Shell today defended handing multi-billion dollar payouts to investors after 2021’s blistering rise in natural gas and oil prices helped propel annual profits to a seven-year high.
The energy giant announced a 4% increase in quarterly dividends to 25 cents (18p) per share and the expansion of its share buyback programme to $8.5 billion (£6. 3billion) after full-year adjusted earnings soared four-fold from £3.5 billion in 2020 to £14. 2 billion.
The recovery sharpened in the fourth quarter, when earnings came in above City forecasts at £8.2 billion compared to a £3 billion loss a year earlier.
CEO Ben van Beurden accepted his company had benefited from “tightness in the market” as millions of UK families face a 54% hike in energy bills.
But he rejected calls for the introduction of a one-off windfall tax on North Sea energy firms, saying he was not convinced imposing a levy on higher profits would resolve issues of “booming demand and struggling supply”.
Very concerning and very extreme
He said: “We are seeing an extraordinary situation globally where demand has run away from us and supply is struggling to keep up.
“It is very concerning and very extreme, particularly for end consumers and those in the middle and lower-income brackets.
“I understand the concerns both from the Government and particularly from consumers when they look at their energy bills, and we have to sit down with the Government to figure out what it is we can do.”
He added: “We are in a position to help and see how the situation can be alleviated and what lessons we can learn to ensure the system is more fit for purpose.”
Shell’s own UK retail operation Shell Energy Retail is “not immune” to the rocketing costs and has fallen into a loss, he said, but has been propped up by the group’s other divisions: “It is a global situation, and not one that can be easily resolved.”
The company cut its dividend for the first time since World War 2 when oil prices briefly went negative at the outbreak of the pandemic. With the latest increase, they remain half the pre-Covid level.
Van Beurden said: “Now that we have been able to rebuild some of the strength back into the company I think it is appropriate that we look at how we payout to shareholders – who include pension funds and of course by and large therefore it is a payout to society as well.
“We continue to invest in the energy transition and supply the energy the world needs today.”
Van Beurden described 2021 as a “momentous” year for the 130-year-old company which abandoned its dual-listed status to relocate the head office and tax base from the Netherlands to London, and dropped “Royal Dutch” from its name.
It also sold off a $9.5 billion Texan oil field, faced attack from environmentalists and activist investors, and became the biggest company on the FTSE 100 with a market cap of £150 billion.
He said the company was watching the situation in the Ukraine “very carefully” and stood ready to divert cargoes of liquified natural gas to Europe if supplies are disrupted.
Shell also paid down $4.9 billion of borrowing in the fourth quarter, reducing net debt to $52.6 billion from $75.4 billion a year earlier.
Neil Shah, director of research at Edison Group, said: “While doubts remain about the company’s ESG strategy and court orders have hit the giant with mandated emission reduction measures, Shell has recovered beyond expectations in 2021 and shareholders will be looking ahead with confidence.”
Shell are generating huge amounts of cash
Stuart Lamont, investment manager at Brewin Dolphin, said: "The rising oil price has lifted Shell and the company’s results are significantly better than they were this time last year.
"Debt has been reduced substantially, helped by the sale of Permain; cash flow is strong; and profits have followed.
"Of course, shareholders will be mindful of the transition period ahead for Shell, as it looks to reduce its carbon emissions and reach net zero.
2021 was a momentous year for Shell.
— Shell (@Shell) February 3, 2022
The progress we made enables us to be bolder and move faster, creating value for shareholders, customers and wider society.
📺 Hear from Shell CEO Ben van Beurden. #ShellResults #PoweringProgress https://t.co/pjmgALUflj pic.twitter.com/6uM7ABz2ry
"However, for now, the company is in good shape, with the shares buoyed by a combination of its share buyback programme, dividend, and the commodity price."
Danni Hewson, at AJ Bell, added: “Shell has been unlucky with its timing, but with BP just days away from its trading update questions about whether a windfall tax is a viable solution to the current energy crisis will hang around.
"Of course, it’s not a straightforward argument, both businesses have a duty to their shareholders, the people who bankroll their operations in good times and in bad.
“Then there is the expectation that 'Big Oil' will fund the 'Big Transition'. Both BP and Shell have made pledges to cut oil and gas output and increase spending on renewables.
"That comes with a significant price tag and there has been growing pressure on both businesses to increase the amount of money they spend on speeding up that transition."
North Sea oil and gas producers should be asked to contribute
Santander said it sees positive trading for Shell shares in the near term and held its out-perform rating.
Steve Clayton, at Hargreaves Lansdown, said: “The numbers are full of adjustments for derivative and inventory gains and losses, but the underlying picture is clear; Shell are generating huge amounts of cash currently and debt levels have dropped.
“Some will argue that Shell could return even more to investors, given today’s announcement of an increase in future quarterly dividends still leaves the payment barely more than half its pre-pandemic level.
“But even at this level the shares offer a prospective yield of almost 4% and we doubt the board will feel they need to offer more.”
Michael Hewson at CMC Markets said: “These are a decent set of numbers, but they also highlight a wider problem in terms of their reliance on their legacy businesses as they transition to renewables, which is a much lower margin business.
“In the short-term profits are likely to remain a tail wind for the oil and gas industry, as the reluctance to invest in transitional capacity as we move towards renewables, continues to underpin prices.
“On the plus side today’s numbers should satisfy activist shareholder Dan Loeb’s Third Point Group and underline the importance of both sides of the business.”
Today’s results intensified calls among the opposition Labour party for energy company’s to pay a windfall levy to fund a £200 rebate to households hit by soaring power bills.
Ed Miliband, shadow secretary of state for climate and net zero, 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.
“Our plan, part paid for with a one-off windfall tax on North Sea oil and gas profits, would save most households £200 off their bills, with targeted support of up to £400 on top of that to the squeezed middle, pensioners and the lowest earners.”
Chancellor Rishi Sunak shrugged off the calls, saying it would deter investment in th eenergy sector.
