Shell raises dividend after second-highest cash flow in its history

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Shell forecast resilient demand for energy products to continue as it raised the dividend and announced another round of share buybacks after reporting annual profits for 2023 of more than $28bn.

Europe’s largest oil and gas company said on Thursday that adjusted earnings were $28.3bn, down about a third from the record set in 2022 but higher than any other year since 2011. Shell’s $54.2bn in cash flow from operations was the second highest in the company’s history.

“We actually see resilience in the economy at the moment,” chief executive Wael Sawan said in an interview with the Financial Times.

“We will see where the geopolitical considerations take us but so far, so good.”

Shell made adjusted earnings of $7.3bn in the final three months of 2023 beating average analyst estimates of $6.04bn, thanks in part to a strong performance from its giant liquefied natural gas business trading business.

Sawan said Shell was monitoring the situation in the Red Sea, which has forced some companies to divert shipments following attacks by Houthi rebels, but had so far been able to find “different ways” to serve its customers.

“It is a bit easier on crude and LNG, where we are able to tap into various supply points that we have to meet customer demand,” he said. “A bit tougher on [refined] oil products because most of the flows typically go from east to west, so that gets impacted.”

Since taking over as chief executive in January last year, Sawan has sought to improve financial performance by simplifying Shell’s approach to the energy transition.

That process has involved streamlining the senior management team, re-emphasising the oil and gas business and trimming less profitable parts of the company’s low-carbon portfolio.

Shell has also promised to trim costs, pledging to reduce capital spending in the next two years to $22bn-$25bn a year, down from a planned $23bn-$27bn in 2023, and cut group-wide operating costs by $2bn-$3bn by the end of 2025.

Capital expenditure last year was $24.4bn and operating costs had already been reduced by $1bn, Sawan said, adding that spending would be controlled, in the short term, by being more selective about which parts of the energy system Shell invests in.

Last year, Shell spent $5.6bn on low-carbon energy projects, representing 23 per cent of total capital expenditure, Sawan said, highlighting its $2bn purchase of Danish biogas producer Nature Energy. However, he also emphasised the company’s continued investment in fossil fuel projects, which will add at least 200,000 barrels of oil equivalent a day to Shell’s production capacity.

“We have made very clear our focus on performance, discipline and simplification,” Sawan told the FT. “That is at the core of the transformation we are driving here at Shell and . . . we are beginning to see that through the strength of our cash flow from operations.”

Shell, like most of its rivals, has used bumper profits from the past two years to embark on a huge share repurchasing scheme.

In 2023 it distributed $23bn to shareholders, representing more than 42 per cent of cash flow from operations.

On Thursday it announced a further $3.5bn of share buybacks and increased its dividend by 4 per cent to $0.34 a share. It still remains below the $0.47 a share paid each quarter from 2014 to 2019.

The biggest contributor to group profits was once again the integrated gas division, which reported quarterly earnings of $4bn. Shell’s oil division also performed well, generating profits of $3bn underpinned by higher production than the previous quarter, but its refining operations suffered.

In a worrying sign for the global economy, Shell’s chemicals and products division, which produces refined fuels, reported adjusted earnings of just $83mn because of lower refining margins, lower demand and planned maintenance.

Shell’s shares rose 3 per cent to £25.10 by lunchtime in London.

A reference to Shell’s geopolitical considerations in this article has been amended.

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