Shell misses profit expectations, but keeps buyback pace

Shell's fourth-quarter profits missed expectations on Thursday, with an 11% decline to the lowest levels since early 2021 due to lower oil prices. However, it kept its massive share buyback program.

Oil majors are used to large buybacks. However, lower gas and oil prices, ahead of a crude and liquefied gas glut, have led some to speculate that they may be reduced. This is especially true for European companies.

Shell bought back a quarter or $60 billion of its shares in the past four years. This includes $14 billion by 2025.

It is currently paying out more than its target range at a rate of $3.5 billion plus dividends per quarter.

Exxon, the U.S. competitor, pledged to maintain its $20 billion buyback program?steady' this year. Equinor of Norway, on the other hand, reduced its buyback program by 70%.

Business Weighs for Chemicals

Shell's integrated marketing and gas divisions failed to meet analysts' expectations, and its chemicals and products unit suffered a greater loss than expected due to weak oil trading as well as a general chemical market crash that Shell had warned about.

Early trading saw the stock drop 1.9%, underperforming an index decline of 1.6% in European energy.

Shell's definition for net profit, adjusted earnings, came in at $3.3 billion. This is below the average analyst estimate of $3.5 billion.

SHAREHOLDER PAID-OUTS

Shell had set a target of 40% to 50% for the 12-month period. The dividends and share buybacks combined with $2.1 billion raised shareholder payouts in the last four-quarters to 52%.

When asked about this, Chief Finance Officer Sinead Gorman replied to reporters that the range is "sacrosanct".

Shell has increased its quarterly dividend to $0.372 a share as planned. It also achieved $5.1 billion of cost savings out of an?target range of $5 billion to 7 billion by 2028, compared to 2022.

The largest LNG trader in the world reported a fourth-quarter cashflow from operations of $9.44 Billion, which was higher than expected at $7.87 Billion but lower than $13.16 Billion a year ago.

Questions about M&A

RBC analysts noted Shell's reserves life had decreased to 7.8 from 8.9 in 2024. We anticipate that this will raise more questions about Shell's M&A strategy, given the fact that this figure is lower than other peers.

Wael Sawan, the CEO of Shell, warned in March that there would be a gap of 100,000-200,000 barrels of oil equivalent per days by the end this decade between the current potential of Shell and its goal to increase gas production by 1% each year while maintaining oil volumes at the same level.

He said that on Thursday, Shell had largely closed the gap due to acquisitions and improvements made at production fields. This gives Shell more time after 2035 to close a production gap he estimated at 350,000 boed one year earlier.

The average oil price was $63 per barrel, down from $74 per barrel a year ago, and the average European gas cost about 30 euros per Megawatt Hour, down significantly from 43.3 euros.

(source: Reuters)