Buffeted by market volatility, Shell’s profit slumps but overall performance remains ‘strong’

UK-headquartered energy giant Shell has joined its peers in posting solid operating and financial performance for the third quarter of 2023, however, the oil major’s profit has seen better days, as it fell by more than 30% on a year-over-year basis driven by a drop in oil and gas prices.

Even though oil majors’ profits are not even close to the bumper levels observed throughout 2022, the business is still booming for most, albeit to varying degrees. In line with this, TotalEnergies recorded a net income of $6.7 billion while Eni’s adjusted profit before tax was €3.3 billion in 3Q 2023, marked by a weaker scenario with the Brent price down by 14% and the benchmark gas price down by more than 80%.

BP’s underlying replacement cost profit for 3Q 2023 was $3.3 billion, compared with $2.6 billion for the previous quarter and $8.15 billion in 3Q 2022. On the other hand, ExxonMobil and Chevron announced earnings of $9.1 billion and $6.5 billion, respectively.

Shell, just like other energy giants, is actively pursuing more oil and gas alongside low-carbon and renewable energy, which is in line with the company’s plans to spend around $40 billion on its Integrated Gas and Upstream businesses while investing $10-15 billion from 2023 to 2025 to support the development of low-carbon energy solutions, including biofuels, hydrogen, electric vehicle charging, and carbon capture and storage (CCS).

As the UK-headquartered giant believes that LNG will play “an even bigger role” in the energy system of the future than it plays today, the firm intends to spend about $13 billion a year during this decade on oil and gas with a focus on LNG, which adds up to potentially over $100 billion in total by 2030.

Shell’s LNG hopes are supported by the International Energy Agency’s latest report, which forecasts that a surge in new LNG projects will ease prices and gas supply concerns, thanks to projects that are coming online from 2025. This rise in capacity is set to add more than 250 billion cubic meters per year of new capacity by 2030, equivalent to around 45% of today’s total global LNG supply. The United States and Qatar are expected to account for 60% of this increase.

Shell’s income attributable to its shareholders totaled $7.04 billion in 3Q 2023, compared to $3.13 billion in the second quarter of 2023 and $6.74 billion in 3Q 2022. Compared with the second quarter of 2023, the increase mainly reflected higher refining margins, higher realized oil prices, higher LNG trading and optimization results, and higher Upstream production, partly offset by lower Integrated Gas volumes.

In addition, the company highlighted that the income attributable to its shareholders entailed impairment charges, largely offset by favorable movements due to the fair value accounting of commodity derivatives. These charges and favorable movements are included in identified items amounting to a net loss of $0.1 billion in 3Q 2023, compared to identified items in the second quarter of 2023, which amounted to a net loss of $1.6 billion and mainly related to net impairment charges and reversals of $1.7 billion.

The income attributable to the company’s shareholders totaled $18.9 billion for the first nine months of 2023, compared to $31.9 billion in the same period last year, which is a 41% drop, primarily reflecting lower realized oil and gas prices, lower volumes, and lower refining margins, partly offset by higher Marketing margins and higher LNG trading and optimization results.

Net impairment charges and reversals of $2.3 billion, which are included in identified items amounting to a net loss of $2.2 billion are also encompassed within the figure for the first nine months of 2023. This compares with identified items in the first nine months of 2022 which amounted to a net loss of $0.3 billion.

Wael Sawan, Shell’s Chief Executive Officer, commented: “Shell delivered another quarter of strong operational and financial performance, capturing opportunities in volatile commodity markets. We continue to simplify our portfolio while delivering more value with less emissions.”

The UK player’s adjusted earnings in 3Q 2023 – driven by the same factors as income attributable to its shareholders – were $6.2 billion, compared to $5.07 billion in the previous quarter and $9.5 billion in 3Q 2022. Shell’s adjusted earnings for the first nine months of 2023 were $20.4 billion, compared to $30.05 billion in the first nine months of 2022, representing a 30% fall.

Shell’s adjusted EBITDA for the third quarter of 2023 was $16.34 billion, compared to $14.44 billion in 2Q 2023 and $21.5 billion in 3Q 2022. On the other hand, the company’s adjusted EBITDA for the first nine months of 2023 was $52.2 billion, compared to $63.69 billion for the first nine months of 2022, which is an 18% decrease.

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The firm’s cash flow from operating activities for the third quarter of 2023 was $12.3 billion, compared to $15.13 billion in 2Q 2023 and $12.54 billion in 3Q 2022. This is primarily driven by adjusted EBITDA, and a working capital inflow of $0.4 billion, partly offset by tax payments of $3.2 billion and derivatives of $2.5 billion. The working capital inflow mainly reflected accounts receivable and payable movements, partly offset by inventory movements due to higher prices and higher volumes.

Additionally, the cash flow from operating activities for the first nine months of 2023 was $41.6 billion, compared to $46 billion, showing a 10% drop primarily driven by adjusted EBITDA, and working capital inflow of $4.5 billion, partly offset by tax payments of $10.1 billion and derivatives of $5.1 billion.

