With $28 billion in the bag, Shell’s 2023 profit attests to oil & gas price slump and LNG trading upturn

UK-headquartered energy giant Shell has disclosed strong operating and financial performance for the fourth quarter and the full year 2023. However, the oil major’s annual profit took a tumble in 2023, dropping by 29% on a year-over-year basis, compared to its highest-ever annual profit, which came to almost $40 billion in 2022. The UK player’s 2023 profit bears witness to the shifts in global energy markets, spotlighting the fall in oil and gas prices and the upsurge in LNG trading.

All energy players, including Shell, managed to score bumper profits during 2022, which was a year for the books due to a rise in energy prices, higher demand for oil and gas production, and tight supply. While energy prices took a downturn in 2023, leading to a steep fall from the highs observed during the year before, the overall profits achieved during the year are far from being negligible.

Shell disclosed on Thursday, February 1, 2024, that the income attributable to its shareholders in the fourth quarter of 2023 nosedived to $474 million, compared to $7.04 billion in the third quarter of 2023 and $10.41 billion in 4Q 2022. Compared with the third quarter of 2023, the decrease in 4Q 2024 reflected higher LNG trading and optimization margins, favorable deferred tax movements, and higher production, offset by lower refining margins, lower margins from crude and oil products trading and optimization, and higher operating expenses.

Moreover, Shell highlighted that the income attributable to its shareholders in 4Q 2023 also included net impairment charges and reversals of $3.9 billion, and unfavorable movements due to the fair value accounting of commodity derivatives, which are encompassed in identified items amounting to a net loss of $6 billion. This compares with identified items in the third quarter of 2023 which amounted to a net loss of $0.1 billion, and mainly related to impairment charges, largely offset by favorable movements due to the fair value accounting of commodity derivatives.

On the other hand, the fall in the full-year 2023 income attributable to Shell’s shareholders of $19.36 billion, compared with $42.31 billion for the full year 2022, reflected lower realized oil and gas prices, lower volumes, and lower refining margins, partly offset by higher LNG trading and optimization margins, and higher marketing margins. By focusing on the portfolio and simplifying the organization, $1 billion of pre-tax structural cost reductions were delivered compared with the full year 2022, mainly driven by divestments.

Additionally, this entailed net impairment charges and reversals of $6.2 billion, and unfavorable movements of $1.3 billion due to the fair value accounting of commodity derivatives. These charges and unfavorable movements are included in identified items amounting to a net loss of $8.2 billion, compared with identified items in the full year 2022 which amounted to a net gain of $1.2 billion.

Wael Sawan, Shell’s Chief Executive Officer, commented: “Shell delivered another quarter of strong performance, concluding a year in which we made good progress across the targets outlined at our Capital Markets Day. As we enter 2024 we are continuing to simplify our organization with a focus on delivering more value with less emissions.

“In 2023, Shell returned $23 billion to shareholders. In line with our progressive dividend policy, Shell is now increasing its dividend by 4%. We are also commencing a $3.5 billion buyback program for the next three months.”

Furthermore, the company’s adjusted earnings in 4Q 2023 – driven by the same factors as income attributable to the firm’s shareholders and adjusted for the identified items and the cost of supplies adjustment of positive $0.8 billion – were $7.31 billion compared to $6.2 billion in the previous quarter and $9.8 billion in 4Q 2022.

Shell’s adjusted earnings of $28.25 billion for the full year 2023, compared with $39.87 billion for the full year 2022, were driven by the same factors as the income attributable to the firm’s shareholders and adjusted for identified items and the cost of supplies adjustment of positive $0.6 billion.

The adjusted EBITDA of $16.34 billion in 4Q 2023, compared to $16.34 billion in 3Q 2023 and $20.6 billion in 4Q 2022, was driven by the same factors as income attributable to Shell’s shareholders. The same goes for the firm’s adjusted EBITDA for the full year 2023, which was $68.54 billion, compared to $84.29 billion for the full year 2023.

