal of serving customers. But in the end, you have to bear in mind, the energy transition is going to be a trend where the power of the customers, the choices that customers make, the demands that society will have also on our customers will determine how the future of energy will look like.

So, we have reorientated ourselves a little bit back again to being a clearly, customer-orientated company. In a way, you could argue, we never lost it because we have a very strong marketing platform that you will have seen performing very well over the last years, if not decades. But we are going to turn that very much into a platform on which we are going to build that future of energy. And that is indeed our 30 million consumers that come to our retail forecourts, for which we will have other value propositions, increasingly also that we serve and that we serve at global companies.

Think of the likes of Microsoft, Google, other companies with which we can have global partnerships to work together on that decarbonization challenge. We believe decarbonization, meeting the Paris agreement is going to be a key driver in how the energy system is shaped. And the energy system will be shaped by our customers, and therefore, we will be part of that journey as well. And that brings me to the end of this session.

So, again, thank you very much for all the questions that you asked. I know there's a few more outstanding, but our IR team will get to you. Thank you very much for joining the call today. And I do hope that we have given you a little bit more clarity on our strategic direction and our financial framework.

But I also hope that we have given you today a real taste of how well positioned we are because we are ready to capture the opportunities and the value that is there in the energy transition. And I also hope it has given you a little bit of hunger to know more about our strategy because it will be a strategy that will deliver. So, there's more to come on this in our strategy day on the 11th of February next year. And in the meantime, have a great rest of the week, and please stay safe, everyone.


[Operator signoff]

Duration: 0 minutes

Call participants:

Ben van Beurden

Jessica Uhl -- Chief Financial Officer and Executive Director

Ben Van Beurden

Oswald Clint -- Bernstein -- Analyst

Thomas Adolff -- Credit Suisse -- Analyst

Christyan Malek -- J.P. Morgan -- Analyst

Biraj Borkhataria -- RBC Capital Markets -- Analyst

Ryan Todd -- Simmons Energy -- Analyst

Michele Della Vigna -- Goldman Sachs -- Analyst

Irene Himona -- Societe Generale -- Analyst

Paul Cheng -- Scotiabank -- Analyst

Jon Rigby -- UBS -- Analyst

Roger Read -- Wells Fargo Securities -- Analyst

Lydia Rainforth -- Barclays -- Analyst

Alastair Syme -- Citi -- Analyst

Lucas Herrmann -- Exane BNP Paribas -- Analyst

Christopher Kuplent -- Bank of America Merrill Lynch -- Analyst

Henry Tarr -- Berenberg -- Analyst

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