In a disappointing turn of events, Shell has reported a significant decline in its fourth-quarter profits, marking the lowest earnings level since early 2021. The energy giant’s net profit for the quarter reached US$3.3 billion, falling short of analysts’ expectations of US$3.5 billion. This downturn is largely attributed to weaker oil prices, yet Shell remains committed to its expansive share buyback programme.
A Closer Look at Fourth-Quarter Results
The latest figures reveal an 11 per cent drop in Shell’s profits, reflecting the challenges faced by major oil companies in the current market landscape. Despite the dip, Shell has continued its aggressive buyback strategy, having repurchased approximately US$60 billion worth of its shares over the past four years. This includes US$14 billion earmarked for buybacks in 2025. Currently, Shell is maintaining a buyback pace of US$3.5 billion per quarter, alongside dividend payments, surpassing its target payout range.
The performance of Shell’s integrated gas and marketing sectors also fell short of expectations. Additionally, the company’s chemicals and products division reported a deeper loss than anticipated, exacerbated by a downturn in oil trading and a significant slump in the chemicals market that Shell had previously indicated. Following the announcement, Shell’s stock price dropped by 1.9 per cent, underperforming against a 1.6 per cent decline in the European energy index.
Competitors’ Strategies and Market Reactions
While Shell continues its buyback programme, other oil majors are adjusting their strategies in response to fluctuating market conditions. U.S. rival ExxonMobil announced that it distributed US$17.2 billion in dividends and repurchased US$20 billion in shares last year, with plans to maintain this level of buybacks in 2025. Conversely, Norway’s Equinor has drastically reduced its buyback programme by 70 per cent in light of the current market dynamics.
Shell’s chief financial officer, Sinead Gorman, addressed shareholder concerns, affirming the company’s commitment to its payout targets. With 52 per cent of operating cash flow allocated to shareholder returns over the last four quarters, Shell is exceeding its stated goal of 40 to 50 per cent.
Future Outlook and Challenges Ahead
In response to the ongoing challenges in the energy sector, Shell has taken steps to enhance its financial performance, including a planned 4 per cent increase in its quarterly dividend to US$0.372 per share. The firm has also achieved US$5.1 billion in cost reductions, aiming for a total savings of between US$5 billion and US$7 billion by 2028 compared to 2022 figures.
However, analysts from RBC have raised concerns regarding Shell’s reserve life, which has decreased from 8.9 years in 2024 to 7.8 years currently. This decline could intensify scrutiny over Shell’s mergers and acquisitions strategy aimed at replenishing its reserves.
In terms of market performance, Brent crude futures averaged around US$63 per barrel during the quarter, a notable drop from approximately US$74 a year earlier. Similarly, the benchmark Dutch gas contract at the TTF hub averaged about €30 per megawatt-hour, down from €43.3 in the same period the previous year.
Why it Matters
The financial struggles faced by Shell underscore the broader volatility within the oil and gas sector, particularly as companies navigate the dual pressures of fluctuating commodity prices and increasing shareholder expectations. As Shell continues to balance its ambitious share buyback programme with the realities of a challenging market, the implications for its long-term strategy and investor confidence will be closely monitored. The company’s ability to adapt in this evolving landscape will be crucial for maintaining its position as a leader in the global energy market.