The oil major’s cash flow from operating activities for 4Q 2023 was $12.58 billion, compared to $12.33 billion in 3Q 2023 and $22.4 billion in 4Q 2022. According to the company, this was primarily driven by adjusted EBITDA, and a working capital inflow of $3.3 billion, partly offset by tax payments of $3.6 billion, a derivatives outflow of $1 billion, and the timing impact of payments relating to emission certificates and biofuel programs of $0.9 billion.

The working capital inflow mainly reflected inventory movements due to lower prices. The UK giant’s cash from operating activities for the full year 2022 was $54.2 billion, compared to $68.41 billion for the full year 2022, primarily driven by adjusted EBITDA, and a working capital inflow of $7.8 billion, partly offset by tax payments of $13.7 billion and a derivatives outflow of $6.1 billion. The company’s gearing was 18.8% at the end of 2023 and in line with the end of 2022.

Moreover, the firm’s cash flow from investing activities for 4Q 2023 was an outflow of $5.66 billion and included cash capital expenditure of $7.1 billion, and divestment proceeds of $0.6 billion while the cash flow from investing activities for the full-year 2023 was an outflow of $17.74 billion and included cash capital expenditure of $24.4 billion, divestment proceeds of $3.1 billion, interest received of $2.1 billion, and net other investing cash inflows of $1.4 billion.

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At the end of 4Q 2023, Shell’s net debt was $43.54 billion, compared with $40.47 billion at the end of 3Q 2023 and $44.84 billion at the end of 4Q 2022, mainly reflecting share buybacks, cash dividends paid to its shareholders. The total shareholder distributions in 2023 amounted to $23 billion, which is 42% of CFFO. The oil major has now announced a share buyback program of $3.5 billion, expected to be completed by the first quarter of 2024 results announcement.

Shell’s total oil and gas production in 4Q 2023 was in line with 3Q 2023 but LNG liquefaction volumes increased by 3% mainly due to lower maintenance. On the other hand, the oil major’s total oil and gas production for the full year 2023 increased by 2% from levels recorded in 2022, mainly due to the ramp-up of output from new fields in Oman, Canada, Australia, and Trinidad and Tobago, and lower maintenance in Pearl GTL (Qatar) and Trinidad and Tobago.

However, this was partly offset by the derecognition of Sakhalin-related volumes, and production-sharing contract effects in Egypt and Pearl GTL (Qatar), with LNG liquefaction volumes decreasing by 5% mainly due to the derecognition of Sakhalin-related volumes.

Shell is determined to bring more oil and gas alongside low-carbon and renewable energy to the market, based on its 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 company has earmarked 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 wrapped up 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 Masela. This includes the Abadi gas project. The oil major and its partners in the Oman LNG LLC venture also signed an amended shareholders’ agreement during the same month for Oman LNG, extending the business beyond 2024. 

Come December 2023, the UK player announced the final investment decision for Sparta, a deepwater development in the U.S. Gulf of Mexico. Last month, the firm reached an agreement to sell its Nigerian onshore subsidiary, the Shell Petroleum Development Company of Nigeria Limited (SPDC), to Renaissance in a bid to focus on deepwater and integrated gas businesses in the African country.

The company’s cash capital expenditure for the full year 2024 is expected to be within $22 – $25 billion. The production from the Integrated Gas segment is anticipated to be approximately 930 – 990,000 boe/d while LNG liquefaction volumes are forecasted to be around 7.0 – 7.6 million tons, which reflects the return of Prelude after a major turnaround. The UK firm’s Upstream production is slated to be about 1,730 – 1,930 thousand boe/d due to the planned maintenance of deepwater assets.

Meanwhile, the marketing sales volumes are expected to be approximately 2,150 – 2,650 thousand b/d while refinery utilization is estimated to be about 83% – 91%, higher due to completion of planned maintenance activities in North America. Chemicals manufacturing plant utilization is set to be around 68% – 76%.

Shell’s corporate adjusted earnings are expected to be a net expense of approximately $400 – $600 million in the first quarter and a net expense of approximately $1.5 – $2.1 billion for the full year 2024, excluding the impact of currency exchange rate and fair value accounting effects.