The UK oil major’s cash flow from investing activities for the third quarter of 2023 was an outflow of $4.8 billion and included cash capital expenditure of $5.6 billion and divestment proceeds of $0.3 billion. During the first nine months of 2023, the cash flow from investing activities was an outflow of $12.1 billion, including cash capital expenditure of $17.3 billion, divestment proceeds of $2.5 billion, and net other investing cash inflows of $1.2 billion.

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At the end of 3Q 2023, Shell’s net debt was $40.5 billion, compared with $40.3 billion at the end of 2Q 2023 and $48.34 billion at the end of 3Q 2022. On the other hand, the firm’s gearing was 17.3% at the end of the third quarter of 2023, in line with the end of the second quarter of 2023, and lower than 20.3% from the end of 3Q 2022. The energy giant’s total oil and gas production in the third quarter of 2023 decreased by 9% compared to 2Q 2023 mainly due to higher planned maintenance at Prelude, in Trinidad and Tobago and production-sharing contract effects in Pearl GTL.

The company’s total oil and gas production, compared with the first nine months of 2022, increased by 3% due to lower maintenance in Pearl GTL, Trinidad and Tobago, and the ramp-up of new fields in Oman and Canada, partly offset by the derecognition of Sakhalin-related volumes, and production-sharing contract effects in Pearl GTL. In line with this, Shell’s LNG liquefaction volumes decreased by 7% mainly due to the derecognition of Sakhalin-related volumes.

Furthermore, the oil major announced the start of gas production in August 2023 at the Timi platform in Malaysia under the SK318 production-sharing contract. The firm completed the sale of its participating interest of 35% in Indonesia’s Masela production-sharing contract in October 2023 to Indonesia’s PT Pertamina Hulu Energi and Petronas. This includes the Abadi gas project. During the same month, Shell and its partners in the Oman LNG LLC venture signed an amended shareholders’ agreement for Oman LNG, extending the business beyond 2024.

Shell’s Renewables and Energy Solutions segment saw a loss in adjusted earnings of $67 million in 3Q 2023, compared with a profit of $228 million in 2Q 2023 and $383 million in 3Q 2022. Compared with the second quarter of 2023, the adjusted earnings are lower mainly driven by lower margins due to seasonal impacts, primarily in Europe, and lower trading and optimization results.

This also included favorable movements of $506 million due to the fair value accounting of commodity derivatives, a gain of $312 million mainly related to a previously novated gas supply contract, partly offset by losses of $76 million on the sale of assets and $75 million of net impairment charges and reversals.

Most of the UK player’s Renewables and Energy Solutions activities were loss-making in the third quarter of 2023, partly offset by positive adjusted earnings from trading and optimization. The segment’s cash flow from operating activities for 3Q 2023 was primarily driven by cash outflows related to derivatives of $1,407 million, and tax payments of $258 million, partly offset by working capital inflows of $1,188 million.

According to Shell, its cash capital expenditure for the full year 2023 is anticipated to be approximately $23 – $25 billion. The company’s Integrated Gas production is expected to be around 870 – 930 thousand boe/d while LNG liquefaction volumes are projected to be about 6.7 – 7.3 million tonnes. This outlook reflects ongoing maintenance at Prelude and lower expected liquefaction volumes from Egypt.

Moreover, the firm’s Upstream production is forecasted to be approximately 1,750 – 1,950 thousand boe/d with the production outlook reflecting the closure of the Groningen gas field. Marketing sales volumes are expected to be around 2,250 – 2,750 thousand b/d while refinery utilization is projected to be about 75% – 83%, due to planned maintenance activities in North America. Aside from this, chemicals manufacturing plant utilization is anticipated to be approximately 62% – 70%.

The oil major further reveals that its corporate adjusted earnings are expected to be a net expense of approximately $550 – $750 million in the fourth quarter of 2023 and a net expense of around $2,750 – $2,950 million for the full year 2023, excluding the impact of currency exchange rate and fair value accounting effects.

Shell highlighted that its total shareholder distributions in the third quarter of 2023 amounted to $4.9 billion comprising repurchases of shares of $2.7 billion and cash dividends paid to its shareholders of $2.2 billion. Dividends declared to the oil major’s shareholders for the third quarter of 2023 amount to $0.3310 per share. The company has now completed the previously planned $3 billion of share buybacks and disclosed a share buyback program of $3.5 billion, which is expected to be completed by the fourth quarter 2023 results announcement.

“Shell is commencing a $3.5 billion buyback program for the next three months, bringing the buybacks for the second half of 2023 to $6.5 billion, well in excess of the $5 billion announced at Capital Markets Day in June. This takes total announced shareholder distributions for 2023 to ~$23 billion,” added Sawan.

