Fourth quarter oil major surpasses expectations thanks to gas trading profits
Due to strong performances from its gas trading business, Shell achieved a record annual profit of nearly $40bn in 2022. This was well above market expectations.
The largest European oil and gas company announced Thursday that its adjusted earnings have more than doubled, to $39.9bn. This surpasses the 2008 record of $28.4bn.
These earnings continue a record set for the world’s largest energy companies. They have all benefited from the high prices of hydrocarbons over the past 12 months, amid turmoil in the energy markets due to Russia’s invasion in Ukraine.
The profits made by Shell, its competitors, have led to many calls for higher taxes. Both the UK and EU have both introduced new levies over the past year. Shell stated that it expects to pay $2.3 billion more tax on 2022 earnings due to the combined effect of the EU’s windfall and UK’s energy profits tax.
This week, ExxonMobil reported a $55.7bn profit in 2022. It is the second highest annual earnings of a western oil company after US rival Chevron’s $36.5bn. Next week, BP and France’s TotalEnergies will report. This brings the total profits for the supermajors to nearly $200bn last year.
Shell’s adjusted earnings in the last three months of this year of $9.8bn, which was the second-highest quarterly total in company history, far exceeded analyst estimates of $8bn.
Nearly two-thirds of this came from the gas business which includes one of the largest trading operations for liquefied natural gases in the world. The integrated gas division generated adjusted earnings of $6bn during the last three months of the year. Shell sold 16.8mn tons of LNG in the quarter, up from 15.7mn.
Wael Sawan (Shell chief executive) said that the record results showed “the strength and diversity of Shell’s portfolio, as well our ability to deliver vital energy for our customers in an unstable world”.
Shell’s capital spending guidance for 2023 was unchanged at $23bn to $27bn despite the hydrocarbon-driven boom and activist pressure to invest in low-carbon technology. Sawan stated that Shell intends to be disciplined and deliver compelling shareholder returns.Shell said it had distributed $26bn to shareholders in 2022 including $18bn in share buybacks. The company said it would buy back a further $4bn in stock in the first four months of 2023.
Sawan, who assumed the role of chief executive at January’s start, is in good financial health. However, investors remain concerned about the company’s ability to generate profit as it shifts from oil and natural gas towards low-carbon energy.
The current low-carbon division of Shell, renewables, and energy solutions, still includes trading of piped natural gas, made less than 5% of the group’s 2022 profits.
Sawan announced this week a shakeup of his executive team that will consolidate the company’s low carbon initiatives into one division under the direction of Huibert Vigeveno, the current downstream director.
Shell made several low carbon investments in 2022. This included its acquisition of India’s Sprng Energy for $1.6bn. The $3.5bn Shell spent in total on renewables and energy solutions was just 14 percent of its $24.8bn capital expenditures. It spent $8.1bn on its upstream oil and $4.2bn on its integrated gas divisions.
Mark van Baal, the founder of Follow This activist shareholder group, stated that “Shell cannot claim to be in Transition” as long as fossil fuel investments dwarf investments in renewables.