Summary
- Fourth-quarter profit of $10 bln tops estimates
- Shell to buyback $4 bln in shares
- LNG trading key driver in Q4 profits
Shell (SHEL.L) delivered a record $40 billion profit last year, the energy giant said on Thursday, capping a hectic year in which a rise in energy prices after Russia’s invasion of Ukraine allowed it to give shareholders extraordinary returns.
The British company’s record earnings, which more than doubled from the previous year, match those posted by U.S. rivals earlier this week and are certain to deepen pressure on governments to further increase taxes on the sector.
“We intend to remain disciplined while delivering compelling shareholder returns,” Chief Executive Wael Sawan said in a statement on the first set of earnings since he took control on Jan. 1.
Shell also reported record fourth-quarter profit of $9.8 billion owing to a strong recovery in earnings from liquefied natural gas (LNG) trading, topping analyst forecasts for an $8 billion profit.
The annual profit of $39.9 billion far surpassed the previous record of $31 billion in 2008. It was driven by rising oil and gas prices, strong refining margins, and strong trading.
Earnings from its LNG division hit $6 billion, an all-time high, shored up by strong overall trading earnings owing to the gas price volatility, despite posting a loss in the previous quarter and a sharp fall in liquefaction volumes caused by outages at LNG facilities.
Governments grappling with surging energy bills have responded by imposing windfall taxes on the energy sector, but Britain’s Labour opposition party said Prime Minister Rishi Sunak was not trying hard enough.
“The government is letting the fossil fuel companies making bumper profits off the hook with their refusal to implement a proper windfall tax,” Labour’s climate policy spokesperson Ed Miliband said in a statement.
Shell said it expects to incur nearly $2.4 billion in accounting costs attributed to the windfall levies in 2022, and that it will pay $500 million in cash tax in Britain in 2023.
Buybacks Continue
Sawan, who earlier this week disclosed changes to Shell’s structure, attempted to indicate a sense of continuation of his predecessor Ben van Beurden’s strategy.
“The company is in very good health. We have absolutely the right strategy and my core focus over the coming decade is to make sure that I can support the company as we operationalize strategy,” Sawan told reporters.
Shell will brief investors on its strategy in June.
As previously disclosed, Shell increase its dividend by 15% in the fourth quarter, the fifth raise since it implemented a more than 60% cut in the wake of the 2021 COVID-19 pandemic.
The company also made public a new $4 billion share buyback programme over the next three months, unchanged from the previous three. It bought back $19 billion in shares in the 12 months to February 2023, almost double the total in pre-pandemic 2019.
The profits helped Shell and many other Western energy firms blanket substantial writedowns they took on Russian assets they abruptly exited after the war broke out.
Shell however said on Thursday that it continued to export some LNG from Russia.
Shell aims to establish a big renewables and low-carbon energy business as part of its ambition to significantly cut greenhouse gas emissions in the coming decades.
The company ploughed about $3.5 billion into its renewables and energy solutions business last year, almost 14% of its capital expenditure of $24.8 billion. Capital expenditure this year will reach $23 billion to $27 billion.
“Shell can’t claim to be in transition as long as investments in fossil fuels dwarf investments in renewables,” said Mark van Baal, founder of activist shareholder group Follow This.
The increase in revenue helped Shell substantially reduce its debt to $44.8 billion at the end of last year from $52.6 billion the year before. Its debt-to-capital ratio, known as gearing, fell to 19% from 23.1% the year before.