Following Shell’s 3Q 2023 results, a new Global Witness analysis points out that the UK giant has paid dividends of £9.5 billion ($11.6 billion) and repurchased shares worth £21 billion ($25.6 billion), giving shareholders a total of £30.5 billion ($37.3 billion) since April 2022. The NGO said that these shareholder payouts could have bought every Londoner needing a ULEZ-compliant car a new electric vehicle and still left shareholders £10 billion.

Jonathan Noronha-Gant, Global Witness, Senior Campaigner, stated: ‘’Shell’s shareholders remain some of the biggest winners of Russia’s brutal war in Ukraine and ongoing global instability. The turmoil in fossil fuel markets allows Shell to rake in enormous profits – but instead of investing in clean energy, the company has doubled down on oil, gas, and shareholder payouts.”

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Shell’ is not the only oil major whose shareholders payout came under scrutiny. After BP posted its 3Q profits of $3.3 billion, another Global Witness analysis found that the UK giant paid dividends of $7.9 billion and repurchased shares worth $16.6 billion, giving shareholders a total of $24.5 billion since January 2022. The multi-billion shareholder payouts, which BP and other U.S. and European oil majors have dished out since 2022 have come under fire from various non-governmental organizations (NGOs) and environmental groups due to the cost-of-living crisis, rekindling calls for a higher windfall tax, especially in the UK.

However, these are BP’s global profits which Britain has no tax jurisdiction over, as the firm already paid its share related to the UK’s Energy Profits Levy (windfall tax) in 3Q 2023. Many industry experts continue to point out that the United Kingdom has the highest tax rate, which is threatening to drive out investors and drive up imports, leaving consumers increasingly exposed to global shortages.

In the meantime, Global Witness underlines that TotalEnergies paid around $26.5 billion to shareholders since April 2022 with $11.9 billion paid in 2023. The U.S. oil majors have given their shoulders even more than their European counterparts. In line with this, ExxonMobil takes the top spot when it comes to this, as it gave shareholders a total of $54 billion since January 2022 and its shareholder payouts in 2023 total $24 billion.

Chevron came in second, as the firm handed shareholders a total of $42 billion since January 2022. Global Witness claims that the oil major’s shareholder payouts in the first nine months of this year alone are 20 times higher than the company’s entire 2022 investment in renewable energy.

With both the United Nations and the International Energy Agency saying that no new oil and gas projects are compatible with the 1.5 C warming goal, five oil majors – BP, Chevron, ExxonMobil, Shell, and TotalEnergies – are being criticized for the amount they intend to spend on oil and gas. Based on an analysis of Rystad Energy data by Global Witness, these five giants are set to spend $15 million every single hour between now and 2030 producing more oil and gas.

After the UN’s Global Stocktake showed that governments were failing to deliver on their promise of keeping global heating below 1.5 C under the Paris Agreement, the NGO underlines that its analysis shows how the oil and gas industry is continuing to pour “vast resources” into the long-term production of “planet-wrecking fossil fuels.” The analysis points out that ExxonMobil will be the biggest spender at $851 billion, followed by Shell with $696 billion, while TotalEnergies is on course to spend $637 billion, Chevron $590 billion, and BP $362 billion.

Global Witness’ analysis further shows that these five oil majors are forecast to spend $3.1 trillion by 2050, on both existing and new oil and gas extraction – one-third more than the companies spent over the past 25 years, which was $2 trillion. When taking into consideration not only known reserves but also probable oil and gas reserves that are yet to be discovered, the total forecast increases to $3.8 trillion, and close to half of this amount, or $1.8 trillion, is expected to be spent on the extraction of new oil and gas, as opposed to projects where drilling is already taking place.

Sarah Biermann Becker, Senior Investigator at Global Witness, said: “Wildfires, floods, heatwaves are the new global reality, but for the oil and gas industry it’s business as usual. This is a crisis with millions of victims already and many more to come. The immediate priority must be to stop its number one cause – the extraction and burning of coal, oil and gas. Peel back the lofty claims and greenwash, and these numbers make it absolutely crystal clear.

“Energy giants like Exxon and Shell will keep putting the future of the planet in jeopardy and injecting trillions of dollars into new oil and gas unless they are forced not to. As ever, it is profit over people, financial gains over our futures, and oil and gas extraction over everything. It adds insult to injury that this eyewatering spending comes off the back of record profits for these companies, during an energy crisis that has seen energy bills go through the roof for millions.”

Global Witness uses the UN’s 2021 global emissions gap report to justify its opposition to further investment in oil and gas, as the report showed that governments’ energy plans would lead to about 57% more oil, and 71% more gas in 2030 than is consistent with limiting global warming to 1.5 C, meaning that at least half of oil and gas spending by 2030 is not consistent with the Paris Agreement.

An analysis from August revealed that these five oil majors were forecasted to produce oil and gas, which when burnt, would emit nearly 47 billion tonnes of CO2 by 2050 – equivalent to almost 1/8 of the remaining global carbon budget for staying below 1.5 C. With this at the forefront, Global Witness concludes that fossil fuels are “the largest contributor to global climate change and responsible for almost 90% of all carbon dioxide emissions.”