Shell rakes in hefty profits as it announces $8.5bn buyback plan
Shell surprised analysts with stronger than expected fourth quarter results, quadrupling its yearly profit amid soaring oil and gas prices.
The oil and gas giant’s reported $19.3bn in earnings this year, compared with $4.85bn in 2020, powered by hefty revenues from shipping liquified natural gas (LNG) on the international market and tightening markets.
The most recent three month window was its strongest quarterly performance in eight years, gaining $6.4bn in earnings, while also completing $1.7bn of planned share buybacks.
The oil and gas giant has also announced further buybacks of $8.5bn for the first half of 2022, including $5.5bn as divestment proceeds from its Permian asset sale.
The results also compare favourably to the more ambivalent trading update in January when it warned results could be affected by operational issues and LNG outages.
Cash flow from operations, excluding working capital reached $11.1 billion in the final three months of 2021,
Meanwhile, net debt was reduced by $4.9bn in the fourth quarter to $52.6 billion, down from $57.5 billion in the previous quarter.
The results are the first set of announced quarterly figures since Shell pushed through its move to London and ditched its dual share structure with resounding shareholder approval in December.
Prior to its Dutch departure, the oil and gas giant was consistently at loggerheads with the domestic authorities.
Shell was opposed to the country’s 15 per cent dividend withholding tax and also found itself compelled by courts to lower its net carbon emissions at a faster rate than planned.
Chief executive Ben van Beurden said: “We delivered very strong financial performance in 2021, and our financial strength and discipline underpin the transformation of our company. Today we are stepping up our distributions with the announcement of an $8.5 billion share buyback programme and we expect to increase our dividend per share by around four per cent for the first quarter of 2022.”
Biraj Borkhataria, equity analyst and deputy head of European research at RBC, suggested results were above expectations.
He argued the highlight of the fourth quarter report was Shell’s integrated gas earnings, which generated over $4bn, while the $8.5bn share buybacks were ahead of expectations.
The analyst said: “This ahead of our expectations. We would perhaps expect the underlying run rate to move higher in the second half of the year, if the macro holds, suggesting our 2022 buyback estimate of $11.5bn is potentially conservative.”
Neil Shah, director of research at Edison Group, was also upbeat about the latest results.
He said: “Shell’s impressive upswing in the fourth quarter improves on expectations, as the oil giant profited from increased commodity prices and healthy levels of mobility in 2021, despite various global pandemic restrictions throughout the year. The windfall in earnings has also allowed Shell to purge a substantial amount of borrowing accrued during the pandemic, reducing its net debt by $23bn from 2020 levels.”
UBS has maintained its buy stance towards the company in its latest update, noting Shell’s fourth quarter earnings were 22 per cent above the consensus expectations of $5.2bn.
Alongside broadly positive responses from analysts, Shell has faced fresh criticism from the Labour Party, which recently called for a one-off windfall tax on North Sea oil and gas companies.
Ed Miliband, shadow secretary of state for climate, said: “With oil and gas profits booming in recent months because of the spike in energy prices, it is clearer than ever that the North Sea oil and gas producers who have made a fortune recently should be asked to contribute.”