Key Moments
- Morgan Stanley raised Shell’s rating to Overweight and increased its price target to 3,780 pence, calling it the sector’s “most compelling risk/reward” opportunity.
- Analysts now expect aggregate oil and gas production for Europe’s “Big Five” to grow 2.9% annually between 2025 and 2030, up from an estimated 1.2% a year ago.
- Shell’s annual dividend per share growth rate is forecast to accelerate to 10% every year into the early 2030s, compared with the 4% rate maintained since 2023.
Shell Elevated to Top Pick on Improved Outlook
Morgan Stanley has upgraded Shell to Overweight and raised its price target on the stock to 3,780 pence, pointing to clearer production visibility and the potential for more rapid dividend growth. The recommendation came as part of the bank’s annual assessment of the upstream portfolios of Europe’s largest integrated oil companies, led by analyst Martijn Rats.
The analysts argued that Shell’s share performance has been constrained more by its dividend policy than by any weakness in the underlying business. They now consider the company the “most compelling risk/reward” opportunity in the sector and have added it as a new top pick, targeting a 15% total shareholder return.
“We see meaningful dividend per share (DPS) acceleration after underlying improvements to the business in recent years,” they wrote. The team projects that Shell’s annual DPS growth rate will increase to 10% every year into the early 2030s, a substantial step up from the 4% growth rate it has followed since 2023.
Dividend Capacity and Capital Framework Underpin Thesis
The analysts highlighted several factors they believe could support faster dividend increases at Shell. These include flexibility within the company’s financial framework, rising confidence in future cash flows under CEO Wael Sawan, and share repurchase programs that have “not re-rated the shares meaningfully.” Together, these dynamics are seen as giving management room to prioritize stronger dividend growth going forward.
Improved Production Visibility Across Europe’s Oil Majors
The report described a notable improvement in production growth prospects for the European energy sector. Analysts now have detailed, bottom-up visibility on production trends out to 2032 for Europe’s “Big Five” oil majors. In the prior year’s review, this level of visibility extended only to 2030.
According to their analysis, combined oil and gas output for these companies is expected to expand by 2.9% per year between 2025 and 2030. This compares with an estimated 1.2% annual growth rate presented a year ago, signaling a stronger medium-term growth trajectory.
| Company / Group | Key Production Outlook Detail | Timeframe |
|---|---|---|
| Europe’s “Big Five” | Aggregate oil and gas production growth of 2.9% annually | 2025-2030 |
| Eni | Strongest upstream growth with 4.5% production growth | To 2030 |
| Equinor | Production projected to fall 18% versus 2025 levels | By 2035 |
BP, Galp, Eni, and Equinor Also Assessed
Alongside Shell, Morgan Stanley reiterated its Overweight rating on BP. The analysts said BP is positioned to “significantly outperform its own target for balance sheet de-gearing.” They noted that BP offers a combination of an appealing valuation, a better upstream outlook, and several potential catalysts.
Galp was singled out for its long-term production profile. The team said the company “provides investors with long-term production longevity in high quality offshore assets” as it advances a corporate reorganization in its downstream activities.
Within the broader peer group, Eni was identified as having the strongest upstream growth trajectory, with expected production growth of 4.5% through 2030. In contrast, Equinor is seen facing the most significant challenges, with production forecast to decline 18% by 2035 compared with 2025 levels.
Sector View Remains In-Line Amid Geopolitical Uncertainty
Morgan Stanley maintained an “In-Line” stance on the wider energy sector. The analysts cited ongoing uncertainty over how conflicts in the Middle East and Eastern Europe might influence commodity prices and inflation. Despite these risks, they argued that the sector’s diversification attributes continue to support at least an in-line weighting in portfolios managed by generalist investors.
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