Royal Dutch Shell Faces Pressure on Buyback Commitment Following Weak Fourth Quarter Performance

Royal Dutch Shell’s fourth quarter 2025 trading update has prompted questions from City analysts regarding the sustainability of its 3.5 billion dollar quarterly share buyback programme, following a performance that fell short of market expectations.

Deutsche Bank and RBC Capital Markets have both characterised the update as underwhelming, citing a combination of operational stability undermined by significant earnings and cash flow challenges. The quarter’s performance has been affected by deferred tax impacts, elevated depreciation charges and increased cash tax liabilities.

Deutsche Bank has taken a notably cautious stance, describing the update as “incrementally negative”. The investment bank has reduced its quarterly earnings estimate by 11 per cent and its cash flow from operations forecast by 6 per cent. Deutsche Bank anticipates broader market consensus will adjust downwards by approximately 5 per cent on earnings and 3 per cent on cash flow metrics.

RBC Capital Markets has adopted a similarly reserved view, labelling the update as “disappointing” and highlighting several additional charges that have weighed on profitability. The Canadian bank has substantially revised its adjusted net income estimate for the quarter from 3.76 billion dollars to 3.32 billion dollars, whilst reducing its underlying cash flow projection from 9.78 billion dollars to 7.45 billion dollars.

The revised forecasts suggest Shell’s cash flow payout ratio will increase to 57 per cent, compared with 49 per cent in the previous quarter. This deterioration raises questions about the company’s ability to maintain its current capital return policy without placing additional strain on its balance sheet.

Market attention has now shifted to whether Shell will uphold its quarterly buyback commitment of 3.5 billion dollars. RBC noted that whilst the elevated payout ratio creates uncertainty, the company has historically demonstrated consistency in maintaining shareholder distributions.

Despite the challenging quarterly results, RBC Capital Markets has retained its ‘Outperform’ rating on Shell shares with a price target of 3,600 pence, implying potential upside of approximately 40 per cent from current levels. This suggests the bank views the recent weakness as a temporary setback rather than a fundamental deterioration in the company’s long-term investment case.

The subdued fourth quarter performance highlights the ongoing pressures facing integrated energy companies as they navigate volatile commodity markets, increasing tax burdens and the capital-intensive nature of energy transition commitments. Investors will be closely monitoring Shell’s full results and management commentary for clarity on capital allocation priorities and the sustainability of current shareholder returns.