Shell announced plans to buyback another $3.5 billion in its shares, after its fourth-quarter profit exceeded expectations. This was helped by an “exceptional performance” by its gas trading division.
The company’s profits dropped from their record-breaking levels in 2022 due to lower oil and gas prices, but they were still its second highest annual earnings in over a decade.
The biggest oil and natural gas group in Europe reported a profit adjusted to $7.3 billion for the last three months of 2018. This is down from $9.8 billion earned during the same period of 2022. The decline was not as severe as expected due to the strong performance of both Shell’s trading and oil and natural gas production businesses. Analysts in the city had predicted that Shell’s profit for its fourth quarter would fall to just below $6.04 billion.
The adjusted earnings for 2023 are $28,2 billion. This is down from $39.9 in 2022 as the oil and gas prices have fallen from their highs caused by Russia’s invasion Ukraine. Last year, revenue was $317 billion compared to $381 billion in the previous year.
Wael Sawan who became Shell’s CEO in January 2023 said that the trading division had benefitted from the volatility of global prices for liquefied gas in the fourth quarter as well as the increased demand from buyers stocking up before the winter.
Sawan, 49 said, “As we enter the first month of the quarter, the prices have dropped and arbitrage opportunities are fewer, so there is not the same momentum as we experienced in the fourth quarter.”
Shell, which is the largest LNG trader in the world, has been managing disruptions in the Red Sea shipping routes, by diverting LNG cargoes to western customers and doing the same thing in the east, to ensure the company honours its contracts.
He said that the US has a limited amount of spare capacity and the oil flow is usually from east to the west. He said that European diesel imports will be the most affected, mostly from a price perspective, as shipping delays factor into prices.
Shell’s integrated Gas division achieved an average LNG price of $65 per barrel during the 4th quarter. This was down from $69.6 per barrel for the same period in 2020. Shell’s oil and production division saw its oil prices drop to $80 per barrel from $82.42.
Wael Sawan is the CEO of Shell and has implemented a “structural costs reduction” strategy.
The FTSE 100 group rewarded its investors by announcing that it would purchase $3.5 billion worth of shares in the next three-month period, a buyback equal to the $3.5 billion purchased during the previous quarter. This was the sixth quarter in a row that the company announced buybacks between $3 billion and $4 billion. Sawan stated that share buybacks will continue to be preferred over acquisitions.
He said: “That shows consistency, predictability and that we deliver what we promised,”
The buybacks are on top of a 20 percent increase in the dividend for the fourth quarter, which now stands at 34.4 cents per share.
Sawan, who was appointed as the new CEO, has implemented a “structural costs reduction” strategy. He plans to reduce the operating expenses of the company by $2 to $3 billion between now and 2025. Of that amount, $1 billion has already been reduced. The capital expenditure guidance for the year has been maintained between $22 billion to $25 billion. This would be a drop from the $24.4billion spent last year.
Shell shares rose by 59p or 2.4% to £25.06.
Shell’s position as the largest trader in liquefied gas in the world has been a boon to the company, given the volatility of fuel prices since the start of the Ukraine war (Emma Powell).
Shell’s integrated division of gas achieved a profit that exceeded expectations in the fourth quarter by exploiting the differences between gas prices in Asia and the West.
The adjusted earnings for the integrated business of the energy giant’s trading division and optimisation were $3.96bn in the third quarter. This is down from $5.97bn in the same period last year. This was against the consensus forecast of $3.4 billion.
Shell can profit from the fluctuation in gas prices by purchasing LNG cargoes and contracts, and then selling them when and where the prices are higher. Shell also trades a portion the LNG produced at its facilities.
Concerns about energy security have led to an increase in demand for LNG by European buyers who are trying to reduce their dependence on Russian pipeline supplies. In addition, efforts to move away from dirty fossil fuels like coal have resulted in increased orders from markets including India and China.
Last month, President Biden issued an executive order suspending export permits for new gas terminals. This put a halt to the surge of American LNG exports over the last seven years.
Shell boss Wael Sawan said the hiatus of new licences will not impact gas supply in immediate future. However, he added that it “undermines some confidence in longer-term LNG supplies and raises concerns by buyers about the predictability of supply.”
Shell and its competitors have historically disclosed little about trading, but now they are sharing more. Shell’s report confirms that oil and product trading will generate earnings of $2.3 billion by 2022.