Shell sweetens shareholder returns as oil and gas prices boost earnings

Shell will increase its dividend and buy back more shares after high prices for oil and gas helped it deliver bumper full-year earnings after a strong fourth quarter.

The UK-headquartered oil group’s adjusted earnings for 2021 — the profit measure most closely tracked by analysts — rose to $19.3bn from $4.8bn a year earlier when the pandemic hit oil demand.

Earnings for the last three months of the year were $6.4bn, beating average analyst estimates of $5.2bn and up from $393mn in the same period a year earlier and $2.9bn in the fourth quarter of 2019.

Ben van Beurden, chief executive, said 2021 had been a “momentous year” for Shell. “We delivered very strong financial performance . . . and our financial strength and discipline underpin the transformation of our company.”

As a result van Beurden said Shell was “stepping up” its distributions to shareholders with a commitment to buy back $8.5bn in shares in the first half of 2022 and raise its dividend roughly 4 per cent to 25 cents a share in the first quarter.

The bumper profits are likely to increase calls in the UK for oil and gas companies to pay a one-off windfall tax to help support households struggling to pay energy bills amid soaring wholesale prices.

Shell was the sixth-largest gas producer in the UK’s North Sea last year, according to data from consultancy Rystad Energy.

The buyback programme includes the remaining $5.5bn from the sale of Shell’s assets in the US Permian Basin that the company had already promised to return to shareholders, and comes after $3.5bn in share buybacks were completed in 2021.

Shell’s improved figures echoed those of US majors ExxonMobil and Chevron, which in the past week have reported net annual profits in 2021 of $23bn and $15.6bn respectively, the highest since 2014 when crude oil prices last traded above $100 a barrel.

Shell’s performance was driven by its integrated gas, renewables and energy solutions division, which generated more than 63 per cent of group earnings in the fourth quarter as an energy crunch in Europe pushed up natural gas prices.

Shell, the world’s largest trader of liquefied natural gas, said it had benefited from higher prices and “significantly higher trading and optimisation margins”, after overcoming supply problems at some of its facilities that had hobbled performance three months earlier.

The “monster integrated gas earnings” led to “a particularly strong beat on group earnings at $6.4bn, 22% per cent ahead of consensus”, said Biraj Borkhataria at RBC Capital Markets.

“Given a soft trading update ahead of this, the numbers look extremely solid,” Borkhataria added.

The performance is likely to ease some of the pressure on van Beurden after a challenging 2021 in which a Dutch court ruled Shell needed to cut emissions faster and US activist investor Third Point called for the company’s break-up.

The accelerated buybacks have been enabled in part by the simplification of Shell’s Anglo-Dutch structure in December, when it agreed to relocate its headquarters to London and create a single class of shares.

However, the group is still under pressure to demonstrate that its integrated business, combining upstream oil and gas installations, renewable power projects and a downstream network of refineries, petrol stations and vehicle charging points, is the best way to generate value for shareholders through the energy transition.

Shell also paid down $4.9bn of borrowing in the fourth quarter, reducing net debt to $52.6bn compared with $75.4bn a year earlier.