In a recent announcement, Shell disclosed a 30% decrease in its 2023 profit, totaling $28 billion, attributed to a cooling in energy prices and demand. Despite this decline, the British energy giant increased its dividend by 4% and extended share repurchases. The payouts to shareholders in 2023 amounted to approximately $23 billion, representing over 10% of Shell’s market value, underscoring investors’ emphasis on returns amidst the uncertain future of fossil fuels.
Lower chemical and refining profit margins, coupled with slower fuel sales due to global economic sluggishness, impacted Shell’s 2023 profits. The year saw a robust fourth quarter with adjusted earnings of $7.3 billion, surpassing analysts’ expectations but down from the record $9.8 billion in the previous year.
Notably, strong results in liquefied natural gas (LNG) trading, contributing an estimated $3.5 billion in profits, helped offset weaker refining and oil trading results. However, Shell’s chemicals segment posted a loss of $500 million.
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Looking ahead to 2024, Shell aims to simplify its organization and enhance value delivery with a reduced environmental footprint, according to CEO Wael Sawan.
Despite the profit drop, Shell’s shares experienced a 2.5% increase at 0945 GMT, outperforming industry rivals and rising by over 8% in the past year.
Growing Returns: Dividend Up 4%, Share Repurchases Extended
Shell stands out as the first major energy company to report 2023 full-year results, setting the stage for industry peers Exxon Mobil and Chevron to report later. In a testament to its commitment to shareholders, Shell increased its dividend by 4% from the previous quarter to $0.344 per share, marking a 20% annual increase. This marks the seventh dividend increase since the historic cut in the wake of the COVID-19 pandemic.
In addition to the dividend boost, Shell announced plans to repurchase a further $3.5 billion of its shares over the next three months, maintaining a similar rate to the previous quarter. Shareholder distributions in 2023 totaled around $23 billion, comprising over 40% of its cash flow from operations.
Concerns Amid Lower Free Cash Flow and Impairment Charges
However, a cause for concern arises as Shell’s free cash flow in the fourth quarter dwindled to $7 billion, the lowest in 2023 and less than half of the previous year’s $15.5 billion. The company attributed this decline to pretax impairment charges of $5.5 billion, including reductions in the value of its chemicals business in Singapore, revisions of oil and gas operations in Nigeria, Britain, and North America, and adjustments to LNG production estimates in Australia.
Revamped Strategy and Cost Reductions
Wael Sawan, who assumed the CEO role in January 2023, pledged to overhaul Shell’s strategy by focusing on higher-margin projects, maintaining steady oil output, and increasing natural gas production. This strategic shift involves company-wide staff reductions, including the low-carbon solutions division, aiming to save up to $3 billion.
In the past year, Shell successfully reduced annual costs by $1 billion, as confirmed by Chief Financial Officer Sinead Gorman. The company’s capital expenditure for 2023 reached $24.4 billion and is projected to range from $22 billion to $25 billion in the current year. Shell has also revised its LNG production volume forecast for the first quarter of 2024, following the restart of its Prelude floating LNG facility offshore Australia.