“As Shell progresses towards its goal of achieving net-zero emissions by 2050 in an evolving energy marketplace serving a dynamic world, Shell continuously evaluates and updates its energy transition strategy, including its interim targets to reduce the carbon intensity of the energy products it sells,” outlined the UK energy giant.

Therefore, the firm’s 2024 Energy Transition Strategy is due to be published on March 14, 2024, providing an update to shareholders and wider society on the company’s energy transition plans in line with its Capital Markets Day 2023 communications, setting out its climate targets and ambitions for the future.

While the high profits reported by oil and gas companies have run into strong opposition from environmental activists, Big Oil has still managed to navigate through the opposition by using global energy security as its trump card. However, this has not dissuaded climate activists from doing their utmost to stop the development of further fossil fuel projects and push energy companies to come up with plans to accelerate the energy transition journey to clean sources of supply.

The climate campaigners’ zest to force the companies’ hand is hammered home by the pressure 27 investors, who manage more than €3.9 trillion in assets, are trying to put on Shell to pursue decarbonization with more vigor. These shareholders have joined hands with Follow This, a green shareholder group, to co-file a climate resolution, urging the oil major to curb its greenhouse gas (GHG) emissions footprint in line with the Paris Agreement goals.

Aside from this, a lawsuit against Shell’s board of directors – another attempt to put the firm into a tight spot – was thrown out of court last year, preventing ClientEarth, an environmental law charity, from pursuing derivative action over the alleged failure of the oil major’s board to put in place the right decarbonization and net zero tools to move the energy transition engine into high gear in line with the Paris Agreement.

Greenpeace UK is adamant that the UK government needs to force fossil fuel giants like Shell to stop drilling in search of new oil and gas developments and start paying for their alleged climate damage in a bid to hold Big Oil to account.

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In response to Shell’s 4Q and full-year 2024 report, the environmental group, in a dramatic fashion, claimed not only that it would take the average British worker 640,000 years to earn as much as the oil major did last year but also that “if you earned £30,000 a day from when Jesus was born to the present day, you would still not make as much as Shell did in profits last year.”

“While Shell rakes in billions, splashes out on private jets, glossy greenwash adverts and vindictive lawsuits against anyone who stands in their way, ordinary people around the world are suffering from sky-high energy bills and record-breaking climate disasters,” emphasized Greenpeace UK while referring to a multi-million lawsuit Shell is pursuing against it.

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Mathew Lawrence, Director of Common Wealth, noted: “Today’s results have proved yet again that Shell are a fossil fuel company first, renewable investor a very distant second. Their strategy is clear: double down on oil and gas to maximize shareholder wealth, regardless of the consequences for a boiling planet or hard-pressed households. The evidence is incontrovertible. The energy giants will not change course unless the rules that shape their operation are transformed so their investments align with the needs of people and planet.”

Common Wealth claims that Shell spent $2.681 billion on renewables, $12.539 billion on fossil fuels, and $23.774 billion on shareholder payouts in 2023. While pointing the finger at the oil major for “doubling down on fossil fuels” instead of signing up to a pivot to net zero, the think tank underlined that the UK player paid out nearly £154 billion to shareholders since 2010, making its priority clear – “maximizing returns for investors.”

Sophie Flinders, Data Analyst at Common Wealth, said: “Today’s results tell us one thing: Big Oil is one of the biggest barriers to the clean energy transition. Shell has failed to substantially increase their renewable capacity and instead diverted investment into new fossil fuel extraction and the expansion of their existing oil and gas operations.

“This makes sense to them. Their oil and gas segments are profitable and provide significant and reliable returns. But this does not make sense for protecting the planet from the worst of climate breakdown.”

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Common Wealth is convinced that Big Oil cannot be relied on for the green transition, thus, it underscores that the world needs public investment and coordination to deliver “a secure and just transition for the public and the planet.”

Commenting on Shell’s full-year profits, Sharon Graham, the UK’s Unite the union General Secretary, emphasized: “Shell continues its profiteering spree, raking in a staggering £42 billion – the second highest earnings in the company’s history.

“Once again, a profiteer is allowed to plow billions into share buybacks to boost returns for shareholders that could be better used to bring down our energy bills. It’s time to pull the plug on energy profiteering.”

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